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16 Conn. Ins. L.J. 203 (2009-2010)
Law and Economics of First-Party Insurance Bad Faith Liability

handle is hein.journals/conilj16 and id is 205 raw text is: THE LAW AND ECONOMICS OF FIRST-PARTY INSURANCE BAD FAITH LIABILITY Sharon Tennyson* William J. Warfel States difer in the legal avenues available to policyholders to pursue actions against their insurers for bad faith in claims settlement. This article discusses the various approaches to first-party insurance bad faith law that have been taken by the states, and discusses the potential benefits and costs of dierent approaches. Regimes that are likely to grant large damages awards to aggrieved policyholders provide the greatest deterrent to insurer bad faith; but such regimes may also create incentives for fraudulent insurance claiming and disincentives for rigorous claims investigations by insurers. This article evaluates the empirical relevance of these potential incentive distortions through an analysis of automobile insurance claim settlement data in states with diferent bad faith regimes. The data show that claim characteristics and claim investigations difer significantly in states which permit tort-based bad faith from those in other states, in ways consistent with the hypothesized effects. Sharon Tennyson is Associate Professor in the Department of Policy Analysis and Management at Cornell University. She holds a Ph.D. in economics from Northwestern University with a specialization in industrial organization and regulation. Her professional interest centers on economic and policy analysis of insurance markets, and she has published widely on these topics. Sharon is a noted expert on insurance rate regulation and insurance fraud, and is a frequent speaker on these issues. William J. Warfel, Ph.D., CPCU, CLU, is Professor of Insurance and Risk Management at Indiana State University. He received his doctorate from Indiana University in 1990. His research focuses largely on the interface of law and insurance; he has published extensively in the CPCU eJournal, The John Liner Review, Risk Management Magazine, and various legal publications. Also, to date, he has been retained as a testifying and consulting expert witness in about 45 cases; his specialty includes breach of contract, bad faith, and agent/broker liability issues. He can be reached at wwarfel@indstate.edu.

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