Insurance bad faith in Nevada is when an insurance company refuses to defend or indemnify you as a policy holder without a reasonable basis. If your own insurance company fails to cover your valid claim, you can sue them for:
- The money the insurer should have paid out in the first place;
- Costs of hiring a lawyer to defend the claim (“attorney’s fees”);
- Damages for emotional distress (which can be consequential); and
- Punitive damages (in extreme cases).
To help you better understand Nevada’s “bad faith insurance” laws, our Nevada personal injury lawyers discuss, below:
- 1. What is the covenant of good faith and fair dealing / duty to defend?
- 2. How does Nevada law define “bad faith” by an insurer?
- 3. What are examples of insurer bad faith?
- 4. When must an insurance company defend me?
- 5. What damages can I recover if an insurer breaches its duty to defend?
- 6. Can I recover punitive damages for insurance bad faith in Nevada?
- 7. How long does an insurance company have to settle a claim in Nevada?
- Additional reading
1. What is the covenant of good faith and fair dealing / duty to defend?
Insurance is a contract between the insurance carrier and you as the policy holder. All insurance contracts in Nevada contain an implied covenant of good faith and fair dealing.1
Under Nevada law, the duty of good faith is defined as “honesty in fact and the observance of reasonable commercial standards of fair dealing.”2 This means that insurance companies in Nevada must:
- Pay legitimate first-party claims up to the insurance coverage policy limit when you experience a “covered risk,” and payment must be reasonably prompt,
- Promptly and fairly investigate claims to determine who is liable,
- Defend you against third-party insurance claims, and
- Use good faith efforts to settle claims in appropriate cases.
2. How does Nevada law define “bad faith” by an insurer?
Under Nevada law, an insurance company acts in bad faith when:
- The insurer denies benefits to you, and
- The insurer knows or should know that there is no reasonable basis for such a denial.
Note that an inadvertent oversight or reasonable (though erroneous) determination that a risk is not covered is probably not bad faith.
Bad faith lawsuits combine aspects of breach of contract claims and personal injury claims. In order to prove bad faith by an insurance company, you would need to prove:
- Your claim is a “covered loss” under the insurance policy;
- The insurance company is obligated to pay under the terms of the insurance contract; and
- The insurance company acted in bad faith.3
Typical evidence in bad faith lawsuits that go to a jury trial includes:
- correspondence from the insurance company that shows misconduct or a pattern of misconduct
- recorded communications with the insurance company
- notes and records of phone conversations or in-person meetings
- depositions and interrogatories of the insurance adjusters/representatives
- the insurer’s internal communications
- medical records, receipts, and estimates to show the extent of your injuries and property damage
- the insurance contract itself
- any other relevant evidence allowable under Nevada’s discovery rules
3. What are examples of insurer bad faith?
Ten acts that might constitute bad faith practices by an insurer include:
- The insurer’s refusal to conduct a prompt and fair investigation of a valid claim.
- Not having reasonable standards for investigating claims.
- Misrepresentation of the policy provisions or failing to communicate with you regarding a claim.
- Denying a claim that should clearly be covered or failing to give adequate reasons for refusal to disburse a claim.
- Ignoring the claim or misleading you about coverage.
- Negatively affecting your ability to defend against a third-party claim.
- Delaying payment or underpaying on a valid claim (“undervaluing a claim”) for no good reason.
- Unreasonably burying you with paperwork.
- Using coercion to resolve a claim.
- Not acting in your best interests.
Note that it is not bad faith for insurance companies to deny coverage under a valid exclusion. For example, many auto insurance policies have a contract clause releasing them from liability if you caused an accident by driving under the influence.
4. When must an insurance company defend me?
In Nevada, an insurer has a duty to defend you as soon as notice of a potentially covered risk is made. The obligation to defend continues through any settlement discussions or lawsuit until final resolution of the claim.4
“Covered risks” are those set forth in the insurance policy documents. The court will look to the language of the policy to determine what the parties intended.
If there are any doubts, the court will resolve them in your favor. Only where there is no potential for coverage is the insurer off the hook.5
Note however that when an insurer denies coverage because notice of the claim was late, the insurer must defend you unless the insurer can show that the delay materially impaired the insurer’s ability to contest it.6
5. What damages can I recover if an insurer breaches its duty to defend?
Compensatory damages for a bad faith breach of the duty to defend and duty to indemnify can include:
- The amount that the insurance company should have paid out;
- Amounts you had to pay out-of-pocket to defend a claim,
- Lawyer’s fees incurred in obtaining benefits under the insurance policy, and/or
- Damages for the mental suffering and emotional distress caused by the insurer’s bad faith.
6. Can I recover punitive damages for bad faith?
Nevada law allows the recovery of punitive damages in bad faith insurance cases. To win them, the insurer must have acted with:
- fraud,
- malice, or
- oppression.7
In the insurance context, this can occur when an insurer acts with a conscious disregard of the harm that will result from its wrongful failure to:
- pay or investigate a claim, or
- defend you.8
In Nevada, there is no cap on punitive damages for bad faith by an insurer.9
7. How long does an insurance company have to settle a claim in Nevada?
Once an insurance company receives notice of a claim, it has 20 working days to notify you that it is working on it. The insurer will also send you proof-of-loss forms to fill out.
Once the insurer receives the proof-of-loss forms, it has 30 days to investigate the claim and decide whether to accept or deny it. If the claim is approved, the insurer has 30 more days to make the payment.
If the insurer needs additional time to look into a claim, it can take 30-day extensions as long as it notifies you about the delay.10
Note that you have a four-year statute of limitations to bring a bad faith claim against the insurer. The clock begins running after the insurer’s bad faith action.10
Additional reading
For more in-depth information, refer to these scholarly articles:
- An Overview of Insurance Bad Faith Law and Litigation – Seton Hall Law Review.
- Bad Insurance Bad Faith Law – Tort Trial & Insurance Practice Law Journal.
- Insurance Bad Faith Law: The Need for Legislative Intervention – Pacific Law Journal.
- Law and Economics of First-Party Insurance Bad Faith Liability – Connecticut Insurance Law Journal.
- The Effect of Bad‐Faith Laws on First‐Party Insurance Claims Decisions – The Journal of Legal Studies.
Legal references:
- NRS 104.1304. See, for example: Nautilus Ins. Co. v. Access Med., LLC (2021) 482 P.3d 683; PennyMac Corp. v. Eighth Judicial Dist. Court of Nev. (2019) 453 P.3d 398. See also Nevada Insurance Code and the Nevada Rules of Civil Procedure (NRCP). Note that before insurance bad faith was codified into statutes, it was a common law tort claim.
- NRS 104.1201(t).
- See, for example, Guaranty National Ins. Co. v. Potter (Nevada Supreme Court, 1996) 912 P.2d 267. American Excess Ins. Co. v. MGM Grand Hotels, Inc. (Nev. 1986) 729 P.2d 1352 (“Bad faith involves an actual or implied awareness of the absence of a reasonable basis for denying benefits of the policy.” In this case, MGM filed a claim with its insurer following a hotel fire with 3,000 victims. The insurer had a good faith belief that it did not have to make payments under MGM’s $30 million policy until MGM settled all the claims. The court found that the insurer did have to make the liability payments, but it did not have to pay any bad faith damages.).
- Allstate Ins. Co. v. Miller (2009) 125 Nev. 300, 309, 212 P.3d 318, 325.
Benchmark Ins. Co. v. Sparks, (2011) 254 P.3d 617, 620–21 (internal citation omitted); United Nat’l Ins. Co. v. Frontier Ins. Co., (2004) 120 Nev. 678, 687, 99 P.3d 1153, 1158. - Bidart v. Am. Title Ins. Co. (1987) 103 Nev. 175.
- Las Vegas Metropolitan Police Dept. v. Coregis Ins. Co. (2011) 256 P. 3d 958.
- NRS 42.001.
- See Guaranty National Ins., note 3.
- NRS 42.005(2)(b).
- NAC 686A.670; NAC 686A.675.
- NRS 11.190(2)(c).