Policyholders and insurers alike regularly find themselves in protracted forum battles because, rightly or wrongly, the parties view choice of forum as having a major impact on the choice of state law to be applied to important coverage issues. Coverage law, of course, varies significantly among jurisdictions, and choice of law actually can be outcome determinative in certain cases. In contesting such forum battles, policyholders have a tool that may be underutilized—the argument that insurers engage in bad faith when they file pre-emptive declaratory judgment actions to attempt to seize control of forum selection.
At first, this may seem counterintuitive, because insurers often file declaratory judgment actions to avoid exposure to bad faith, particularly after they have agreed to defend their policyholders under reservations of rights. There are, however, circumstances in which an insurer’s filing of a declaratory judgment action can give rise to a bad-faith claim that a policyholder may use to its advantage in a forum battle. This article analyzes instances when an insurer’s institution of a declaratory judgment action demonstrates bad faith such that it weighs against the insurer’s choice of forum.
The Duty of Good Faith and Fair Dealing
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