Given the controversy surrounding this area of law, and the fast pace at which it continues to develop, it is often a difficult task to pinpoint with certainty the elements of bad faith. This is especially true when courts within a jurisdiction disagree as to the requisite standards of conduct or burden of proof. Any formal analysis of bad faith is also complicated by the fact that jurisdictions may differ as to the tort, contract, or statutory relief available to a claimant. Since jurisdictions vary as to the elements required to prove a bad faith case, we provide a look at certain representative states.
California has long recognized bad faith as a cause of action. Like many jurisdictions, the tort of bad faith in California has two elements. First, an insurer must withhold some kind of benefit under the policy. Second, the tort requires that the reason for the withholding of benefits must be “without proper cause”. See Love v. Fire Ins. Exchange, 221 Cal.App. 1136, 1151 (1990). For examples of conduct that courts have decreed to be without proper cause, or unreasonable, see the Tips section intra.
Texas is another jurisdiction that recognizes the tort of bad faith. In order for an insured to establish the tort of bad faith in Texas, proof must include: (1) the absence of a reasonable basis for denying or delaying payment of benefits under the policy, and (2) that the carrier knew or should have known that there was no reasonable basis for denying the claim or delaying payment of the claim. However, as long as the insurer has a reasonable basis to deny or delay payment of the claim, even if that basis is eventually determined by the fact-finder to be erroneous, the insurer is not liable for the tort of bad faith. See Lyons v. The Miller Ins. Co. of Texas, 866 S.W. 2d 597 (Tex. 1993).
The Alabama Supreme Court outlined the following as necessary elements of a bad faith claim: (1) an insurance contract between the parties and a breach thereof by the insurer, (2) an intentional refusal to pay the insured’s claim, (3) the absence of any reasonable or arguable legitimate reason for that refusal (the absence of a debatable reason), (4) the insurer’s actual knowledge of the absence of any legitimate or arguable reason, and (5) if the intentional failure to determine the existence of a lawful basis is relied upon, the plaintiff must prove the insurer’s intentional failure to determine whether there is a legitimate or arguable reason to refuse to pay the claim. Life Ins. Co. v. Gipson, 682 So.2d 56, 57 (Ala. 1996) (citing National Sec. Fire & Cas. Co. v. Bowen, 417 So.2d 179, 183 (Ala. 1982)).
Some states do not recognize the existence of a separate tort cause of action for bad faith. For example, in Illinois there is no common law bad faith tort. However, an insurer can be penalized under a statutory provision if its delay in paying a claim is deemed to be “vexatious, unreasonable, or outrageous conduct.” See 215 ILCS 5/-155. See also, Cramer v. Insurance Exchange Agency, 675 N.E.2d 897 (Il. 1996).