Insurance Law Center: Bad Faith: Insurance Bad Faith - Minnesota Takes a Step in the Right Direction

Bad Faith

4/16/2008 11:57:02 AM EST

Insurance Bad Faith - Minnesota Takes a Step in the Right Direction

Posted by Barry Zalma
Attorney and Consultant

In a move that will stick in the craw of the plaintiffs'' bar and stop most claims of bad-faith, improve the availability and price of insurance in Minnesota, and take the profit motive out of insurance claims, Minnesota lawmakers approved a bill limiting bad faith claims against insurers. The new statute passed on April 14, 2008: (1) Limits bad faith causes of action to first party claimants only, (2) requires a reasonable basis for denying a claim and (3) allows insurers to conduct fraud or fire investigations without violating the statute. The statute allows policyholders to be awarded up to $250,000 in damages if an insurer is found to be acting in bad faith and up to $100,000 in attorney's fees, but punitive or exemplary damage awards are not permitted. The new law will take effect August 1, 2008 if Governor Tim Pawlenty signs it into law. Insurers and their counsel should encourage Governor Pawlenty to sign the statute.

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Comments
Jennifer Hans Last Post: 4/16/2008 2:57:33 PM	Subject: Insurance Bad Faith - Minnesota Takes a Step in the Right Direction Date Posted: 4/16/2008 2:57:33 PM
Jennifer Hans Last Post: 4/16/2008 2:57:33 PM	It''s interesting, it seems that there has been more proposed legislation concerning insurance bad faith this past year. What do you think is driving it? Create an account or login to post comments.
William T. Barker 4/16/2008 7:34:29 PM subject: response to Jennifer Hans Does the bill eliminate claims for breach of the duty to settle? That would seem strange, if true. William T. Barker Sonnenschein Nath & Rosenthal, LLP Barry Zalma 4/17/2008 10:01:59 AM subject: response to William T. Barker I don''t have the statute but news reports indicate all bad faith is limited to first party claims, which is all that is available in California per the Supreme Court. What it does is severely limit what the insured and his or her lawyer can recover. It will not eliminate claims for breachof the duty to settle. Barry Zalma 4/17/2008 10:07:20 AM subject: response to Jennifer Hans I don''t know but think, perhaps, the conviction of Mr. Scruggs, Mr. Lerach and Mr. Weiss might have something to do with it. In addition, you must understand that the tort of bad faith was created because of a perceived abuse of the public by insurers -- whether true or not. Legislatures and the public are beginning to see that the tort of bad faith has abused the insurance buying public more than that it was designed to cure. That the convicted felon, Scruggs, could sue insurers in Katrina-related losses for not covering floods that were specifically excluded by their policies, and collect millions in fees should have some effect. It was only when he tried to get a larger portion of the fee by bribing a judge that something was done. Stealing from an insurance company is not considered wrong by most people and prosecutors ignore the crime most of the time. I think that the so-called tort of bad faith has served its purpose and it needs to be placed in the ash can of the law like the death penalty for the theft of bread.
Jeffrey E Thomas Last Post: 4/17/2008 4:28:10 PM	Subject: Insurance Bad Faith - Minnesota Takes a Step in the Right Direction Date Posted: 4/17/2008 4:28:10 PM
Jeffrey E Thomas Last Post: 4/17/2008 4:28:10 PM	From what I can tell, this statute is a mixed bag for insurers. On the one hand, it creates a statutory claim in first-party situations in a state that apparently had not recognized the common law claim in first party cases (this is based on press and blog accounts, not on my own reserach). That claim, it seems, includes a statutory penalty that is based on the difference between what the insurer offered and what the court ultimately awarded. In addition, it includes an attorney''s fees provision, which, while capped, still allows up to 100,000 in fees. This makes insurers more vulnerable, but in my opinion helps to redress the inherent imbalance between insurers and policyholders. Because insurers have hundreds of cases, they have an incentive to "low-ball" settlement offers because most policyholders won''t have the time, patience, resources, or understanding to litigate. By allowing attorney''s fees and a statutory penalty, it creates an incentive to litigate some of those claims and create a deterrent effect. On the other hand, this bill is good for insurers because it prevents the possibility of punitive damages, uses a standard of "reasonable" basis for their claim practices (which is hard to evaluate and tends to look to industry custom), and excludes the risk of punitive damages. As far as I can tell, the original statute would have included third-party claims, but without statutory preemption, giving rise to the risk of multiple claims (statutory and common law). The adopted version only applies to first-party claims, leaving the third-party claims to the common law. I haven''t checked, but my sense is that Minnesota follows most states in recognizing the common law tort claim for failure to settle. Create an account or login to post comments.
Barry Zalma 4/18/2008 10:26:19 AM subject: response to Jeffrey E Thomas National Underwriter published a more detailed article about the statute today at http://www.propertyandcasualtyinsurancenews.com/cms/nupc/Breaking%20News/2008/04/16-BADFAITH-dh It seems the Governor is ready to sign.

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