In effect since August 1, 2008, Minn. Stat. § 604.18 creates a direct cause of action by an insured against its own insurer if the insurer fails to act in good faith. Although four years have elapsed since its effective date, § 604.18 remains substantially undefined by Minnesota Courts.
The Minnesota Supreme Court has yet to address § 604.18. The Minnesota Court of Appeals has provided only three “unpublished” decisions that provide limited authority and insight as to the scope and effect of the Bad Faith statute.
In a nutshell, § 604.18 requires that an insured have an underlying claim against its insurance company. An insured usually brings such an underlying claim in a Complaint for Declaratory Judgment. Once filed, the insured may then bring a motion to amend its Complaint to include a claim for first-party bad faith. The motion must be adequately supported by affidavits, depositions and/or documentary evidence.
The technical requirements, although not stringent, must be strictly followed. The Minnesota Court of Appeals denied such a claim in one case because the Plaintiff failed to follow the technical requirements of the statute. In another case, the Minnesota Court of Appeals denied a bad faith claim when a dispute based on medical causation occurred in the context of an underinsured motorist claim.
What constitutes actual “bad faith” by an insurer? Minnesota Courts have identified some factors to consider. The United States District Court for Minnesota has identified a two-pronged test: 1) an objective standard that asks whether a reasonable insurer would have denied or delayed payment of the claim under the facts and circumstances; and 2) a subjective standard that turns on what the insurer knew and when. This second prong includes a “fairly debatable” standard. Whether a claim is fairly debatable implicates the question whether the facts necessary to evaluate the claim are properly investigated and developed or recklessly ignored and disregarded.
In its most recent decision, the Minnesota Court of Appeals adopted the “fairly debatable” test. It did not, however, adopt the full two-prong analysis identified by the United States District Court. Until the Minnesota Supreme Court weighs in, Minnesota’s “Bad Faith” law remains largely unsettled.
 Greene v. West Bend Mutual Insurance Co. (February 1, 2011).
 Bernstrom v. American Family Mutual Automobile Insurance Company (June 2, 2012).
 Friedberg v. Chubb Insurance Company (United States District Court, May 26, 2011).
 Northern National Bank v. North Star Mutual Insurance Company (September 17, 2012).