Insurance Bad Faith and Unfair Trade Practices in Claims Handling

Montana’s Unfair Trade Practices Act (UTPA)

Applies to property and bodily injury claims

Consider the unhappy circumstance where your house or business catches fire, or a car crash, or cases in which bicyclists are run over, pedestrians killed. What typically happens in tragic situations such as these is that the insured will contact his or her homeowner's or automobile insurance carrier, and in bodily injury cases, the person who causes the harm will notify his or her insurance company of the loss, and the injured person will make a claim against that same insurer for damages. What also happens with alarming frequency, is that the insurance company will arrogantly assume a “so sue me” attitude and refuse to settle the case for a reasonable amount, forcing the injured victim, and its own policyholders, to the uncertainty of trial.

Where the insurance company’s actions are not in good faith, both the insured (the “first party” to the contract of insurance) and the person he or she injures (typically referred to as a “third party”) may bring actions against insurance companies who violate Montana’s Unfair Trade Practices Act (UTPA). M.C.A. 33–18–242(1).

“First Party” and “Third–Party” actions allowed

Third parties are allowed to recover against another’s insurance policy because it is the insurance company that usually controls the defense of the underlying lawsuit –– and the decision to settle. Further, an obvious and inherent conflict arises when the injured “third party” offers to settle the case for policy limits or a reasonable amount under policy limits, and the insurance company refuses to settle. In this kind of situation, the insurance company subjects itself to little or no additional liability by risking trial (it is liable only for its policy limits, after all). But, in addition to harming the injured “third party” by its refusal to settle for a fair amount, the insurance company’s cavalier gamble in proceeding to trial exposes its own policyholder to significant personal liability.

In response to this dilemma, Montana looked for a way to protect the policyholder from personal liability. In cases where insurance companies refused to settle and an excess verdict was rendered, courts required a showing by the insurer that it acted in good faith in refusing to settle the policyholder's claim to avoid liability for the excess verdict.

The UTPA provides a “laundry list” of prohibited behavior, often referred to as “statutory bad faith,” for which an insurance company will be liable to either or both its policyholder and the injured third party:

misrepresenting pertinent facts or insurance policy provisions relating to the coverage at issue;

refusing to pay claims without conducting a reasonable investigation based upon all available information;

failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed;

neglecting to attempt in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear;

attempting to settle claims on the basis of an application which was altered without notice to or knowledge or consent of the insured;

failing to promptly settle claims, if liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage.

M.C.A. 33–18–201, subsections (1), (4), (5), (6), (9), and (13).

Statute of limitations

The time in which you may file suit depends on whether you are the policyholder or a “third party.” The time periods are shorter than you might think:

a policyholder must file suit within two years of the date of violation of the prohibited “laundry list” behavior under M.C.A. 33–18–242;

a third party must file suit within one year of the date of the settlement, or entry of judgment on the underlying claim.