Unfair claims handling is regulated under Nev. Rev. Stat. § 686A.310 (1978), known as the “Unfair Claims Settlement Practices Act.” Nevada Revised Statute §686A.310, subsection 1 sets forth a number of unfair claims practices including, “(e) failing to effectuate prompt, fair and equitable settlements of claims in which liability of the insurer has become reasonably clear; […] (g) attempting to settle a claim by an insured for less than the amount to which a reasonable person would have believed he was entitled by reference to written or printed advertising material accompanying or made part of an application.” Pursuant to Subsection, an insurer is “liable to its insured for any damages sustained by the insured as a result of the commission of any act set forth in subsection 1 as an unfair practice.”
The UCSPA only applies to insurance companies, not insurance agents or brokers. Albert H. Wohlers & Co. v. Bartgis, 114 Nev. 1249, 1263, 969 P.2d 949, 959 (1998).
The UCSPA creates a private cause of action for damages incurred as a result of the statutory violation, but a violation does not automatically constitute common law bad faith. Hart v. Prudential Property & Cas. Ins. Co., 848 F. Supp. 900, 904 (D. Nev. 1994).
To prove common law bad faith, one must prove: (1) an insurer’s denial of (or refusal to pay) an insured’s claim; (2) without any reasonable basis; and (3) the insurer’s knowledge or awareness of the lack of any reasonable basis to deny coverage, or the insurer’s reckless disregard as to the unreasonableness of the denial.” Schumacher v. State Farm Fire & Casualty Co., 467 F. Supp. 2d 1090, 1095 (D. Nev. 2006).
Nevada law does not authorize third-party bad faith claims, but the insured can assign its rights on a potential bad faith lawsuit.
As held by the Nevada Supreme Court, if an insurer fails to adequately inform an insured of a known reasonable settlement opportunity the insurer may breach its duty of good faith and fair dealing. Allstate v. Miller, 212 P. 3d 318, 322 (Nev. 2009). A violation of the covenant gives rise to a bad-faith tort claim. United States Fidelity v. Peterson, 91 Nev. 617, 620, 540 P.2d 1070, 1071 (1975). Bad faith is defined as "an actual or implied awareness of the absence of a reasonable basis for denying benefits of the [insurance] policy." Am. Excess Ins. Co. v. MGM, 102 Nev. 601, 605, 729 P.2d 1352, 1354-55 (1986). However, an insurer has the right to conduct a fair and reasonable investigation of the claim and a mere disagreement in the value of a case is not sufficient grounds to establish bad faith on the part of the insurance company. Schumacher v. State Farm, 467 F.Supp.2d 1090 (D. Nev. 2006); see also Guaranty Nat'l Ins. Co. v. Potter, 112 Nev. 199, 206, 912 P.2d 267, 272 (1996)( “Bad faith is established where the insurer acts unreasonably and with knowledge that there is no reasonable basis for its conduct.”).
A liability insurer “has a contractual right to have an underlying judgment determined by trial or settlement, and it is not required under the implied covenant of good faith and fair dealing to accept an excessive stipulated settlement offer between the insured and the claimant.” Allstate Ins. Co. v. Miller, 125 Nev. Adv. Rep. 28, 212 P.3d 318, 328 (2009). A bad faith claim for failure to settle requires the showing that the insurer acted in deliberate refusal to discharge its contractual duties. Thus if the insurer’s actions resulted from an honest mistake, bad judgment, or negligence, then the insurer is not liable under a bad faith theory. Id. An insurer can be liable for bad faith failure to settle even where a demand exceeds policy limits if the insured is willing and able to pay the amount of the proposed settlement that exceeds policy coverage. Id.
While an action under the UCSPA can only be brought against the insurer, a common law bad faith action can be brought against a claims administrator. Albert H. Wohlers & Co. v. Bartgis, 114 Nev. 1249, 1262-1263, 969 P.2d 949, 959 (1998).
Statute of Limitations
Claims brought under the Unfair Claims Settlement Practices Act must be brought within three years. Schumacher v. State Farm Fire & Casualty Co., 467 F. Supp. 2d 1090, 1095 (D. Nev. 2006). See also NRS 11.190. A bad faith tort claim must be commenced within the four-year statute of limitations. Schumacher v. State Farm Fire & Casualty Co., 467 F. Supp. 2d 1090, 1094-95, 2006 U.S. Dist. LEXIS 91399 (D. Nev. 2006). See also NRS 11.190(2)(c).
Per the UCSPA, “[i]n addition to any rights or remedies available to the commissioner, an insurer is liable to its insured for any damages sustained by the insured as a result of the commission of any act set forth in subsection 1 as an unfair practice.” NRS 686A.310(2).
With respect to recoverable damages in a common law action for bad faith, compensatory and damages for emotional distress may be awarded. See Merrick v. Paul Revere Life Ins. Co., 594 F. Supp 2d 1168, 1186 (D. Nev. 2008). NRS 42.005 provides that punitive damages may be awarded "in an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud or malice, express or implied." See also Guaranty Nat'l Ins. Co. v. Potter, 112 Nev. 199, 208, 912 P.2d 267, 273 (1996). There is no cap on punitive damages in actions for insurance bad faith.
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.