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 The Minnesota Court of Appeals has provided only three “unpublished” decisions that provide limited authority and insight as to the scope and effect of the Bad Faith statute.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.[1] 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.[2]
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.[3]
In its most recent decision, the Minnesota Court of Appeals adopted the “fairly debatable” test.[4] 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.
[1] Greene v. West Bend Mutual Insurance Co. (February 1, 2011).
[2] Bernstrom v. American Family Mutual Automobile Insurance Company (June 2, 2012).
[3] Friedberg v. Chubb Insurance Company (United States District Court, May 26, 2011).
[4] Northern National Bank v. North Star Mutual Insurance Company (September 17, 2012).