Third-Party Insurance Bad Faith Claims: What You Need to Know

At VandenBout Law, we understand how devastating it can be when an insurance company mishandles a claim. Third-party insurance bad faith claims arise when an insurer, representing the person who caused an accident, refuses to settle within the policy limits. 

This leaves the policyholder exposed to damages beyond their coverage. In these situations, the insured may have a claim against their own insurance company for failing to properly handle a claim brought by another party. For families in Albuquerque, that can mean financial exposure far greater than what they expected when they purchased coverage.

What Is a Third-Party Bad Faith Insurance Claim?

A third-party bad faith insurance claim occurs when an insurer fails to defend or indemnify its policyholder in good faith. For example, if a driver causes a collision in Albuquerque, their liability insurance company must defend them and attempt to settle within the policy’s limits. When the company delays investigations, refuses to pay valid claims, or pressures the claimant into litigation, that conduct may qualify as bad faith.

According to New Mexico Statute §59A-16-20, unfair practices include failing to investigate claims promptly, misrepresenting policy provisions, and offering unreasonably low settlements. These protections are critical because policyholders depend on their insurer to act fairly when another party files a claim against them. 

Without these legal safeguards, insurers could deny or delay payments with little accountability, leaving policyholders exposed to crushing financial judgments.

How Third-Party Bad Faith Differs from First-Party Bad Faith

First-party bad faith cases involve your own insurance company denying or mishandling a claim you file under your policy, such as for fire or hail damage. Third-party insurance bad faith claims, however, involve the insurer of the at-fault party and typically arise in liability situations.

Key Legal Differences in Duty and Who Can Sue

The main difference is who can sue and what duties the insurer owes.

• In a first-party case, the insured sues their own insurer for mishandling the claim.
• In a third-party case, the insured can sue their insurer for failing to protect them when a reasonable settlement was possible.

Insurers in third-party claims owe broader duties: defending lawsuits, negotiating fairly, and settling within policy limits. These cases are more complex because they involve three parties: the injured claimant, the insured facing liability, and the insurance company controlling the defense. 

When insurers violate these duties, they can be held accountable through bad faith insurance lawsuits. This complexity is a major reason policyholders often need legal representation.

Examples of Third-Party Bad Faith by Insurance Companies

Bad faith insurance cases come in many forms. Common examples of insurer misconduct in third-party insurance bad faith claims include:

• Refusing to settle a claim within policy limits even when liability is clear.
• Delaying investigations or ignoring evidence to minimize payouts.
• Prioritizing the company’s financial savings over protecting the insured.
• Forcing claimants to file lawsuits by offering unreasonably low settlement amounts.

As explained by Legal Clarity, unfair tactics like these leave insureds vulnerable to massive judgments and additional lawsuits. In Albuquerque, this often arises after auto accidents, slip and fall claims, or other liability disputes where insurance companies control the defense strategy but fail to act responsibly.  

A common example involves a local driver whose insurer refuses to cover a reasonable settlement after a crash, leaving both the injured claimant and the policyholder burdened with unnecessary litigation and costs.

Damages You May Recover in a Third-Party Bad Faith Case

Victims of third-party bad faith insurance claim disputes may recover far more than just the policy limits. Damages may include:

• Payment for judgments that exceed the insured’s policy coverage.
• Financial losses and emotional distress are tied to the insurer’s bad faith.
• Punitive damages when the insurer’s conduct is especially reckless or intentional.

New Mexico law recognizes that insurance companies hold significant power in defending liability claims. Courts allow recovery beyond the contract itself to discourage insurers from engaging in unfair insurance practices. These damages also remind insurers that gambling with a policyholder’s financial security carries serious consequences. If you’re wondering Can You Sue an Insurance Company for Bad Faith?, the answer is yes—policyholders in New Mexico have the right to hold insurers accountable when they fail to act fairly or responsibly.

Contact VandenBout Law for Help With Bad Faith Insurance Claims

Insurance companies in Albuquerque often rely on policyholders not understanding their rights, which allows them to deny or delay valid claims. At VandenBout Law, we take on insurers that engage in unfair practices and fight to protect our clients from financial harm. 

If you are facing challenges with third-party insurance bad faith claims, our team is ready to step in, explain your legal options, and pursue justice on your behalf. Call us at (720) 901-2984 to speak with an attorney who will stand up to the insurance company and put your interests first.

“At VandenBout Law, we focus on helping policyholders in New Mexico navigate disputes involving insurance bad faith. Our practice exclusively represents individuals and families—not insurance companies. ”

Lawrence VandenBout

Trial Lawyer

Lawrence VandenBout

Mr. VandenBout has successfully tried multiple cases, he understands that many times the most efficient and effective resolution to a legal dispute occurs outside the courtroom and through the process of mediation. He has been successful in negotiating many favorable settlements for his clients. Mr. VandenBout also utilizes his experience to counsel and assist clients in developing strategies for minimizing the risk of becoming involved in potential legal disputes in the future.

Years of experience: Over 11 years
Recognition: Rising Star 2021, 2022, 2023 & 2024.
Location: Denver, CO