Insurance bad faith litigation typically involves three separate actions: (1) breach of the insurance contract; (2) breach of the implied covenant of good faith and fair dealing; and (3) violations of Nevada’s Unfair Claims Settlement Practices Act, as set out in NRS 686A.310. These causes of action are separate and distinct from each other and require different analysis to determine whether a cognizable claim exists.
- Breach of Contract
An insurance policy represents a contract between the insured and the insurer. The policy contains the duties and obligations both parties owe to one another. An insurer is liable for breach of contract whenever it fails to fulfill any of the duties or obligations it owes to the insured under the policy. A common breach occurs whenever an insurer fails to properly make a claims decision or pay out benefits rightfully owed to an insured.
Analysis for whether a breach of contract claim exists focuses on the terms and provisions of the policy, including under what circumstances benefits are payable to an insured, and whether any exclusions apply. The statute of limitations for breach of contract is six years.
- Breach of the Implied Covenant of Good Faith and Fair Dealing
In Nevada, “[e]very contract imposes upon each party a duty of good faith and fair dealing in its performance and execution.” A.C. Shaw Constr., Inc. v. Washoe Cnty., 784 P.3d 9, 9 (Nev. 1989). This implied covenant requires that parties, “act in a manner that is faithful to the purpose of the contract and the justified expectations of the other party.” Morris v. Bank of Am. Nev., 886 P.2d 454, 457 (Nev. 1994). Breach of the implied covenant of good faith and fair dealing is a tort.
In order to state a claim for breach of the covenant of good faith and fair dealing, an insured must show the insurer refused “without proper cause to compensate its insured for a loss covered by the policy.” United States Fidelity & Guar. Co. v. Peterson, 540 P.2d 1070, 1071 (Nev. 1975). “An insurer is without proper cause to deny a claim when it has an ‘actual or implied awareness’ that no reasonable basis exists to deny the claim.” Pioneer Chlor Alkali Co. v. National Union Fire Ins. Co., 863 F. Supp. 1237, 1994 U.S. Dist. LEXIS 18435 at *13 (D. Nev. Aug. 31, 1994) (citing American Excess Ins. Co. v. MGM Grand Hotels, Inc., 102 Nev. 601, 729 P.2d 1352, 1354 (Nev. 1986). Thus, analysis of this cause of action centers around whether the insurer acted unreasonably in denying a claim. If an insurer has a reasonable basis for denying a claim, or if the disagreement is merely a difference in valuation, then the insurer is likely not liable for a breach of the implied covenant of good faith and fair dealing. The statute of limitations for this claim is four years.
- Violations of Nevada’s Unfair Claims Settlement Practices Act (NRS 686A.310)
Nevada’s “Unfair Practices in Settling Claims” statute is set out at NRS 686A.310. The statute provides:
- Engaging in any of the following activities is considered to be an unfair practice:
- Misrepresenting to insureds or claimants pertinent facts or insurance policy provisions relating to any coverage at issue.
- Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies.
- Failing to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies.
- Failing to affirm or deny coverage of claims within a reasonable time after proof of loss requirements have been completed and submitted by the insured.
- Failing to effectuate prompt, fair and equitable settlements of claims in which liability of the insurer has become reasonably clear.
- Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such insureds, when the insureds have made claims for amounts reasonably similar to the amounts ultimately recovered.
- Attempting to settle a claim by an insured for less than the amount to which a reasonable person would have believed he or she was entitled by reference to written or printed advertising material accompanying or made part of an application.
- Attempting to settle claims on the basis of an application which was altered without notice to, or knowledge or consent of, the insured, or the representative, agent or broker of the insured.
- Failing, upon payment of a claim, to inform insureds or beneficiaries of the coverage under which payment is made.
- Making known to insureds or claimants a practice of the insurer of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration.
- Delaying the investigation or payment of claims by requiring an insured or a claimant, or the physician of either, to submit a preliminary claim report, and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information.
- Failing to settle claims promptly, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage.
- Failing to comply with the provisions of NRS 687B.310 to 687B.390, inclusive, or 687B.410.
- Failing to provide promptly to an insured a reasonable explanation of the basis in the insurance policy, with respect to the facts of the insured’s claim and the applicable law, for the denial of the claim or for an offer to settle or compromise the claim.
- Advising an insured or claimant not to seek legal counsel.
- Misleading an insured of claimant concerning any applicable statute of limitations.
Each provision of NRS 686A.310 provides its own standard of conduct and requires separate analysis. It is important to note, many of these provisions may be violated by the insurer even in the absence of an adverse claims decision. Instead, the focus for the statutory violation portion of bad faith litigation is on the actual claims process itself and the conduct of the insurer and its agents. The statute of limitations for a claim within NRS 686A.310 is three years.
Cases typically referred to as “insurance bad faith” cases should actually consist of three separate causes of action: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; and (3) violations of Nevada’s Unfair Claims Settlement Practices Act (NRS 686A.310). Each of these actions require a separate analysis under the specific facts of the case and each has a different statute of limitations. An insurer is liable for breach of contract whenever it fails to fully perform the duties imposed on it within the insurance contract. An insurer is liable for breaching the implied covenant of good faith and fair dealing whenever it denies a claim for benefits without a reasonable basis for doing so. An insurer violates provisions of NRS 686A.310 whenever its claims handling procedures deviate from the statute’s prescribed standard of conduct.
If you believe your insurer has wrongfully denied your claim for benefits, let the attorneys at Rempfer Mott Lundy help you recover the benefits you are entitled to. We have successfully recovered millions of dollars in benefits for insureds and are standing by to help you.