Insurance bad faith in Nevada is when an insurance company refuses to defend or indemnify you as a policyholder 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,
- Attorney’s fees,
- Emotional distress, and
- Punitive damages (in extreme cases).
To help you better understand Nevada’s “bad faith insurance” laws, our Las Vegas personal injury lawyers discuss:
- 1. Duty to Pay and Defend
- 2. What is bad faith?
- 3. Examples
- 4. Compensatory Damages
- 5. Punitive Damages
- 6. Timeframe to Settle
- 7. Sample Case
- Additional Reading
1. Duty to Pay and Defend
All insurance contracts in Nevada contain an implied covenant of “good faith and fair dealing.”1 This means the insurer must act with “honesty in fact and the observance of reasonable commercial standards of fair dealing.”2 This includes the duty to:
- Promptly and fairly investigate claims to determine who is liable,
- Defend you against third-party insurance claims,
- Defend you through any settlement discussions or lawsuit until final resolution of the claim,
- Use good faith efforts to settle claims in appropriate cases, and
- Be reasonably prompt to pay legitimate first-party claims up to your insurance coverage policy limit when you experience a “covered risk.”
When determining whether your situation is a “covered risk,” the court will look to the language in the policy documents to determine what the parties intended.3
If there are any doubts about what is a covered risk, the court will resolve them in your favor. Only where there is no potential for coverage is the insurer off the hook.4
Also, when an insurer denies coverage because notice of the claim was late, the insurer must defend you unless the insurer can show the delay materially impaired the insurer’s ability to contest it.5
2. What is bad faith?
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.
An inadvertent oversight or reasonable (though wrong) determination that a risk is not covered does not qualify as bad faith.
Ultimately, bad faith lawsuits combine aspects of breach of contract claims and personal injury claims. 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.6
Evidence in Bad Faith Lawsuits
Typical evidence we rely on in bad faith lawsuits 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. Examples
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.
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.
Bad faith cases occur with all types of insurance, such as life insurance, homeowners insurance, uninsured motorist insurance, malpractice insurance, casualty insurance, and fire and flood insurance.
4. Compensatory Damages
All insurance bad faith lawsuits ask the court for compensatory damages, such as:
- 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.
5. Punitive Damages
Nevada law also 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
This can happen 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
6. Timeframe to Settle
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.11
7. Sample Case
John has a homeowners insurance policy with ABC Insurance Co. One night, a storm causes a tree to fall on John’s house, causing significant damage. John promptly files a claim with ABC Insurance, providing all the necessary documentation.
However, weeks go by without any response from the insurer. John calls multiple times, but keeps getting told that his claim is under review. Months pass, and John is forced to pay for the repairs out-of-pocket to prevent further damage to his home.
Finally, six months after the initial claim, ABC Insurance sends John a letter denying coverage, stating that the damage was due to pre-existing conditions not covered under his policy. John is shocked, as his home was in good condition prior to the storm.
John consults with a lawyer specializing in insurance bad faith. The lawyer reviews John’s policy and the communications with ABC Insurance, and determines that the insurer likely acted in bad faith by:
- Failing to investigate and respond to John’s claim promptly,
- Denying coverage without a reasonable basis,
- Misrepresenting the terms of John’s policy, and
- Forcing John to pay for repairs himself despite having valid coverage.
John’s lawyer files a bad faith lawsuit against ABC Insurance, seeking compensatory damages for the repair costs and John’s emotional distress, as well as punitive damages for the insurer’s egregious conduct.
During the litigation, evidence emerges that ABC Insurance routinely denies valid claims to boost its profits, and that adjusters are pressured to find reasons to deny coverage. The court finds that ABC Insurance acted in bad faith and awards John significant damages, including the full cost of the repairs, compensation for his distress, and punitive damages to punish the insurer’s misconduct.
Insurance providers should honor their obligations to policyholders instead of prioritizing their profits.
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).
- 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.
- 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.).
- 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). Davis v. State Farm Fire & Casualty Co. (1982) 545 F. Supp. 370, 1982(D. Nev. 1982).