The legal standard requires that insurers act with reasonable care and diligence, considering the insured’s interests on equal footing with their own. This includes making timely settlement decisions when a settlement offer is reasonable and within policy limits. An insurer who fails to meet these standards may be held liable for resulting damages.
For example: An insurer receives a settlement offer of $15,000 on a policy with a $20,000 limit for a claim with potential damages of $30,000. Refusing this offer without a sound basis could be seen as acting in bad faith, subjecting the insurer to liability for any additional damages awarded above the policy.