Dealing with Bad Faith Insurance Practices in Montana

Understanding Bad Faith Insurance in Montana

Insurance is a contract of utmost good faith, meaning both the insurer and the insured must act honestly and fairly. In Montana, an insurance company acts in “bad faith” when it unreasonably and knowingly denies, delays, or undervalues a valid claim from its policyholder. This breach of the implied covenant of good faith and fair dealing is a serious violation of state law and insurance regulations. Common tactics include demanding excessive documentation, misrepresenting policy language, failing to properly investigate a claim, making unreasonably low settlement offers, or delaying payment without a justifiable cause.

Montana’s Legal Framework: The Unfair Claims Settlement Practices Act

Montana Code Annotated (MCA) Title 33, Chapter 18, specifically sections 33-18-201 and 33-18-242, form the backbone of consumer protection against insurer misconduct. The Montana Unfair Claims Settlement Practices Act (UCSPA) explicitly prohibits sixteen specific unfair claim settlement practices. Some of the most relevant to policyholders include:

Misrepresenting facts or policy provisions (MCA 33-18-201(1))
Failing to acknowledge and act promptly upon communications (MCA 33-18-201(2))
Failing to adopt and implement reasonable standards for prompt investigation (MCA 33-18-201(3))
Refusing to pay a claim without conducting a reasonable investigation (MCA 33-18-201(4))
Failing to affirm or deny coverage within a reasonable time after proof of loss statements are completed (MCA 33-18-201(5))
Not attempting in good faith to effectuate prompt, fair, and equitable settlements (MCA 33-18-201(6))
Compelling insureds to institute litigation by offering substantially less than what was recovered (MCA 33-18-201(10))
Failing to promptly provide a reasonable explanation for a denial (MCA 33-18-201(9))

A violation of the UCSPA does not automatically create a separate private cause of action for a policyholder. However, under MCA 33-18-242, if an insured can prove the insurer violated one of these regulations and that the violation was committed knowingly, they may be entitled to recover actual damages, court costs, and reasonable attorney fees.

First-Party vs. Third-Party Bad Faith Claims

Understanding the distinction between first-party and third-party claims is crucial.

First-Party Bad Faith: This occurs when you make a claim directly against your own insurance policy (e.g., a homeowner’s claim for fire damage, a health insurance claim, or a UIM claim). The dispute is directly between you and your insurer. Most bad faith cases in Montana fall into this category.
Third-Party Bad Faith: This arises from a liability claim. For example, if you are injured in a car accident and the at-fault driver’s insurance company refuses to settle a claim within policy limits, acting against their own insured’s best interests, that driver may have a third-party bad faith claim against their insurer.

Red Flags: Signs Your Insurer Might Be Acting in Bad Faith

Montana policyholders should be vigilant for these warning signs:

Unnecessary Delays: The insurer repeatedly postpones decisions, asks for the same documents multiple times, or drags out the investigation without a valid reason.
Inadequate Investigation: The adjuster fails to interview key witnesses, ignores relevant evidence, or hires biased experts to support a denial.
Lowball Offers: The initial settlement offer is far below the reasonable value of the claim, often accompanied by pressure to accept immediately.
Policy Misinterpretation: The insurer cites obscure policy language to deny a claim that a reasonable person would believe is covered.
Failure to Communicate: Your calls and emails go unreturned for extended periods, leaving you in the dark about your claim’s status.
Denial Without Explanation: You receive a denial letter that is vague, lacks specific policy references, or fails to provide a clear rationale.

Your Action Plan: Steps to Take Against a Bad Faith Insurer

If you suspect bad faith, proactive and documented steps are essential.

Know Your Policy: Thoroughly review your insurance policy. Understand your coverage, limits, deductibles, and the duties required of you after a loss.
Document Everything: Maintain a detailed log of every interaction with the insurance company. Record the date, time, name of the representative, and a summary of the conversation. Follow up phone calls with an email summarizing what was discussed.
Put It in Writing: Submit all important communications via email or certified mail to create a paper trail. This includes your initial claim, supporting documents, and requests for status updates.
Appeal Internally: Request a formal review or appeal with the insurance company. Ask them to identify the specific policy provision supporting their position and to provide a full copy of their claim file.
File a Complaint with the Montana Commissioner of Securities and Insurance: The Commissioner’s office can investigate your complaint and potentially levy fines or sanctions against the insurer for regulatory violations. While they cannot force the company to pay your claim or award you damages, their investigation can pressure the insurer to reconsider its position.
Consult with a Montana Bad Faith Insurance Attorney: Before accepting a low offer or abandoning your claim, seek legal counsel. An attorney experienced in Montana insurance law can evaluate the strength of your case, navigate the complex legal process, and advocate for your rights. Most work on a contingency fee basis for bad faith cases, meaning they only get paid if you recover.

Potential Remedies and Recoverable Damages

Successfully proving a bad faith claim in Montana can lead to several types of compensation beyond the original value of the insurance claim.

Contract Damages: The full amount owed under the insurance policy.
Consequential Damages: Compensation for additional financial losses caused by the delay or denial (e.g., lost business income, foreclosure, or additional property damage).
Emotional Distress: In some cases, compensation for the mental anguish caused by the insurer’s unreasonable conduct.
Court Costs and Attorney Fees: Recoverable under MCA 33-18-242 if the violation is proven.
Punitive Damages: In cases of particularly egregious, oppressive, or fraudulent conduct, a court may award punitive damages to punish the insurer and deter similar behavior in the future.

The Role of the Montana Commissioner of Securities and Insurance

The Montana State Auditor’s Office, which houses the Commissioner of Securities and Insurance, is the primary regulatory body overseeing insurance companies operating within the state. Consumers can file a formal complaint online or by mail. The department will then initiate an inquiry, request a response from the insurer, and review the information to determine if a violation of the UCSPA occurred. Regulatory action can include fines, market conduct examinations, and orders to cease and desist specific practices. While a powerful tool for holding insurers accountable, this process is separate from a private lawsuit for damages.

Special Considerations: Weather-Related Claims and Natural Disasters

Montana’s severe weather, including hailstorms, wildfires, and blizzards, often leads to a high volume of property damage claims. In these situations, insurers may be overwhelmed, but this is not an excuse for bad faith practices. After a widespread disaster, be extra diligent. Document your damage thoroughly with photos and videos before making temporary repairs. Be wary of adjusters who try to quickly settle for a minimal amount, as the full extent of damage may not be immediately apparent. Understand that while some delays may be logistical, a complete failure to communicate or investigate is unacceptable.

Why Legal Counsel is Critical in Montana Bad Faith Cases

Insurance law is complex, and insurers have teams of experienced lawyers. Proceeding without counsel puts you at a significant disadvantage. A skilled Montana insurance attorney understands the nuances of the UCSPA, the required legal standards of proof, and the tactics insurers use. They can secure crucial evidence through discovery, depose adjusters and experts, and effectively negotiate for a full and fair settlement. If a fair settlement cannot be reached, they are prepared to litigate and present a compelling case to a Montana jury.