What Effect Do Bad-Faith Insurance Laws Have On First-Party Insurance Claims?

What Effect Do Bad-Faith Insurance Laws Have On First-Party Insurance Claims?

Nevada law permits bad faith insurance claims between first-party claimants and insurance companies because the parties have a contractual relationship. If it is proven that the insurance company acted in bad faith, the claimant is entitled to damages.

Bad Faith Insurance Claims

In Nevada, the law states that every contract imposes the duty of good faith and fair dealing upon the contracting parties. A breach of contract or failure to perform duties in good faith constitutes “bad faith” between the parties in the contract. Bad faith insurance claims typically arise because insurance companies deny policy benefits with no reasonable basis for the denial. The Nevada Supreme Court recognizes bad faith first-party claims and allows insured parties to file a claim or a lawsuit for damages with attorneys for insurance claims.

In contrast, third-party claimants do not have a contractual relationship with insurers and have no standing to claim bad faith. There are two different standards to determine whether an insurance company has acted in first-party bad faith with regard to its insured:

  • A claimant can prove that an insurer breached the covenant of good faith and fair dealing without proper cause. To prove a bad faith claim, an insured policyholder only has to prove that the insurance company failed to pay or delayed payment without proper cause.
  • A claimant can prove that an insurer acted with knowledge or reckless disregard in denying or delaying payment. To determine if laws were violated by the insurer, the actions of the insurance company are compared to the actions of other insurers’ reasonable conduct under the same circumstances.

In certain cases where a third-party claimant is the intended beneficiary of an insurance policy, the claimant may assume that he/she has a sufficient relationship to support a bad faith claim against the insurance carrier. However, there is nothing in Nevada’s absolute-liability statute that recognizes a contractual relationship between an insurer and a third party for bad faith claims.

If an insured party files a bad faith lawsuit with attorneys for insurance claims, the case must be proven in court according to Nevada insurance laws. If an insurance company simply denies or fails to pay policy benefits or delays benefits, this is not enough to prove bad faith. The insured party must prove that the claim was denied without reasonable basis and/or that the insurance company acted recklessly when reviewing the claim. If the insurance company makes an error in the claim valuations or disputes the value of the claim, or if parties disagree about the value of the claim, that does not constitute bad faith according to Nevada laws.

Proving a Bad Faith Claim in Court

To prove a bad faith insurance claim in court, a claimant must prove the following:

  • The insured and the insurance company entered into a contractual agreement
  • The insurer owed a duty of good faith to the insured party
  • The insurer breached the duty of good faith
  • The insured party suffered damages as a result of the breach

Insurance companies frequently attempt to deny or underpay claims, even when they acknowledge that a claim is covered by the insurance policy. There are many examples of how an insurance company can commit bad faith. These include: unreasonable denial of a claim; unreasonable denial of benefits; intentionally delaying benefits; failure to promptly and thoroughly investigate a claim; unreasonable interpretations in translating policy language; and refusal to settle a claim or reimburse a claimant for losses.

Collecting Damages for Bad Faith Claims

Disputes and bad faith claims can occur in a variety of different types of insurance including: Auto insurance; Health insurance; Disability insurance; Life insurance; Homeowners insurance; and Commercial insurance.

If a Nevada court finds that an insurance company acted in bad faith, an insured party is eligible to recover the benefits of the policy for the claim, as well as losses and damages suffered for lost income, emotional distress, and attorney fees. In some cases where the insurance company has exhibited intentional or malicious conduct or flagrant actions, punitive damages may be awarded to punish the insurance company and deter other insurers from acting in bad faith.

In Nevada, filing a bad faith lawsuit with attorneys for insurance claims is not limited by a one-year statute of limitations which is imposed on breach of contract claims. Bad faith claims and UCPA claims (Unfair Claims Practices Act) are not subject to the statute of limitations because the court considers liability in these claims to be created by law rather than a contract. In bad faith lawsuits, the Court points out that it would be unfair to time-bar an insured from compensation.