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A Dispute As To The Value Of A UM/UIM Claim Does Not Constitute A Breach Of The Implied Covenant Of Good Faith And Fair Dealing

Insurance companies have felt the burden of the economic downturn as insured’s have reduced their liability coverage or eliminated their coverage completely. Where the coverage of  a tortfeasor is insufficient to compensate an injured party, that party often turns to his/her own insurer’s UM/UIM policy to close the gap. It is this relationship which has increasingly given rise to claims for breach of the implied covenant of good faith and fair dealing, commonly referred to by Plaintiff’s counsel as “bad faith”.

Nevada Bad Faith, Bad Faith Law in Nevada, Nevada Coverage Law, Nevada Bad Faith Law, Mills & Associates Nevada Insurance Coverage and Bad Faith Lawyers, Las Vegas Insurance Coverage and Bad Faith Lawyers 702-240-6060 How does an insurer protect itself from this growing trend? Mills & Associates addresses this issue:

Nevada recognizes that the duty of good faith and fair dealing is implied in every contract of insurance.  See, Ainsworth v. Combined Insurance Co., 104 Nev. 587, 592, 763 P.2d 673, 676 (1988). In Nevada, insurance bad faith arises when a carrier denies policy benefits and the carrier knows or should know that there is no reasonable basis for such a denial.  See Schumacher v. State Farm Fire & Cas. Co., 467 F.Supp.2d 1090 (D. Nev. 2006); Falline v. GNLV Corp., 107 Nev. 1004, 1009, 823 P.2d 888 (1991); Farmers Home Mutual Ins. v. Fiscus, 102 Nev. 371, 374, 725 P.2d 234, 235 (1986) and Am. Excess Ins. Co. v. MGM, 102 Nev. 601, 605, 729 P.2d 1352, 1654-55 (1986).

However, in Nevada, an insurance company is not in bad faith for making an erroneous estimate of value.  See supra, Schumacher at 1095 (D. Nev. 2006)(citing U.S. Fidelity & Guar. Co. v. Peterson, 540 P.2d 1070 (Nev. 1975)).  Schumacher involved a claim for water damage.  There, the court entered Summary Judgment in favor of the insurance company on the cause of action for bad faith by explaining:

The record reveals that State Farm did not deny Schumacher’s claims without a reasonable basis or that it denied the claims with the knowledge that it had no reasonable basis to deny coverage or that it recklessly disregarded the unreasonableness of the denial, State Farm did not deny the claim, it just paid a different value than Schumacher requested. Under the reasoning of Pioneer, (Pioneer Chlor Alkali Co., Inc. v. Nat’l Union Fire Ins. Co., 863 F.Supp. 1237, 1244 (D.Nev.1994)) this makes the complaint more of one based upon statutory violations of NRS 686A.310 than it does a bad faith action.

Id. at 1095.

In an uninsured / underinsured motorist setting, the court in Wilson v. State Farm Mut. Auto. Ins. Co., 795 F.Supp. 1077 (D. Wyo. 1992) explained the rationale behind a similar conclusion:

[The plaintiff] Wilson has the burden of proving the amount of the liability, and until he does the amount is “fairly debatable.”  State Farm is entitled to pursue that debate without being subjected to a claim of the violation of the duty of good faith and fair dealing.  Further, the insurer was not obligated under its duty of good faith to pay the policy limits where the precise amount of its liability was debatable.

Id. at 1081.

In the UM / UIM context, the issue of whether a dispute as to value constituted bad faith came before the court in Nelson v. Safeco Ins. Co., No. 2:10-CV-241 JCM (LRL) (D. Nev. filed March 8, 2011).  In that order, the court, citing Schumacher, granted the Defendant insurance company’s Motion for Summary Judgment on the bad faith claim stating:

Here, there is no evidence of bath faith because the defendant did not deny plaintiff’s claim. Rather, plaintiff alleges that the amount paid under the policy was less than what it should have been, which is insufficient to show bad faith. See id. at 1096 (finding that such an allegation “makes the complaint more of one based upon statutory violations of NRS 686A.310 than it does a bath faith action”). Accordingly, defendant’s motion for summary judgment is granted as to this claim for relief.
Id. at 3.

Keep in mind that it is rare to never that the Plaintiff alleges bad faith as its only cause of action.  As was done in Schumacher, the Plaintiff usually bundles up the bad faith cause of action with other claims, including allegations of violation of the fair claims practices act and breach of contract.  So success on this issue is usually not dispositive of the entire suit.  However, absent an outright denial of the claim or a delay sufficient to amount to a constructive denial, it appears that Nevada courts have not and will not uphold a claim for breach of implied covenant of good faith and fair dealing.  As Schumacher demonstrates, a dispute over the value of a claim is simply not enough to support such a cause of action.

Mills & Associates Nevada Coverage and Bad Faith Lawyers 702-240-6060