Insurance bad faith in Nevada refers to a situation where an insurance company, without a reasonable basis, refuses to defend or indemnify a policyholder. An insurance policy is a contract and when the insurer fails to cover a valid claim, the insured has a potential tort claim and breach of contract claim.
Liability insurance companies in Nevada have a “duty to defend” and indemnify their policy holders against third party claimants. This means that when someone makes a claim against a policy holder for a potentially covered risk, the insurer must:
- Investigate the claim in good faith, and
- Provide the policy holder with a legal defense.
Damages for “bad faith” by an insurer can include:
- Costs of hiring a lawyer to defend the claim (“attorney’s fees”);
- Damages for emotional distress; 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 a policy holder?
- 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?
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 claims up to the insurance coverage policy limit when the policy holder experiences a “covered risk,”
- Promptly and fairly investigate claims to determine who is liable,
- Defend the policy holder against third party 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.
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 isn’t covered is probably not bad faith.
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
- any other relevant evidence allowable under Nevada’s discovery rules
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.
- Failing to communicate with the policy holder regarding a claim.
- Failing to give adequate reasons for refusal to disburse a claim.
- 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.
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
Compensatory damages for a bad faith breach of the duty to defend and duty to indemnify can include:
- 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.
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
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
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. We 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 costs 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 and the insurer’s duty to defend and indemnify in Colorado.
- 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.
- 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).