Table of Contents

Back to OverviewRecovery of Damages for Bad Faith
5th Edition

By John C. McCarthy

(supplemented January 2018)

Back to Overview

Volume 1

Volume 2

Volume 1

Chapter 1:
Direct Coverage Actions

I. Contract Liability

A. Availability of Extracontractual Remedies
B. Relationship Between Insurer and Insured
C. Rule of Foreseeability: Hadley v. Baxendale

1. Foreseeability in Insurance Cases
2. Foreseeability of Mental Distress

II. Tort Liability

A. Introduction
B. Bad Faith

1. Implied Covenant of Good Faith and Fair Dealin
2. Development of the First-Party Bad Faith Doctrine – Landmark Cases
3. Meaning of Term “Bad Faith”
4. Types of Bad Faith Conduct
5. Defenses in Bad Faith Cases
6. Exclusiveness of Statutory Remedies
7. Status of First-Party Bad Faith Tort Doctrine by Jurisdiction
8. Extensions of Bad Faith Tort Liability Beyond Insurance Context

C. Intentional Interference With a Protected Property Interest
D. Intentional Infliction of Emotional Distress

1. Recovery in the Absence of Other Injury
2. Necessary Allegations and Proof

E. Fraud

1. Elements of the Cause of Action
2. Types of Insurer Misrepresentations

III. Damages in First-Party Bad Faith Cases

A. Compensatory Damages

1. General Principles
2. Economic Loss
3. Emotional Distress
4. Attorney’s Fees

B. Punitive Damages

1. Availability in Bad Faith Cases
2. Requirement of Actual Damages
3. Ratio Between Compensatory and Punitive Damages
4. Significance of Insurer’s Financial Worth
5. Effect of Jury Passion or Prejudic
6. Effect of Statute on Availability of Punitive Damages
7. Particular Cases by Jurisdiction

Chapter 2:
Excess Liability Actions

I. Theories of Excess Liability

A. Introduction

1. In General
2. Insurer’s Right To Control Settlement

B. Insurer’s Liability for Bad Faith

1. Origin of Duty To Act in Good Faith
2. Formulation of Standard for Insurer’s Conduct
3. Application of Duty

C. Insurer’s Liability for Negligence

1. In General
2. Relationship to Liability for Bad Faith
3. Negligence and Bad Faith as Alternative Standards
4. Application of Duty

D. Insurer’s Liability Under Other Theories

5. Strict or Absolute Liability
6. Breach of Fiduciary Duty
7. Violation of Statutory Duty

E. Liability of Attorneys and Other Agents and Employees

II. Establishing Bad Faith

A. Required Proof

1. In General
2. Multiplicity of Factors

B. Factors Suggesting Bad Faith

1. Failure To Advise Insured
2. Failure To Settle
3. Failure To Defend

III. Insurer’s Defenses to Liability for Excess Judgment

A. Defenses Predicated on Insured’s Conduct or Status

1. Insured’s Inaccurate or Inconsistent Statements
2. Insured’s Failure To Cooperate With Insurer
3. Insured’s Failure To Demand That Insurer Accept Settlement Offer
4. Insured’s Failure To Defend Following Insurer’s Refusal To Defend
5. Insured’s Insolvency or Nonpayment of Excess Portion of Judgment
6. Insured’s Agreement To Hold Insurer Harmless
7. Insured’s Collusion With Claimant

B. Defenses Predicated on Claimant’s Conduct

1. Claimant’s Failure To Propose Settlement Within Policy Limits
2. Claimant’s Failure To Allow Reasonable Time for Insurer’s Consideration of
3. Settlement Offer
4. Claimant’s Ineffective Settlement Offer
5. Claimant-Assignee’s Failure To Cooperate With Insurer

C. Defense Predicated on Insurer’s Conduct: Lack of Causation Between Insurer’s Conduct and Excess Judgment
D. Statute of Limitation

IV. Third-Party Judgment Creditor’s Right of Action

A. Right to Direct Suit for Excess Judgment Against Insurer

1. In General
2. Effect of Direct Action Statutes
3. Effect of Policy Provisions

B. Assignment of Excess Liability Action by Insured

1. Practical Considerations
2. Assignability of Claim to Judgment Creditor
3. Survivability of Decedent Insured’s Cause of Action
4. Assignment by Insured’s Trustee in Bankruptcy
5. Prejudgment Assignment by Insured

V. Damages

A. Factors Affecting Recovery
B. Compensatory and Consequential Damages

1. Amount of Excess Judgment
2. Contribution to Settlement
3. Other Financial Losses
4. Emotional Distress
5. Attorney’s Fees

C. Punitive Damages

1. In General
2. Breach of Duty To Settle
3. Breach of Duty To Defend
4. Nonrecoverability by Judgment Creditor

Volume 2

Chapter 3:
Pretrial Procedure

I. Plaintiff’s Preliminary Steps

A. Preparing for Initial Client Interview

1. Checklist: Gathering Client Data
2. Rules Governing Policy Interpretation
3. Recognizing Tortious Conduct

B. Evaluation of Case

1. If Accepte
2. If Refused: Sample Lette

C. Retainer Agreement

1. When Attorney’s Fees Are Recoverable
2. Contingency Fees
3. Form of Agreement

D. Communications With Insurer

1. Sample Letter Seeking Clarification From Insurer
2. Insurer’s Waiver

E. Review of Insurance Policy

1. What Documents Constitute Policy
2. Interpretation of Insurance Policy
3. Consequences of Insurer’s Denial
4. Seeking Judicial Interpretation

F. Interviewing Witnesses
G. Determining Parties

1. Plaintiffs
2. Defendant

II. Insurer’s Preliminary Steps

A. Evaluation of Case

1. Payment of Claim
2. Nonpayment of Claim: Sample

B. Preliminary Negotiations
C. Declaratory Relief Action

III. Arbitration

A. Judicial Arbitration
B. Policy-Required Arbitration

IV. Settlement

A. Plaintiff
B. Defendant

V. The Complaint

A. General Considerations

1. Choosing Causes of Action
2. Verification
3. Attaching Policy as Exhibit

B. Causes of Action

1. Breach of Covenant of Good Faith and Fair Dealing (Bad Faith
2. Breach of Fiduciary Relationship
3. Interference With a Protected Property Interest
4. Intentional or Negligent Infliction of Emotional Distress
5. Fraud or Deceit
6. Breach of Contract
7. Declaratory Relief

C. Alleging Agency Relationship
D. Alleging Ratification
E. Alleging Damages

1. Compensatory Damages
2. Punitive Damages

F. Sample Complaint

VI. Defendant’s Responsive Pleadings

A. Demurrer: Sample Form
B. Answer: Sample Form
C. Cross-Complaints

1. Cross-Complaint for Declaratory Relief
2. Cross-Complaint for Rescission of Policy
3. Cross-Complaint for Comparative Bad Faith

D. Defense Motions

1. Punitive Damages
2. Change of Venue

E. Petition To Remove: Sample Form

VII. Discovery by Plaintiff

A. Production of Documents

1. Attorney-Client Privilege and Work Product Rule
2. Discovery of Similar Claims Files

B. Sample Request for Production of Documents
C. Interrogatories: Sample Interrogatory

1. To Determine Whether “Offsets” Were Applicable to Payment of Benefits
2. Regarding Records Relating to Plaintiff’s Claim
3. Establishing Scope of Authority of Employees Who Denied Plaintiff’s Claim for Benefits
4. Regarding Ratification of Employee’s Decision To Deny Claim for Benefits
5. Regarding Insurer’s Financial Condition

D. Depositions
E. Requests for Admission
F. Preparing Plaintiff for Deposition

VIII. Discovery by Defendant

A. Production of Documents
B. Sample Request for Production of Documents
C. Interrogatories and Depositions

1. Basic Guidelines
2. Sample Interrogatories

D. Requests for Admission

Chapter 4:
Trial and Posttrial Procedures

I. Trial A. Motion in Limine: Sample Form

1. Plaintiff
2. Defendant

B. Motion To Bifurcate Issues
C. Jury Selection

1. Plaintiff
2. Defendant

D. Opening Statement

1. Plaintiff
2. Defendant

E. Presenting Evidence

1. Plaintiff’s Examination of Witnesses
2. Defense Witnesses
3. Exhibits

F. Motions After Resting
G. Settlement
H. Closing Argument
I. Sample Jury Instructions

1. Rules Governing Interpretation of Policy
2. Interpretation of Group Policy
3. Bases of Liability
4. Agency
5. Ratification
6. Damages J. Verdict Forms: Sample Form

II. Posttrial Procedures

Chapter 5:
Practice Pointers n Excess Liability Cases

I. Procedures Before Judgment in the Tort Action

A. By the Tort Plaintiff

1. Settlement Offer
2. Sample Demand Letter

B. By the Insurer

1. Preliminary Investigation and Establishment of Reserves
2. Informing Insured of Excess Demand: Sample Letter
3. Insurer’s Response to Settlement Offer

C. By the Insured

II. Parties to the Bad Faith Action

A. Plaintiffs
B. Defendants

III. Statute of Limitations
IV. The Complaint
V. Discovery
VI. The Trial