The Legal Framework Governing Insurance in Montana
Insurance in Montana operates under a legal principle known as the covenant of good faith and fair dealing. This is an implied term in every insurance contract, meaning that both the insurer and the policyholder must act honestly and fairly toward one another. The insurer’s duty is to thoroughly investigate claims, not to unreasonably deny or delay payment, and to place the interests of its policyholder on at least equal footing with its own. When an insurance company breaches this duty, it is acting in “bad faith.” Montana has some of the strongest consumer protection laws in the nation, specifically designed to hold insurers accountable for such practices. The Montana Insurance Code and numerous state Supreme Court cases, such as Story v. Montana and Klaudt v. Flink, have firmly established this legal landscape, granting policyholders powerful recourse.
Common Bad Faith Insurance Tactics Employed in Montana
Montana policyholders should be vigilant for several specific tactics that may signal bad faith. These practices are not always overt but form a pattern of obstruction and delay.
- Unreasonable Delay or Denial of Claims: An insurer has a duty to promptly investigate a claim. An unreasonable delay, often through requests for redundant or irrelevant documentation, is a common tactic. Outright denial of a valid claim without a reasonable basis rooted in the policy language or facts of the loss is a clear breach of faith.
- Failure to Properly Investigate: Insurers cannot deny a claim based on a predetermined outcome or a superficial investigation. They must conduct a thorough, objective, and prompt investigation into the facts before making a decision. Denying a claim without adequately reviewing the evidence is a form of bad faith.
- Lowball Offers: An insurer may act in bad faith by making a settlement offer significantly lower than the value of the claim, especially if it knows the offer is inadequate. This tactic preys on the policyholder’s potential financial desperation to settle quickly for less than what is owed.
- Misrepresentation of Policy Language: An adjuster might misinterpret or misrepresent the terms, conditions, or exclusions within the insurance policy to justify denying a claim. They may take policy language out of context or apply an exclusion that does not reasonably apply to the specific circumstances of the claim.
- Failure to Defend or Indemnify: In liability insurance cases (e.g., auto or homeowners), the insurer has a duty to defend its policyholder against lawsuits and to indemnify (pay for) covered losses. Refusing to provide a legal defense or pay a judgment within policy limits without a valid reason can constitute bad faith.
Montana’s Unique Consumer Protection Laws
Montana is notably policyholder-friendly due to several specific statutes and legal precedents that aggressively deter bad faith conduct.
- The Montana Unfair Trade Practices Act (MUTPA): Codified in the Montana Code Annotated (MCA) Title 33, Chapter 18, this law prohibits a long list of specific unfair claim settlement practices. These include misrepresenting facts, failing to acknowledge communications, failing to adopt standards for investigation, and not attempting in good faith to settle claims promptly and fairly.
- Punitive Damages: Montana law allows for the recovery of punitive damages in bad faith cases. These damages are intended to punish the insurer for its reckless or malicious conduct and to deter similar behavior in the future. The potential for substantial punitive awards is a significant deterrent for insurance companies.
- Treble Damages: Under MCA § 33-18-242, if an insurer is found to have violated the MUTPA, the court may award the plaintiff up to three times the actual damages. This powerful statute makes bad faith an extremely costly practice for insurers operating in the state.
- Recovery of Attorney’s Fees and Costs: A prevailing policyholder in a bad faith lawsuit is entitled to recover their reasonable attorney’s fees and costs from the insurance company. This removes a major financial barrier for consumers seeking to enforce their rights and levels the playing field against a large corporation.
High-Value Claims: Property, Auto, Health, and Disability
Bad faith can occur in any line of insurance, but it is often most pronounced in high-value claims.
- Property Insurance (Homeowners/Fire): After a major loss like a house fire, insurers may undervalue rebuilding costs, dispute the cause of the loss (e.g., claiming arson without evidence), or wrongfully apply policy exclusions for things like water damage. The financial pressure on a displaced family makes them vulnerable to lowball offers.
- Auto Insurance (UIM and Collision): Bad faith is prevalent in underinsured motorist (UIM) claims. An insurer owes the same duty of good faith to its insured when handling a UIM claim as it does in a first-party claim. They must fairly evaluate the insured’s injuries and not delay payment to leverage a lower settlement. In collision claims, insurers may intentionally undervalue a totaled vehicle or refuse to pay for genuine repairs.
- Health and Disability Insurance: These insurers may bad faith by arbitrarily denying coverage for medically necessary treatments, claiming a procedure is “experimental,” or terminating long-term disability benefits by asserting the claimant is no longer disabled despite contrary medical evidence. They may also engage in relentless requests for paperwork to delay payment.
The Claims Process and Building a Bad Faith Case
If you suspect bad faith, your actions are critical to building a strong case.
- Know Your Policy: Thoroughly review your insurance policy to understand your coverage, limits, and duties after a loss.
- Document Everything: Maintain a detailed log of all interactions with the insurance company, including dates, times, names of representatives, and summaries of conversations. Follow up phone calls with emails summarizing what was discussed to create a paper trail.
- Get Everything in Writing: Request that the insurer provide all decisions and communications in writing. This includes their reasons for any denial, delay, or low settlement offer.
- Comply with Requests Promptly: Fulfill your policy duties by submitting requested documentation in a timely manner to avoid giving the insurer a legitimate reason to delay.
- Seek Professional Guidance: If you encounter resistance, consult with a Montana attorney who specializes in insurance bad faith law. They can review your case, interpret the insurer’s actions, and advise you on your rights and the best course of action, which may include filing a lawsuit.
The Role of the Montana Commissioner of Securities and Insurance
The Montana Commissioner of Securities and Insurance (CSI) regulates the industry and protects consumers. Policyholders can file a formal complaint with the CSI against an insurer. The department will investigate the complaint and can issue fines, order corrective action, or require the insurer to pay the claim. While this can be an effective administrative remedy, it often runs parallel to, or is less comprehensive than, pursuing a bad faith lawsuit in court for full damages.
