Insurance Bad Faith in Minnesota Injury Cases: Fight Back
Insurance companies owe their own policyholders and, in some cases, third-party claimants, duties of good faith. When they violate those duties, Minnesota law provides specific remedies that can significantly increase the value of an injury case. Bad faith cases require careful documentation, and not every low offer or delay rises to the standard of bad faith. Understanding the framework helps you spot bad faith when it happens.
What Is Insurance Bad Faith?
Insurance bad faith occurs when an insurer breaches its duty of good faith and fair dealing to its insured. Common examples:
- Unreasonable delay in investigating or paying a claim.
- Unreasonable denial of a covered claim.
- Failing to accept a reasonable settlement within policy limits when doing so would expose the insured to excess liability.
- Misrepresenting policy terms or coverage.
- Refusing to communicate the reason for denial.
- Requiring unnecessary or repetitive documentation.
First-Party vs. Third-Party Bad Faith
Minnesota recognizes bad faith claims by insureds against their own insurer (first-party) and against liability insurers by injured claimants (third-party) in specific scenarios. First-party claims typically involve UM/UIM disputes, PIP denials, or homeowner and property claims. Third-party bad faith claims usually arise after an excess judgment when the liability insurer failed to settle within policy limits.
Minnesota Statutory Bad Faith Remedy
Minn. Stat. 604.18, effective for insurance claims filed after August 1, 2008, provides taxable costs of up to $250,000 or 50% of the unpaid claim (whichever is less), and reasonable attorney fees up to $100,000, when a plaintiff proves:
- The insurer had no reasonable basis for denying or delaying payment.
- The insurer knew of the lack of reasonable basis or acted in reckless disregard of that lack of basis.
These remedies are separate from the underlying compensatory damages and are awarded by the court in a post-verdict proceeding.
Common Bad Faith Fact Patterns
1. Late or No Response
Insurers who fail to respond to reasonable inquiries within statutory timeframes may open themselves to bad faith exposure. Document every unanswered call and letter.
2. Lowball Offers Disproportionate to Documented Damages
An offer significantly below well-documented medical bills and lost wages, without meaningful explanation, is not automatic bad faith but can become part of a pattern.
3. Requiring Documentation Already Provided
Repeated demands for the same records after they have been provided suggest the insurer is stalling.
4. Denial Without Investigation
An insurer that denies a claim without meaningful investigation, particularly when independent evidence exists, is at risk of bad faith exposure.
5. Failure to Settle Within Limits
Liability insurers who refuse a reasonable within-limits settlement offer and expose the insured to an excess judgment may face third-party bad faith liability from the insured’s assigned claim.
Documentation That Supports Bad Faith Claims
- Full written communications with the insurer.
- Log of all phone calls with dates, times, and adjuster names.
- Copies of every document provided.
- Independent medical records and provider statements.
- Any recorded misstatements or misrepresentations.
- Timeline showing the insurer’s response times.
What Bad Faith Is Not
- A good-faith dispute over policy coverage.
- A reasonable low offer based on a real disagreement about damages.
- A denial based on a legitimate coverage exclusion.
- Delays caused by the insured’s own delays in providing information.
Steps If You Suspect Bad Faith
- Send a written demand letter that clearly requests coverage and payment.
- Give the insurer a reasonable deadline to respond substantively.
- Preserve every piece of communication.
- Consult a Minnesota bad faith attorney before filing suit.
- File the underlying claim (personal injury or UM/UIM) and preserve statutory bad faith remedies for post-verdict proceedings.
Frequently Asked Questions
Can I sue the other driver’s insurance company directly for bad faith?
Third-party bad faith by liability insurers is limited in Minnesota. Typically the insured (not the injured party) has the direct bad faith claim, though assignment of that claim to the injured party is common after an excess judgment.
How much can I recover in a Minnesota bad faith case?
Under Minn. Stat. 604.18, taxable costs are limited to the lesser of $250,000 or 50% of the unpaid claim, plus reasonable attorney fees up to $100,000. These are on top of the underlying compensatory damages.
How long does an insurer have to respond to my claim in Minnesota?
There is no single deadline, but Minnesota law and insurance regulations expect prompt investigation and communication. Repeated unexplained delays contribute to a bad faith theory.
Does bad faith apply to no-fault (PIP) denials?
Yes. First-party bad faith principles apply to unreasonable PIP denials and delays. Minnesota’s PIP system has specific arbitration procedures that overlap with bad faith remedies.
Should I try to negotiate before threatening bad faith?
Yes. Good-faith negotiation and clear demand letters usually resolve disputes without formal bad faith litigation. Bad faith remedies are for genuinely unreasonable insurer conduct, not ordinary disagreements about value.
Disclaimer: This article provides general information about Minnesota law and is not legal advice. For guidance about your specific situation, consult a licensed Minnesota attorney.
Talk to a Minnesota attorney at Metro Law Offices, Ltd.. Call 763-314-3800 or visit our contact page for a free consultation.
