You guys are missing a key point. The insured guy had purchased a rider that the arbitrator and the court decided covered this situation ( I don’t claim to know the exact wording). Under the rider, the arbitrator and the court determined GEICO had a duty to defend the insured against the woman’s suit. Instead, GEICO refused coverage and refused to defend the insured. The arbitrator determined that the rider applied to the circumstance. The court agreed with the arbitrator. Because GEICO denied coverage when they should have defended the insured, the court found that they acted in bad faith. Whether you think it’s correct or not, the guy paid for insurance that the arbitrator and the court determined covered the situation and GEICO didn’t hold up their end of the contract. They could have: (1) defended the lawsuit and possibly won therefore owing nothing (2) filed for a declaratory judgment asking the court to decide whether the rider covered before they denied coverage or (3) paid the $1 million the woman asked for saving themselves 4.5 million.
Don’t get me wrong here. I have no opinion as to whether the woman’s suit against the car owner had merit as I don’t know what the policy said. The issue here is that the guy paid for insurance. A key component of insurance is that the company will defend you against lawsuits, even those with no merit. Neither the arbitrator nor the court found that the lawsuit had merit nor that the woman would have won - they simply found that the insured paid a premium that required GEICO to provide him a defense to the lawsuit and that GIECOs refusal to do so was in bad faith.