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Does Nevada recognize third-party bad faith claims?

On Behalf of | Apr 3, 2023 | Insurance Law |

The duties of an insurance company may seem relatively simple on the surface. An insurer has the duty to pay valid claims brought by the policyholder and the insurer must defend the policyholder in potential lawsuits. Any lack thereof is bad faith.

However, things are rarely so straightforward, especially with regards to bad faith claims. This is especially so because there are first-party bad faith claims and third-party bad faith claims, some of which are recognized in Nevada and some of which are not.

First-party bad faith claims

First-party bad faith claims are filed by the policyholder against their insurer. It is based on the actions of their insurer, with whom they have a contractual relationship.

In a first-party bad faith claim, the policyholder is claiming their insurer acted unreasonably, knowing they were being unreasonable and did not meet their duty of care per the terms of the insurance policy. Thus, they are acting in bad faith towards the policyholder.

For example, the insurer might have denied a claim for coverage the policyholder filed that the insurer had no reasonable basis for denying. Or the insurer may have unreasonably refused to defend or indemnify the policyholder per the terms of the insurance policy.

It is important to note that the policyholder must have “legal entitlement” to pursue a bad faith claim based on failure of duty to defend. This means the policyholder must show that the tortfeasor at issue was the party at fault and their actions caused the damage the insured suffered. However, the policyholder need not go so far as to obtain a legal judgment against the tortfeasor to establish legal entitlement.

Third-party claims

In contrast, a third-party claim arises when a third-party who is not the policyholder and does not have a contractual relationship with the insurer tries to bring a bad faith claim against the insurer because the insurer failed to settle a claim through reasonable efforts and within the terms of the policy that the third-party is not a party to.

In general, Nevada does not recognize third-party bad faith claims. However, the policyholder is permitted at times to hand over their rights regarding a bad faith claim to another party who can then pursue it.

Bad-faith claims are complex

The world of bad faith claims may seem simple on the surface, but it can become very complex very quickly. Due to the many intricacies of a bad faith claim, those wishing to bring one against their insurer often work with professionals when doing so.

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