In a bad-faith claim scenario, discovering collusion between the insured and the claimant would most likely be used as which defense?

• A. Contributory negligence
• B. Advice of counsel
• C. Insured's collusion with claimant
• D. Debatable reasonable basis

Answer: (C)

In a bad-faith claim, the key issue is whether the claim itself is legitimate or tainted by fraud. If the insured is found to be colluding with the claimant, the claim is no longer a bona fide demand but a fraudulent or manufactured one. That undermines the premise of bad-faith liability because the insurer wasn’t handling a genuine claim in bad faith—it was responding to a fraudulent scheme. Therefore, the defense that the insured colluded with the claimant best explains why the claim should not support a bad-faith claim against the insurer.

Contributory negligence doesn’t address the insurer’s conduct toward a claim in bad-faith context, and advice of counsel and a merely debatable reasonable basis defense revolve around whether the insurer’s decision was reasonable, not on the existence of a collusive fraud that makes the claim illegitimate.