Insurance Bad Faith in Nevada – What is it & what are my rights?

Insurance bad faith in Nevada is when an insurance company refuses to defend or indemnify a policy holder without a reasonable basis.

An insurance policy is a legal contract between you and your liability insurance company. Your insurer has a “duty to defend” and indemnify you against third party claimants.

This means that when someone makes a claim against you for a potentially covered risk, the insurer must:

Investigate the claim in good faith, and
Provide you with a legal defense.

And when your own insurance company fails to cover your valid claim, you can sue them. Damages for an “insurance bad faith claim” can include:

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?

Insurance is a contract between the insurance carrier and 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 the policy holder experiences a “covered risk,” and payment must be reasonably prompt,
Promptly and fairly investigate claims to determine who is liable,
Defend the policy holder against third-party insurance claims, and
Use good faith efforts to settle claims in appropriate cases.

Example: Barbara is involved in a car accident in Las Vegas. Each driver claims the accident resulted from the other’s negligence.

Because the accident is potentially covered under Barbara’s auto policy, the insurer must investigate it promptly and use good faith efforts to determine who is at fault. The insurer must also defend Barbara against the other driver’s claim. Otherwise, Barbara could bring a bad faith action against the insurer.

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 the policy holder, 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, the policy holder would need to prove:

The policy holder’s 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 the policy holder’s 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 the policy holder 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 the policy holder about coverage.
Negatively affecting the policy holder’s 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 the policy holder with paperwork.
Using coercion to resolve a claim.
Not acting in the policy holder’s 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 the policy holder caused an accident by driving under the influence.

Woman on couch reading a letter looking distraught

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. When must an insurance company defend a policy holder?

In Nevada, an insurer has a duty to defend its policy holder 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 the policy holder’s favor. Only where there is no potential for coverage is the insurer off the hook.⁵

Example: Ella’s gardener is injured in a “slip-and-fall” accident while blowing leaves off of Ella’s patio in Reno. He sustains a head injury and files a premises liability lawsuit against Ella for medical bills and lost wages.

Ella submits the claim to her homeowner insurer. However, Ella’s policy was cancelled for non-payment of premiums several months earlier. The insurer has no duty to defend the insurance claim.

Note however that when an insurer denies coverage because notice of the claim was late, the insurer must defend the policy holder 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 the policy holder 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.

There is no way to overstate the emotional distress that health insurers cause when they put profit over patients by overruling their doctors’ orders.

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 its policy holder.⁸

And while Nevada law generally imposes a cap on punitive damages, there is no cap on the punitive damages in Nevada 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 the policy holder that it is working on it. The insurer will also send the policy holder 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. And 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 the policy holder about the delay.¹⁰

Note that policy holders 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

Two insurance policy holders arguing with agent - Nevada law allows for insurance bad faith claims

Insurance providers should honor their obligations to policyholders instead of prioritizing their profits.

Call us for help…

If you suffered damages because insurance adjusters wrongfully denied or failed to defend your claim, our Nevada bad faith insurance law attorneys invite you to contact us to discuss your options.

Our bad faith insurance attorneys routinely go up against the insurance industry for putting profit over policy holders. We may be able to bring a cause of action on your behalf to cover your out of pocket expenses for medical bills, property damage, and defense costs.

Most importantly, you pay our law firm nothing unless and until we get a reasonable settlement offer or obtain a judgment in your favor. Call us or complete the form on this page to discuss your bad faith insurance claim with an experienced Las Vegas injury lawyer today.

We can also help you if an insurer breached its duty to defend in California or duty to defend in Colorado. Our practice areas span all types of tort and personal injury cases in addition to unfair claims practices cases.

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).

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