Breach of Implied Covenant of Good Faith and Fair Dealing: Insurance
[Editor’s Note: The Nevada Supreme Court has not been consistent in its language when addressing insurance bad faith. Thus, the following are various iterations of the Court’s standards, in random order]
To establish a prima facie case of bad-faith refusal to pay an insurance claim, the plaintiff must establish that
(1) the insurer refuses a claim without proper cause, and
(2) the claim was for a loss covered by the policy.
Estate of Lomastro ex rel. Lomastro v. Am. Family Ins. Group, 195 P.3d 339, 351 (Nev. 2008); Pemberton v. Farmers Ins. Exch., 109 Nev. 789, 793, 858 P.2d 380, 382 (1993); U. S. Fid. & Guar. Co. v. Peterson, 91 Nev. 617, 619, 540 P.2d 1070, 1071 (1975).
(1) the insurer acts unreasonably and
(2) with knowledge that there is no reasonable basis for its conduct.
Albert H. Wohlers & Co. v. Bartgis, 114 Nev. 1249, 1258, 969 P.2d 949, 956 (1998); Guar. Nat’l Ins. Co. v. Potter, 112 Nev. 199, 206, 912 P.2d 267, 272 (1996); American Excess Ins. Co. v. MGM Grand Hotels, Inc., 102 Nev. 601, 605, 729 P.2d 1352, 1354–55 (1986).
(1) the insurer had no reasonable basis for disputing coverage, and
(2) the insurer knew or recklessly disregarded the fact that there was no reasonable basis for disputing coverage.
Powers v. United Servs. Auto. Ass’n, 114 Nev. 690, 702–703, 962 P.2d 596, 604 (1998); Falline v. GNLV Corp., 107 Nev. 1004, 823 P.2d 888 (1991).
“It is well settled in Nevada that ‘every contract imposes upon the contracting parties the duty of good faith and fair dealing.’ Hilton Hotels Corp. v. Butch Lewis Productions, Inc., 109 Nev. 1043, 1046, 862 P.2d 1207, 1209 (1993). As we explained in Ainsworth v. Combined Insurance Co., 104 Nev. 587, 592, 763 P.2d 673, 676 (1988), ‘[t]he relationship of an insured to an insurer is one of special confidence. A consumer buys insurance for security, protection, and peace of mind.’ (footnote added). While an insured assumes various duties under an insurance contract—such as the timely payment of premiums—the insurer assumes the concomitant duty ‘to negotiate with its insureds in good faith and to deal with them fairly.’ Id.“
Albert H. Wohlers & Co. v. Bartgis, 114 Nev. 1249, 1258, 969 P.2d 949, 956 (1998).
“When a prevailing plaintiff’s compensatory damages exceeds $100,000.00, punitive damages are capped by statute to three times the amount of the compensatory damages. See NRS 42.005(1)(a). When the plaintiff recovers less than $100,000.00 in compensatory damages, punitive damages must be limited to a maximum of $300,000.00. See NRS 42.005(1)(b). Significantly, the foregoing statutory caps on punitive damages do not apply to ‘[a]n insurer who acts in bad faith regarding its obligations to provide insurance coverage.’ NRS 42.005(2)(b).”
Albert H. Wohlers & Co. v. Bartgis, 114 Nev. 1249, 1267, 969 P.2d 949, 961 (1998).
“Punitive damages are legally excessive when the amount of damages awarded is clearly disproportionate to the degree of blameworthiness and harmfulness inherent in the oppressive, fraudulent or malicious misconduct of the tortfeasor under the circumstances of a given case. If the awarding jury or judge assesses more in punitive damages than is reasonably necessary and fairly deserved in order to punish the offender and deter others from similar conduct, then the award must be set aside as excessive.”
Guaranty National Insurance Co. v. Potter, 112 Nev. 199, 208, 912 P.2d 267, 273 (1996) (quoting Ace Truck & Equipment Rentals, Inc. v. Kahn, 103 Nev. 503, 509, 746 P.2d 132, 136-37 (1987)).
“In determining whether a punitive damages award is excessive pursuant to this standard, we will consider a variety of factors including ‘the financial position of the defendant, culpability and blameworthiness of the tortfeasor, vulnerability and injury suffered by the offended party, the extent to which the punished conduct offends the public’s sense of justice and propriety, and the means which are judged necessary to deter future misconduct of this kind.'”
Albert H. Wohlers & Co. v. Bartgis, 114 Nev. 1249, 1267–68, 969 P.2d 949, 961–62 (1998) (quoting Guaranty National Insurance Co. v. Potter, 112 Nev. 199, 208, 912 P.2d 267, 273–74 (1996) and Ace Truck & Equipment Rentals, Inc. v. Kahn, 103 Nev. 503, 510, 746 P.2d 132, 137 (1987)).
The Ninth Circuit Court of Appeals held that FRCP 26(b)(3) permitted discovery of attorney work product in a bad-faith suit against an insurance company, where the insurance company’s adjusters prepared estimates valuing the insured’s claim, the insurance company’s intent was the pivotal issue and the party seeking the valuation demonstrated a compelling need for the material because the information was not otherwise available.
See Holmgren v. State Farm Mutual Automobile Insurance Co., 976 F.2d 573, 577 (9th Cir.1992).
“[T]he rule adhered to by a vast majority of jurisdictions is that a plaintiff need not establish that it is entitled to a directed verdict on the contract claim in order to establish a prima facie bad faith claim. See William M. Shernoff et al., Insurance Bad Faith Litigation § 5.02, at 5’21 (1998). We believe that the majority rule represents the more reasoned approach and, thus, we decline to adopt the directed verdict rule.”
Albert H. Wohlers & Co. v. Bartgis, 114 Nev. 1249, 1257, 969 P.2d 949, 955 (1998).
Generally, this court has addressed an insurer’s breach of the implied covenant of good faith and fair dealing as the unreasonable denial or delay in payment of a valid claim. See, e.g.,Pemberton v. Farmers Ins. Exch., 109 Nev. 789, 793, 858 P.2d 380, 382 (1993); Falline v. GNLV Corp., 107 Nev. 1004, 823 P.2d 888, 891 (1991). This, however, does not mean that the tort of bad faith is limited to such cases.
Guaranty Nat’l Ins. CO. v. Potter, 912 P.2d 267 (Nev. 1996).