Minnesota's First-Party Bad Faith Statute Summary

1. 145 Grand Oak Office Center X 2805 Dodd Road Eagan, MN 55121-1519 Website: www.cjnoellaw.com E-mail: cjnoel@cjnoellaw.com Minnesota’s First-Party Bad Faith Statute M.S. 604.18 (2008) Presented to Northwest Loss Association January 21, 2009 by Charles J. Noel Charles J. Noel & Associates, P.A.

2. Charles J. Noel & Associates, P.A.

3. Charles J. Noel & Associates, P.A.

4. EFFECTIVE DATE OF STATUTE: AUGUST 1, 2008 • The Statute covers conduct occurring on or after August 1, 2008. Charles J. Noel & Associates, P.A.

5. WHO CAN RECOVER UNDER THE BAD FAITH STATUTE? • Only an “Insured” may recover. • Neither Claimants, Third-Party Beneficiaries, nor Assignees can make a claim under this Statute. Charles J. Noel & Associates, P.A.

6. CLAIMS SUBJECT TO THE BAD FAITH STATUTE 1. Property Insurance Claims. 2. Uninsured Motorist Claims. 3. Underinsured Motorist Claims. 4. No-Fault Claims. 5. Business Interruption Claims. Charles J. Noel & Associates, P.A.

7. CLAIMS TO WHICH THE BAD FAITH STATUTE IS NOT APPLICABLE 1. Timely arson or fraud investigations. 2. Claims resolved or confirmed by arbitration. 3. Claims resolved or confirmed by appraisal. Charles J. Noel & Associates, P.A.

8. STANDARD FOR LIABILITY • The Court may award taxable costs if the insured can show: • The absence of a reasonable basis for denyingbenefitsand • 2. That the insurer knew of the lack of a reasonable basis for denying the benefits or acted in reckless • disregard of the lack of a reasonable basis for • denying benefits. Charles J. Noel & Associates, P.A.

9. ACTIONS BY INSURER THAT CAN RESULT IN BAD FAITH CLAIM • Denying claim without adequate investigation. • Rush to judgment. • Claim file notes that do not document reasonable basis for denying the benefits. • Failure to communicate with insured. • Offer to settle for less than policy limits when policy limits are owed. • Offer to settle for less than demand when reasonable demand has been received. Charles J. Noel & Associates, P.A.

10. CLAIM HANDLING GUIDELINES • 1. Document reasonable basis for any claim denial. • 2. Be able to prove reasonable basis for any claim denial. • 3. Be careful with respect to any entries in claim file. • 4. Conduct internal committee meeting regarding claim denial. • 5. Be consistent. • 6. Consult counsel if in doubt. • 7. Re-evaluate claim if facts change. • 8. Check jury verdict research regarding claim value. • 9. Consider the use of experts. Charles J. Noel & Associates, P.A.

11. PROCEDURE FOR CLAIMING TAXABLE COSTS • Initial Complaint cannot seek recovery under this Statute. • Insured must make motion to amend pleadings to claim recovery of taxable costs under this Statute. Charles J. Noel & Associates, P.A.

12. REQUIREMENTS OF MOTION TO AMEND • Motion must allege the applicable legal basis under the Statute for awarding taxable costs. • Motion must be accompanied by one or more Affidavits showing the factual basis for the motion. Charles J. Noel & Associates, P.A.

13. REQUIREMENTSFOR OPPOSITION TO MOTION • Motion may be opposed by the submission of one or more Affidavits showing there is no factual basis for the motion. Charles J. Noel & Associates, P.A.

14. STANDARD FOR GRANTING MOTION TO AMEND • The Court may grant permission to amend the pleadings to claim taxable costs if the Court finds prima facie evidence in support of the motion. Charles J. Noel & Associates, P.A.

15. WHO HAS THE BURDEN OF PROOF? • The Insured has the burden of proof. • Insured must bring motion to amend pleadings to claim recovery of taxable costs. • If Court finds prima facie evidence to support the motion, the Court may grant permission to amend. • Findings of no-fault arbitration proceedings are not admissible. • Department of Commerce administrative investigations and findings are not admissible. • Administrative bulletins or other informal guidance published by the Department of Commerce is not admissible. Charles J. Noel & Associates, P.A.

16. DAMAGES AND COSTS ALLOWED BY THE BAD FAITH STATUTE • The Court may award an Insured: • 1.Either ½ the proceeds awarded that exceed an amount offered by the insurer at least 10 days before trial begins or $250,000, whichever is less; and • 2.“Reasonable attorney fees”, not exceeding $100,000, incurred only to establish the insurer’s violation of the Statute. • Punitive or exemplary damages may not be awarded. Charles J. Noel & Associates, P.A.

17. PROOF OF ATTORNEY’S FEES • Attorney’s fees must be: • Separately accounted for by the insured’s attorney. • Not duplicative of the fees the insured’s attorney otherwise expended in pursuit of proceeds for the insured under the policy. • Attorney’s fees must not exceed $100,000. Charles J. Noel & Associates, P.A.

18. PROCEDURE FOR DETERMINING AWARD OF TAXABLE COSTS • An award of taxable costs shall be determined by the Court. • Determination shall be in a preceding subsequent to determination by fact finder of the amount an insured is entitled to recover under the insurance policy. • Minnesota General Rules of Practice, Rule 119, governs the procedure for award of taxable costs. Charles J. Noel & Associates, P.A.

19. ITEMS NOT ADMISSIBLE IN PROCEEDING THAT SEEKS TAXABLE COSTS • Findings or determinations made in no-fault arbitration proceedings. • Allegations or results of administrative proceedings conducted by the Department of Commerce. • Administrative bulletins or other informal guidance published by the Department of Commerce. • Rules adopted under Minnesota’s insurance statutes are not admissible as standards of conduct. Charles J. Noel & Associates, P.A.

20. LIMITATION OF LIABILITY OF INSURANCE PRODUCERS • A licensed insurance producer is not liable for: • Errors • Acts or • Omissions • Of the insurer except to the extent a producer has caused or contributed to the error, act, or omission. Charles J. Noel & Associates, P.A.

21. QUESTIONS RAISED BY THE BAD FAITH STATUTE • What does “denying the benefits” mean? • What are “proceeds awarded”? • Judge vs. Jury • How hard will it be for the insured to amend the Complaint? Charles J. Noel & Associates, P.A.

22. Questions? Thank You! Charles J. Noel & Associates, P.A.