Good Faith Fracas

Minnesota’s businesses and individuals understand how insurance should work. Whether hail destroyed your roof or someone else’s car broke your leg, a policyholder or injured third party who makes a legitimate claim receives fair compensation from the insurance company, subject to the terms and limits of the policy. If not, you see the insurance company in court.

If proposed legislation passes during the Minnesota legislature’s 2008 session, however, consumers who feel that an insurance company has treated them unfairly will get some additional rights, and the possibility of substantially greater awards. The law would represent a victory for trial lawyers, whose industry association has championed expanded rights and awards, and a defeat for the insurance industry, which staunchly opposes a new law as unnecessary and likely to encourage fraud and inflate premiums.

"[It] would open the floodgates to . . . frivolous lawsuits." -Mark Kulda, Insurance Federation of Minnesota

New Law, New Rights

A so-called good faith bill narrowly failed to pass in the 2007 legislative session, and it’s likely that any bill proposed in the 2008 session will include key provisions from the old one.

The law’s most important provision would allow claimants to sue insurance companies who deny, underpay, or delay claims in bad faith. “Bad faith,” in this case, would mean the deliberate and incorrect denial or underpayment of a claim. Depending on the legislation’s final form, “bad faith” could also mean an individual mistake or bureaucratic slip-up on the part of an insurance company.

First-party claimants—people filing claims against their own policies—would see an expansion of the types of damages they can collect. Under current law, successful first-party plaintiffs can’t receive an award in court that’s larger than the limits of their policy. They also can’t collect punitive damages and must pay their own court costs and attorneys’ fees.