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Looking at MN’s bad faith insurance statute, P.1

In our last post, we began speaking generally about bad faith insurance, noting that bad faith lies in an insurance company’s unreasonableness in settling claims under an existing policy. We also noted that an individual who is subjected to bad faith treatment from an insurance company may recover damages. In this and our next post, we’ll look at Minnesota’s bad faith insurance statute.

First of all, it is worth pointing out that bad faith insurance can only occur when there is a written agreement between the parties which puts the insurer under an obligation to pay proceeds directly to an insured. Not included in this definition are written agreements to defend an insured or to reimburse an insured for defense expenses, as well as certain other types of written agreements. Third party claims are also excluded. 

When it comes to liability, there are several elements that a plaintiff must establish to succeed in a bad faith claim under Minnesota law. First of all, the plaintiff must show that the insurance company did not have a reasonable basis for denying benefit under an insurance policy. This means that there must be specific benefits that were not provided which were listed in the written policy. Secondly, it must be shown that the insurance company was aware that it had no reasonable basis for denying payment of the benefits. This means that the plaintiff must provide evidence of the mental state of those who handled the insurance claim.

It isn’t always going to be possible to demonstrate satisfactorily that an insurance company which dealt with an insured in bad faith knew it had no reasonable basis for paying benefits. In some cases, the insurer may have simply failed to do due diligence regarding the insured’s actual entitlements under the policy in question. State law also does allow plaintiffs to establish bad faith insurance claims on evidence that the insurance company acted with reckless disregard for the lack of a reasonable basis for denying coverage.

In our next post, we’ll look at the issue of damages in bad faith insurance claims. 

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