Guide for Causes of Action for Bad Faith Claims

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Last Updated
July 20, 2021

Insurance companies doing business in the State of Nebraska are regulated by the Unfair Insurance Trade Practices Act, Neb. Rev. Stat. § 44-1501 et. seq. Unfair claims handling is regulated by Neb. Rev. Stat. § 44-1525(9). Unfair claims settlement practices are regulated by Neb. Rev. Stat. § 44-1540. There is no statutory private cause of action for bad faith. The Director of Insurance has the authority to enjoin and penalize certain prohibited acts. . . .” Allied Fin. Servs., Inc., v. Foremost Ins. Co., 418 F. Supp. 157 (D. Neb. 1976).

Nebraska does not recognize a third-party cause of action for bad faith except through assignment. Krohn v. Gardner, 533 N.W.2d 95 (Neb. 1995); Braesch v. Union Ins. Co., 464 N.W.2d 769, 772, 237 Neb. 44, 48 (Neb. 1991).

“To show a claim for bad faith, a plaintiff must show the absence of a reasonable basis for denying benefits of the [insurance] policy and the defendant's knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. It is apparent, then, that the tort of bad faith is an intentional one. ‘Bad faith’ by definition cannot be unintentional.” Braesch v. Union Ins. Co., 464 N.W.2d at 777, 237 Neb. at 57; adopting Anderson v. Continental Ins. Co., 85 Wis. 2d 675, 271 N.W.2d 368 (1978). “’A requirement of intentional or reckless conduct arises from the commonsense notion that "the insurer . . . must be accorded wide latitude in its ability to investigate claims and to resist false or unfounded efforts to obtain funds not available under the contract of insurance.’" Braesch v. Union Ins. Co., 464 N.W.2d at 778, 237 Neb. at 58; citing Travelers Ins. Co. v. Savio, 706 P.2d 1258, 1274 (Colo. 1985).

Consequential damages are recoverable. “Thus, when an insurer acts in bad faith in the settlement of a claim with its insured, the insured is entitled to recover damages for economic loss proximately caused by the insurer’s actionable conduct.” Ruwe v. Farmers Mut. United Ins. Co., Inc. 238 Neb. 67, 75 (1991). Emotional distress damages are available. Braesch, 464 N.W. 2d at 769. “Recovery for emotional distress caused by insurer’s bad faith refusal to pay an insured’s claim should be allowed only when the distress is severe and substantial. Other damage is suffered apart from the loss of the contract benefits and the emotional distress.” Bailey v. Farmers Union Coop. Ins. Co., 1 Neb.App. 408, 427 (2002). Attorney fees are also recoverable. See Neb. Rev. Stat. § 44-359. Punitive damages are not available. Distinctive Printing and packaging Co. v. Cox, 443 N.W.2d 566 (Neb. 1989); Abel v. Conover, 170 Neb. 926, 104 N.W.2d 684 (1960).

There is a five-year statute of limitations for actions on written contracts. Neb. Rev. Stat. § 25-205. “The liability of an insurer to pay in excess of the face of the policy accrues when the insurer, having exclusive control of settlement, in bad faith refuses to compromise a claim for an amount within the policy limit.” Olson v. Union Fire Ins. Co., 174 Neb. 375, 379, 118 N.W.2d 318, 320-321 (1962).

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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.