The Effects of Third-party Bad Faith Doctrine on Automobile Insurance Costs and Compensation

One-liner: Adoption and subsequent reversal of bad faith doctrine in California had significant effects on costs and compensation The question of whether an automobile accident victim should be allowed to bring a claim for punitive damages for unfair settlement practices against another person’s liability insurer – a so-called third-party, bad faith suit – has become an important policy concern. This book examines the compensation that automobile insurers paid to accident victims in California during a period, 1979 to 1988, when such punitive damages claims were permitted. This book looks at the effects of the adoption and subsequent rejection of the Royal Globe doctrine, which allowed third-party bad-faith suits, on compensation and costs of bodily injury claims. The authors find that the adoption of Royal Globe triggered sharp increases in both the average bodily compensation payment and the relative frequency of bodily injury claims in California relative to the other tort states. In contrast, the elimination of Royal Globe dramatically reversed these trends.