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Public Policy Considerations Concerning Insurance Bad Faith and Residual Market Mechanisms

As insurance bad faith liability has evolved in the past four decades, liability for bad faith has not stopped with private insurance companies. In a number of states, state-sponsored insurance entities have been established to provide insurance coverage in residual markets where it is generally otherwise unavailable. The question of whether first-party insurance bad faith liability should be extended upon a state-run property insurer is an unresolved one in many jurisdictions. This paper contributes to the contemporary literature regarding bad faith in insurance by comprehensively analyzing the history of, the nature of the claims associated with, and public policies concerning the imposition of bad faith liability upon state-run property insurers. This paper makes its contribution by arguing that courts should not impose first-party bad faith liability on state-run property insurers who operate in the residual property insurance market.This paper begins by providing an overview of the role of residual insurance market entities of the state and federal governments. The second and third parts of the paper discuss the Oubre v. Louisiana Citizens Fair Plan case of the Louisiana Supreme Court and the Citizens Property Ins. Corp. v. San Perdido Assoc., Inc. litigation in Florida and their applicability concerning the immunity issue.The final part of the paper analyzes the policies and issues surrounding the holding of bad faith liability upon state-run property insurers. The first section of the final part examines the public policy considerations of reported cases which have addressed whether a state insurance guaranty association can be held liable for insurance bad faith claims. State insurance guaranty associations provide an appropriate comparison with state-run property insurers since bad faith claims have also been proferred against them. The second section of the final part discusses the policy rationales behind the bad faith remedy and the specific issue of the relationship between bad faith awards and assessments which are typically levied on most insurers. Finally, examining the case of Florida in particular, this paper examines the arguments concerning legislative intent on the conferral of immunity.