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37 Ariz. L. Rev. 1153 (1995)
The Tort of Bad Faith in First-Party Insurance Transactions after Two Decades

handle is hein.journals/arz37 and id is 1169 raw text is: THE TORT OF BAD FAITH IN FIRST-PARTY
Roger C. Henderson*
The tort of bad faith for breach of an insurer's obligation in the area of
first-party insurance was first recognized by a court of last resort in 1973 in
Gruenberg v. Aetna Insurance Co.' In doing so, the Supreme Court of
California created an entirely new cause of action against insurers regarding
first-party coverages. Prior to this time, the courts followed the common-law
rule that damages for breach of contract were, with rare exception, limited to
those in the contemplation of the parties at the time the bargain was struck. As a
general rule, consequential damages were more exclusively within the realm of
tort law than that of contract, and it was no tort for a party to breach a
contract, even when the breach was intentional. Now, some twenty-two years
later, the law regarding the obligation of an insurer in first-party situations is
still evolving as more and more courts embrace the new tort. In a steadily
growing number of jurisdictions, insurers not only are exposed to consequential
damages for economic loss and emotional distress for failing to deal with their
insureds fairly and in good faith, but they also may be subject to substantial
awards of punitive damages.
During the two decades since the Gruenberg decision, at least twenty-
four other state courts of last resort have also recognized that an insurer may
be liable to an insured or policy beneficiary for damages beyond the contract
benefits under a tort theory: Alabama,2 Alaska,3 Arizona,4 Arkansas,5
*   Professor of Law, University of Arizona, College of Law; B.B.A., University of
Texas, 1960; LL.B., University of Texas, 1965; LL.M., Harvard, 1969.
The portion of this article detailing the various jurisdictions that have adopted the tort of
bad faith or similar actions and the bases of liability, see infra notes 2-46 and accompanying text,
is an update of material originally published in an earlier work by the author. See Roger C.
Henderson, The Tort of Bad Faith in First-Party Insurance Transactions: Refining the Standard
of Culpability and Reformulating the Remedies by Statute, 26 U. MICH. J.L. REF. 1, 26-30,
38-42 (1992).
1. 510 P.2d 1032 (Cal. 1973).
2. Chavers v. National Sec. Fire & Casualty Co., 405 So. 2d 1, 6 (Ala. 1981).
3. State Farm Fire & Casualty Co. v. Nicholson, 777 P.2d 1152, 1156-57 (Alaska
4. Noble v. National Am. Life Ins. Co., 128 Ariz. 188, 189-90, 624 P.2d 866, 867-
68 (1981).
5. Aetna Casualty & Sur. Co. v. Broadway Arms Corp., 664 S.W.2d 463, 465 (Ark.

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