Keosian Law Practice Areas

Third-Party Bad Faith

When insurers fail their own policyholders in liability claims

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Overview

Third-party bad faith occurs in the context of liability insurance, where the insurer has a duty to defend and indemnify its insured against claims brought by third parties. When an insurer unreasonably refuses to settle within policy limits, fails to properly defend its insured, or puts its own interests ahead of the insured's, bad faith liability may arise—potentially exposing the insurer to judgments far exceeding the policy limits.

At Keosian Law LLP, our Los Angeles third-party bad faith attorneys understand the complex obligations insurers owe in liability contexts. Whether you are an insured who has been exposed to an excess judgment due to your insurer's misconduct, or an injured party who has obtained an assignment of bad faith rights, we have the expertise to pursue these claims aggressively.

Third-party bad faith claims often involve high-stakes situations—auto accidents on the I-405 or I-101, commercial truck accidents, or serious personal injury cases where the insurer's failure to settle responsibly can result in devastating financial consequences for the insured. From our Sherman Oaks office, we represent clients throughout Los Angeles County.

Common Third-Party Bad Faith Scenarios

  • Insurer refuses a reasonable settlement within policy limits
  • Failure to properly defend against a liability lawsuit
  • Inadequate investigation of a claim made against the insured
  • Insurer prioritizes its own financial interests over the insured's exposure
  • Failure to inform the insured of settlement demands
  • Rejecting a policy-limits demand without reasonable basis
  • Refusing to contribute to a settlement when liability is clear
  • Failing to assign qualified defense counsel
  • Not communicating important case developments to the insured
  • Exposing the insured to an excess judgment through unreasonable refusal to settle

Insurer Duties in Third-Party Claims

California law imposes significant obligations on liability insurers in third-party claims:

Duty to Defend

The insurer must defend its insured against any claim that potentially falls within the scope of coverage. This duty is broader than the duty to indemnify—if there is any possibility of coverage, the insurer must provide a defense. Breach of this duty can result in significant liability.

Duty to Settle

When a reasonable settlement demand within policy limits is presented, the insurer must give at least as much consideration to the insured's interests as to its own. Unreasonable refusal to settle can make the insurer liable for the entire excess judgment.

Duty to Communicate

The insurer must keep the insured informed of all settlement demands, significant case developments, and any potential for an excess judgment. Failure to communicate critical information deprives the insured of the opportunity to protect their own interests.

What Compensation Is Available

Third-party bad faith claims can result in substantial recovery:

  • Excess Judgment: The insurer may be liable for the full excess judgment—the amount above policy limits that the insured would otherwise owe personally.
  • Defense Costs: If the insurer failed to defend, all defense costs incurred by the insured.
  • Emotional Distress: Compensation for the stress and anxiety of facing personal financial exposure due to the insurer's misconduct.
  • Punitive Damages: When the insurer's failure to settle or defend rises to the level of oppression, fraud, or malice.
  • Assignee Recovery: Injured parties who obtain an assignment of the insured's bad faith rights can recover the full judgment amount directly from the insurer.

How We Handle Third-Party Claims

  1. Case Assessment: We evaluate the insurer's conduct—examining settlement correspondence, claim files, and defense handling—to determine bad faith liability.
  2. Assignment Structuring: When applicable, we help structure assignments of bad faith rights that protect both the insured and the injured party.
  3. Evidence Collection: We obtain the insurer's internal files, depose adjusters and claims managers, and analyze whether industry standards were met.
  4. Litigation: We file and prosecute bad faith claims in Los Angeles Superior Court, seeking the full excess judgment plus additional bad faith damages.
  5. Trial: Our trial-ready attorneys present compelling cases to juries, demonstrating how the insurer's unreasonable conduct caused financial harm.

Why Choose Keosian Law

  • Complex Litigation Experience: Third-party bad faith cases involve sophisticated legal theories. Our attorneys have the expertise to handle these complex claims.
  • Both Sides of the Case: We represent both insureds exposed to excess judgments and assignees pursuing insurer liability.
  • No Fees or Costs Unless We Recover: No attorney fees or costs unless we recover for you.
  • Los Angeles Presence: Based in Sherman Oaks, we regularly appear in Los Angeles Superior Court and have deep experience with local judges and procedures.

If your liability insurer has exposed you to financial harm through unreasonable conduct, contact our experienced attorneys for a free evaluation.

Frequently Asked Questions

Find answers to common questions about our legal services and processes.

Third-party bad faith occurs in liability insurance contexts where your insurer fails to properly defend you against claims from others or unreasonably refuses to settle claims within policy limits, potentially exposing you to personal liability for excess judgments. This is distinct from first-party bad faith, which involves your own claims for benefits.

Your liability insurer must defend you against covered claims, investigate claims thoroughly, consider your interests when evaluating settlements, inform you of settlement demands, and not expose you to excess liability through unreasonable refusal to settle. These duties arise from both the policy contract and California's implied covenant of good faith.

If a reasonable settlement opportunity within policy limits is rejected and a larger judgment results, the insurer may be liable for the entire judgment—even amounts exceeding your policy limits. This is known as an excess verdict or bad faith failure to settle, and California courts have imposed substantial liability on insurers in these situations.

Yes, if your insurer wrongfully refuses to defend you against a covered claim, you may sue for breach of contract and bad faith. You may recover defense costs you incurred, any judgment against you, and additional bad faith damages including emotional distress and potentially punitive damages.

A policy limits demand is a settlement offer from an injured party that, if accepted, would fully resolve the claim within your insurance limits. Insurers must carefully consider such demands because refusing a reasonable one may create bad faith liability. California courts scrutinize an insurer's response to policy-limits demands closely.

In some cases, yes. If your insurer's bad faith caused an excess judgment against you, you may assign your bad faith claims to the injured party as part of a settlement. The injured party can then pursue the insurer directly for the full amount of the judgment. This assignment mechanism is well-established in California law.
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"After our basement flooded, our insurance company offered only a fraction of what was needed. Keosian Law stepped in and negotiated a settlement that covered everything."

Michael J.

Sherman Oaks, CA

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