Insurance bad faith is a lawsuit that a policyholder (the “insured”) may have against an insurance company for its bad acts. The Ohio Supreme court has held that an insurer owes a duty of good faith to its insured in the processing, payment, satisfaction and settlement of the insured’s claims. Hart v. Republic Mut. Ins. Co. (1949), 152 Ohio St. 185, 87 N.E.2d 347. This duty is often referred to as the “implied covenant of good faith and fair dealing,” which automatically exists by operation of law in every insurance contract. If an insurance company violates that covenant of good faith, the insured person (or “policyholder”) may sue the company for a bad faith claim in addition to a standard breach of contract claim. The contract-tort distinction is significant because as a matter of public policy, punitive or exemplary damages are unavailable for contract claims, but are available for bad faith claims.
In Motorists Mutual Ins. Co. v. Said (1992), 63 Ohio St.3d 690, 590 N.E.2d 1228, the Ohio Supreme Court held that a cause of action for the tort of bad faith exists:
“ * * * when an insurer breaches its duty of good faith by intentionally refusing to satisfy an insured’s claim where there is either (1) no lawful basis for the refusal coupled with actual knowledge of that fact or (2) an intentional failure to determine whether there was any lawful basis for such refusal. Intent that caused the failure may be inferred and imputed to the insurer when there is a reckless indifference to facts or proof reasonably available to it in considering the claim.”
“‘No lawful basis’ for the intentional refusal to satisfy a claim means that the insurer lacks a reasonable justification in law or fact for refusing to satisfy the claim. Where a claim is fairly debatable the insurer is entitled to refuse the claim as long as such refusal is premised on a genuine dispute over either the status of the law at the time of the denial or the facts giving rise to the claim.” Said, supra at 699-700, 590 N.E.2d 1228.
A claim of bad faith cannot be brought against an insurer by a third-party claimant. Pasipanki v. Morton (1990), 61 Ohio App.3d 184, 185, 572 N.E.2d 234, citing Hoskins v. Aetna Life Ins. Co. (1983), 6 Ohio St.3d 272, 275-276, 452 N.E.2d 1315. The duty to act in good faith runs only from the insurer to its own insured. Pasipanki, at 185, 572 N.E.2d 234. Although an insurer owes a duty to its insured to negotiate in good faith with a party injured by the insured, there is no such independent duty to the injured party, nor is he a third party beneficiary to the insurance contract. Achor v. Clinton Cty. Bd. of Mental Retardation & Developmental Disabilities (June 5, 1986), Franklin App. No. 86AP-60.
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