Our office will occasionally receive a contact that goes something like this: “I was in an accident. The other driver was at fault. The other driver’s insurance company is not treating me fairly, and I want to sue them for bad faith.” In some states, that is possible. Arizona is not one of those states. Insurance bad faith law varies significantly from state to state, and Arizona takes a more limited approach than some jurisdictions.

In Arizona, an insurer only owes a duty of good faith and fair dealing to its own insured. It is an implied covenant that arises from the underlying insurance policy. Arizona recognizes first party (an insured’s own insurance company) bad faith. Arizona does not yet recognize a true, independent third-party bad faith claim brought directly by an injured claimant against the at-fault party’s insurance company.

For policyholders, this distinction underscores the importance of making sure they have sufficient insurance coverage themselves including comprehensive, collision, and rental coverage on their own car. Your own insurer must handle claims in good faith. The at-fault party’s insurer does not have a duty of good faith and fair dealing when handling third-party claims for the victim. We have found that it is generally best for the victim to make a property damage claim with their own insurance carrier, which has a duty of good faith and fair dealing, Then, let your own insurance carrier subrogate and try to collect against the at-fault party’s insurance company.

Otherwise, it means that disputes with an opposing insurer, even if acting in bad faith, will have to be resolved through the underlying liability claim against the at-fault party rather than through an independent bad faith action against the at-fault party’s insurance company. And, unless the victim also has a personal injury claim as part of the liability claim, most attorneys will not take a sole property damage liability claim on a contingency fee.

Because insurance law continues to evolve, anyone facing a potential bad faith issue should consult experienced legal counsel to evaluate the specific facts and applicable Arizona law. This blog provides general information regarding third-party insurance bad faith against the at-fault party’s insurance carrier. It does not address third-party claims against the at-fault party’s insurance carrier for an excess verdict (Arizona’s version of third-party bad faith) and does not constitute legal advice on a specific insurance claim. If you have a specific insurance dispute, you should hire a licensed attorney in your jurisdiction.