Can (and Should) an Insurance Defense Attorney Be Held Liable for Insurance Bad Faith

Abstract

Insurance defense lawyers are faced with many practical and ethical challenges in the contemporary practice of law. Outside of the practical and ethical challenges looms a question concerning insurance bad faith – can (and should) an insurance defense attorney and/or insurance defense law firm ever be held liable for insurance bad faith?In this article, I state that with the ever-increasing expanse of bad faith liability today, insurance defense attorneys and law firms are potentially next to be encompassed in the liability circle. Today, as a general rule, insurance defense attorneys and law firms are not directly liable to an insured or a third-party claimant for breach of the implied covenant of good faith and fair dealing, and thus cannot be directly liable for bad faith. However, the road to this rule was not always clear, and this article examines the history behind this doctrinal rule.Although courts currently do not allow direct liability of insurance defense attorneys/firms for insurance bad faith, courts have allowed exposure to indirect liability for insurance bad faith. This scenario occurs typically as an indemnity suit that is filed by an insurer against a law firm.In an era of expanding bad faith liability, I contend that the doctrinal rule should still stand that first-party and third-party insurance bad faith liability should not be imposed on law firms and/or attorneys. I argue that the direct liability of an insurance defense attorney/law firm for insurance bad faith should be an idea whose time an age has come in the past and has gone, to be gone, forever.