Does the Threat of Insurer Liability for 'Bad Faith' Affect Insurance Settlements?

26 Pages Posted: 15 Feb 2014

See all articles by Danial Asmat

Danial Asmat

U.S. Department of Justice, Antitrust Division

Sharon L. Tennyson

Cornell University - Department of Policy Analysis & Management (PAM)

Date Written: March 2014

Abstract

Economic reasoning predicts that policyholders in states that treat for insurer bad faith in settling claims as a tort should receive higher payments from insurers because of the greater potential damages insurers face in claims disputed in court. We test this hypothesis using data on automobile insurance claims for accidents occurring during 1972–1997, exploiting differences in states “laws and variation in timing of states” adoption of bad faith rules to identify the effects of tort liability. We find that the presence of tort liability for insurer bad faith increases settlement amounts and reduces the likelihood that a claim is underpaid.

Suggested Citation

Asmat, Danial and Tennyson, Sharon L., Does the Threat of Insurer Liability for 'Bad Faith' Affect Insurance Settlements? (March 2014). Journal of Risk and Insurance, Vol. 81, Issue 1, pp. 1-26, 2014, Available at SSRN: https://ssrn.com/abstract=2396237 or http://dx.doi.org/10.1111/j.1539-6975.2012.01499.x

Danial Asmat

U.S. Department of Justice, Antitrust Division ( email )

450 Fifth St. NW
Room 9418
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HOME PAGE: http://sites.google.com/site/danialasmat/

Sharon L. Tennyson

Cornell University - Department of Policy Analysis & Management (PAM) ( email )

252 MVR Hall
Ithaca, NY 14853
United States
607-255-2619 (Phone)
607-255-4071 (Fax)

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