In addition to having a statute prohibiting insurance carriers from being unfair when settling claims, Nevada still recognizes what is called common law bad faith.
Both laws are supposed to protect policyholders from harm. An insurance company may not refuse to honor its agreement to pay valid claims or try to use its superior financial position to force a policyholder to give up all or some of their rightful payment after a claim.
If they do so, the policyholder should receive compensation.
A common law bad faith claim covers different behavior than does the statute.
The statute prohibits specific misconduct by insurance carriers.
Even if a violation happens only once, a policyholder who, for example, has had a claim delayed or denied illegally may sue for damages even beyond the limits of a policy.
On the other hand, common law bad faith will require the policyholder to prove that an insurance carrier’s poor behavior was more than just an isolated mistake.
If a policyholder can prove common law bad faith, then in some cases, they might be able to get punitive damages.
In bad faith cases, punitive damages are available when an insurance company has acted in a way that deserves a serious enough consequence to discourage other companies from repeating the same behavior.
This is why Nevada law also refers to punitive damages as exemplary damages.
For insurance bad faith cases, caps on punitive damages do not apply
Unlike other cases, Nevada’s laws do not limit the amount of punitive damages a court can impose on an insurance company that has acted in bad faith when that company has refused to provide coverage when it should.
Insurance carriers should have practices and processes in place so they do not wrongly deny or underpay claims. On the other hand, they may opt to defend against common law bad faith claims particularly because the potential penalties are so severe.