Continuing Bad Faith: Can Post-Denial Conduct Form the Basis for Extracontractual Liability Awards Against Insurers?[dagger]

Bad faith claims take many forms. In most cases, they are based either on the insurer's refusal to accept coverage or on missteps in the handling and defense of the claim, as where an excess verdict results after an insurer fails to settle for within policy limits. Increasingly, however, policyholders and third-party claimants have sought to impose extra-contractual liability for conduct occurring after the insurer has already denied coverage and, in many cases, for the manner in which the insurer prosecutes or disputes a declaratory judgment action. While not unprecedented, these new claims pose a chilling threat to the ability of insurers to exercise their rights to obtain a declaration of their claimed rights and obligations. At the heart of emerging "continuing bad faith" claims is a debate over the means by which insurers should be allowed to exercise their legal rights without interfering with their contractual duties to their policyholders or statutory duties to the public.