Guide for Causes of Action for Bad Faith Claims

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Last Updated
July 20, 2021

Minn. Stat. § 72A.20 Subd.12 and Common Law:

Under the Minnesota Unfair Claims Practice Act, an insurer is forbidden to engage in any unfair, deceptive, or fraudulent acts concerning any claim or complaint of an insured or claimant.[1] The statute prohibits the “causing or permitting with such frequency to indicate a general business practice any unfair, deceptive, or fraudulent act concerning any claim or complaint . . . including but not limited to . . . (6)not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear . . . .”[2] For violations of Minn. Stat. § 72A.20 Sub. 12 there must be violations “with such frequency to indicate a general business practice.

An insurer is liable for failure to exercise good faith in conducting an insured’s defense, which includes the duty to settle within policy limits where liability is clear.[3] If the insurer failed to take advantage of an opportunity to settle within the policy limits where liability was clear, then the possibility of an excess judgment is clear to the insurer and it will be obligated to pay the full amount of the judgment, including interest.[4] However, the insurer is not liable for failure to settle within the policy limits if the insured’s liability is not clear.[5] “The insurer’s duty of good faith is breached in situations in which the insured is clearly liable and the insurer refuses to settle within the policy limits and decision to not settle within the policy limits is not made in good faith and is not based upon reasonable grounds to believe that the amount demanded is excessive.[6] Components of this factor include:

  1. whether the insurer gave equal consideration to the financial exposure of the insured and the insurer;[7]
  2. whether the insurer kept the insured informed about the proceedings;[8]
  3. whether the insurer informed the insured of any potential conflicts of interest between the insured and insurer;[9] and
  4. whether the insurer informed the insured of the consequences of an excess verdict.[10]

Bad faith must be shown and a mere mistake in judgment by the insurer is not sufficient.[11]

Minnesota does not recognize an independent tort for bad faith refusal to pay a claim.[12] An insurer can be liable for failing to exercise good faith in handling third-party claims against its insured.[13] An insured can assign his or her bad faith claim against the insurer to the injured third party in return for relief form the excess judgment.[14] The assignee then may proceed with the claim for bad faith.


[1] Minn. Stat. §72A.20; Minn. Stat. §72A.201.

[2] Minn. Stat. §72A.20 Subd. 12(6).

[3] Short v. Dairyland Ins. Co., 334 N.W.2d 384, 387-88 (Minn. 1983).

[4] Id.

[5] Northfield Ins. Co. v. St. Paul Surplus Lines Ins. Co., 545 N.W.2d 57 (Minn. Ct. App.1996).

[6] 60.

[7] Lange v. Fid. & Cas. Co., 185 N.W.2d 881, 884 (1971).

[8] Short,334 N.W.2d at 389.

[9] Lange,185 N.W.2d at 67.

[10] 68.

[11] Northfield Ins. Co., 545 N.W.2d at 60.

[12] Morris v. Am. Family Mut. Ins. Co., 386 N.W.2d 233, 237 (Minn. 1986).

[13] Short,334 N.W.2d at 387-88.

[14] Morris,386 N.W.2d at 237 (citing Strand v. Travelers Ins. Co., 219 N.W.2d 622(Minn. 1974)).

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Chartwell Law represents the interests of insurers and employers, as such, we continue to continue to monitor the legal landscape. If you have any questions about issues associated with right of action for bad faith claims, our attorneys are available to help. Please contact your Chartwell Law attorney.