Plaintiff, an excess insurance carrier-, filed an equitable subrogation action in the Oakland Circuit Court against defendant, a primary insurance carrier. Plaintiff alleged that defendant’s failure to negotiate a settlement in a case against their mutual insured constituted bad faith pursuant to City of Wakefield v Globe Indemnity Co, 246 Mich 645; 225 NW2d 643 (1929), thereby causing plaintiff to be exposed to risk. A jury found no cause of action against Liberty Mutual. The circuit court denied plaintiff’s motion for judgment notwithstanding the verdict or for a new trial. The Court of Appeals reversed, ordering a new trial, and finding that the trial court’s "bad faith” instructions were, in part, prejudicial and erroneous. Commercial Union Ins Co v Liberty Mutual Ins Co, 137 Mich App 381; 357 NW2d 861 (1984).

We affirm the decision of the Court of Appeals.

i

Liberty Mutual, a primary insurance carrier, provided primary liability insurance coverage for wxyz with a single injury coverage limit of $100,000. Edith Webster suffered a slip and fall while working at wxyz-tv. Ms. Webster and her husband, Forrest, brought suit for damages, and Liberty Mutual assumed the defense on behalf of wxyz. Following trial, the Websters were awarded $100,000. Liberty Mutual appealed. The Court of Appeals reversed and remanded the case for a new trial. Webster v WXYZ, 59 Mich App 375; 229 NW2d 460 (1975), lv den 395 Mich 751 (1975). Settlement negotiations continued, yet the parties *132were unable to come to an agreement. The case went to trial a second time, where the jury returned a verdict of $700,000 in favor of the Websters. Liberty Mutual tendered its $100,000 policy limits, and Commercial Union took over the defense of the case. Its appeal efforts were unsuccessful. Commercial Union was eventually required to pay $854,131.61 to the Websters.

Commercial Union subsequently sued Liberty Mutual for failure to settle the Webster action for an amount much less than Commercial Union has since been required to pay. Commercial Union’s rights in this suit are premised upon its status as an equitable subrogee of wxyz. In alleging that Liberty Mutual acted in "bad faith,” Commercial Union complained that Liberty Mutual (1) failed to make settlement offers and ignored numerous settlement demands between May, 1971, and the commencement of the first Webster trial in October, 1973, (2) failed to communicate each and every settlement demand made throughout the pendency of the Websters’ claim, (3) failed to respond properly to settlement offers at figures below the first jury award while the first Webster case was pending on appeal, (4) chose to ignore the advice of its attorney to make efforts to settle the case following the Court of Appeals reversal of the first Webster case, but before the second trial, and (5) failed to communicate all material developments as they occurred throughout the pendency of the Websters’ claim.

Liberty Mutual responded to Commercial Union’s allegations by contending that Commercial Union (1) never suggested Liberty Mutual pay its policy limits to settle the Websters’ claim, (2) never retained its own counsel, (3) never participated in settlement negotiations, (4) never independently evaluated the value of the Websters’ *133claim, and (5) never objected to Liberty Mutual’s proceeding with a second trial of the case.

After evidence was presented at the Commercial Union/Liberty Mutual trial, the trial court gave the following "bad faith” instruction, which reads in pertinent part:

The term bad faith as used in these instructions may be defined as involving insincerity, dishonesty, disloyalty, duplicity, or deceitful conduct; it implies dishonesty or concealment. An honest mistake of judgment is not in and of itself bad faith and no single fact is necessarily decisive of the issue. [Emphasis supplied.][1]_

*134In finding this part of the instruction to be erroneous, the Court of Appeals relied on City of Wakefield v Globe Indemnity Co,2 supra. In Wake-field, the insured, the City of Wakefield, operated an automobile bus line. Frank Borski was injured by one of the city vehicles and sued for damages. Globe Indemnity Co., which provided the city with a $10,000 policy of liability insurance, assumed the defense of the case along with the city attorney, who was attorney of record. Near the end of trial, the carrier’s attorney, having heard the testimony of medical witnesses and having talked with witnesses for the defense, concluded that the case was hopeless and recommended settlement. Mr. Campbell, a representative of the insurance carrier, refused settlement and, although given full opportunity at trial to disclose his reasons for refusal, failed to do so. The jury returned a verdict against Globe Indemnity for over $15,000, in excess of the amount of the policy limit. The insured was required to pay the excess amount of the judgment. The insured sued its liability insurance carriers on the theory that the carriers were guilty of negligence and bad faith in refusing to accept a compromise offer of settlement for less than their liability as recommended by the carriers’ attorney. The Wakefield Court held that the insurers were *135not liable to the insured for refusal to compromise his claim unless the refusal was in bad faith, stating that

the insurer does not act in bad faith if it refuses settlement in the honest belief that it has a fair chance of victory, or of keeping the verdict within the policy limit, or . . . that the compromise amount is excessive, or if it has legal defenses .... On the other hand, arbitrary refusal to settle for a reasonable amount, where it is apparent that suit would result in a judgment in excess of the policy limit, indifference to the effect of refusal on the insured, failure to fairly consider a compromise and facts presented and pass honest judgment thereon, or refusal upon grounds which depart from the contract and the purpose of the grant of power, would tend to show bad faith. [246 Mich 652-653.]

In relying on Wakefield, the Court of Appeals in the instant case held that

"[b]ad faith” by an insurance company for a breach of a duty to settle is something more than negligence. Wakefield, supra; Commercial Union v Medical Protective Co, [136 Mich App 412; 356 NW2d 648 (1984), lv gtd 422 Mich 939 (1985)]. However, unlike the implication of the Medley [v Canady, 126 Mich App 739; 337 NW2d 909 (1983)] definition, "bad faith” pursuant to Wakeñeld is something less than fraud ....

By instructing the jury that bad faith may be defined as or equated with "duplicity or deceitful conduct,” or "concealment,” the trial court erroneously increased Commercial Union’s burden of proof. The language defining "bad faith” in Wakeñeld is sufficient. We find the errors in the substantive instructions to the jury prejudicial and reversible. [137 Mich App 391-392.]

We agree with the Court of Appeals. By instruct*136ing the jury that bad faith is equated with "duplicity or deceitful conduct,” or "concealment,” the trial court erroneously increased plaintiffs burden of proof. However, unlike the Court of Appeals, we find the language defining "bad faith” in Wake-field lacking because it defines "bad faith” by limited example only.

Contrary to holdings in some other jurisdictions, bad faith should not be used interchangeably with either "negligence” or "fraud.”3 Michigan has reached this conclusion in the past.4 Accordingly, we define "bad faith” for instructional use in trial courts as arbitrary, reckless, indifferent, or intentional disregard of the interests of the person owed a duty.5

Good-faith denials, offers of compromise, or *137other honest errors of judgment are not sufficient to establish bad faith. Further, claims of bad faith cannot be based upon negligence or bad judgment, so long as the actions were made honestly and without concealment. However, because bad faith is a state of mind,6 there can be bad faith without actual dishonesty or fraud. If the insurer is motivated by selfish purpose or by a desire to protect its own interests at the expense of its insured’s interest, bad faith exists, even though the insurer’s actions were not actually dishonest or fraudulent.7

Although the Court has articulated here a precise definition of "bad faith” for instructional purposes, there are supplemental factors which may be considered in determining whether liability exists for bad faith. These factors clarify the "indicators” pronounced in the trial court’s bad-faith instruction in the instant case.8 They also embrace the Wakefield language.9 Because the facts of each individual case will vary in any given situation, the trial court, in its discretion, will have the option of determining which factors, if any, are to be included in instructions to the jury. The recommended factors are not exclusive. No single factor shall be decisive. Among the factors which the factfinder may take into account, together with all other evidence in deciding whether or not the defendant acted in bad faith are:10_

*1381) failure to keep the insured fully informed of all developments in the claim or suit that could reasonably affect the interests of the insured,11

2) failure to inform the insured of all settlement offers that do not fall within the policy limits,12

3) failure to solicit a settlement offer or initiate settlement negotiations when warranted under the circumstances,13

4) failure to accept a reasonable compromise offer of settlement when the facts of the case or claim indicate obvious liability and serious injury,14

5) rejection of a reasonable offer of settlement within the policy limits,15

6) undue delay in accepting a’ reasonable offer to settle a potentially dangerous case within the policy limits where the verdict potential is high,16

7) an attempt by the insurer to coerce or obtain an involuntary contribution from the insured in order to settle within the policy limits,17

8) failure to make a proper investigation of the claim prior to refusing an offer of settlement within the policy limits,18_

*1399) disregarding the advice or recommendations of an adjuster or attorney,19

10) serious and recurrent negligence by the insurer,

11) refusal to settle a case within the policy limits following an excessive verdict when the chances of reversal on appeal are slight or doubtful,20 and

12) failure to take an appeal following a verdict in excess of the policy limits where there are reasonable grounds for such an appeal, especially where trial counsel so recommended.21

In applying any factors, it is inappropriate in reviewing the conduct of the insurer to utilize "20-20 hindsight vision.” The conduct under scrutiny must be considered in light of the circumstances existing at the time. A microscopic examination, years after the fact, made with the luxury of actually knowing the outcome of the original proceeding is not appropriate. It must be remembered that if bad faith exists in a given situation, it arose upon the occurrence of the acts in question; bad faith does not arise at some later date as a result of an unsuccessful day in court.

ii

The holding in this case makes it unnecessary for us to address the remaining issue raised on cross-appeal because our affirmance of the decision of the Court of Appeals renders the issue moot.

*140We therefore affirm the decision of the Court of Appeals.

(concurring). I agree with the majority that the trial court erred in instructing the jury over objection "that bad faith is equated with 'duplicity or deceitful conduct,’ or 'concealment . . . .1

I write separately because I am unable to agree with the definition of bad faith set forth in the opinion of the Court and other observations in the opinion.

The opinion states: "we define 'bad faith’ for instructional use in trial court as arbitrary, reckless, indifferent, or intentional disregard of the interests of the person owed a duty.”2

The terms "arbitrary, reckless, indifferent” have varying meanings depending on the context.

It has been said that some authorities hold that the term "reckless” means "no more than 'negligent,’ while others hold that [the term means] 'wantonness or bordering on willful,’ and there is also a meaning between these two extremes.” 76 CJS, p 63. The same encyclopedia states that the term has been held in particular cases to "imply mere inattention to duty; thoughtlessness; indifference; heedlessness; carelessness; and nothing more than mere negligence.” Id.

In City of Wakefield v Globe Indemnity Co, 246 Mich 645, 653; 225 NW 643 (1929), this Court said that an "arbitrary refusal to settle for a reasonable amount, where it is apparent that suit would result in a judgment in excess of the policy limit, *141indifference to the effect of refusal on the insured . . . would tend to show bad faith.” (Emphasis supplied.) The Court thereby indicated what kind of "arbitrary” or "indifferent” conduct would tend to show bad faith. To instruct a jury in the abstract that arbitrary or indifferent conduct would tend to show bad faith, without reference or regard to particular circumstances, could readily cause jury misunderstanding and lead to erroneous results.

Nor can I agree that "intentional disregard of the interests of the person owed a duty” may always be equated with bad faith. An insurer may properly put its interests ahead of the interests of the insured, and thus intentionally disregard the interests of the insured; it may act out of a "selfish purpose or by a desire to protect its own interests at the expense of its insured’s interest,”3 as long as it does not act in bad faith. If an insurer could not in any circumstance place its interests ahead of those of its insured, if it is obliged in all circumstances to subordinate its interests to the interests of its insured, then an insurer would be obliged in all cases to pay policy limits lest it expose the insured to any risk whatsoever of a judgment in excess of policy limits.

I also question cataloging a list of factors developed in cases the record in which this Court has not examined or ruled upon; the factors are necessarily taken out of context and may not adequately explain limitations implicit in the particular circumstances in which the factor was held to be relevant. Also, there has not been adversary briefing in this Court on the question whether all the factors enumerated in the opinion of the Court evidence bad faith.

*142If the Court is of the opinion that it is appropriate to instruct a jury concerning specific factors, it should, I believe, require the judge to add that merely because there is evidence tending to show the presence of a factor does not necessarily mean that there was bad faith. Further, if the jury is instructed on factors that tend to show bad faith it should also be instructed on factors that tend to countervail such a finding — the specific factors that tend to show an absence of bad faith.

Finally, if the jury is instructed on factors, the judge should be required or encouraged to incorporate into the instruction the gist of the last paragraph of part i of the opinion of the Court, viz.:

In applying any factors, it is inappropriate in reviewing the conduct of the insurer to utilize "20-20 hindsight vision.” The conduct under scrutiny must be considered in light of the circumstances existing at the time. A microscopic examination, years after the fact, made with the luxury of actually knowing the outcome of the original proceeding is not appropriate. It must be remembered that if bad faith exists in a given situation, it arose upon the occurrence of the acts in question; bad faith does not arise at some later date as a result of an unsuccessful day in court.

Absent a statement in the opinion of the Court requiring or encouraging the judge to so balance the instruction to the jury, the judge may not understand that he should incorporate in the instruction the gist of the foregoing language quoted from the opinion of the Court.