Nevada’s “No Bad Faith Without Coverage” Rule and Its Impact on Insurance Disputes

In personal injury cases, the concept of insurance bad faith refers to situations where an insurance company fails to deal fairly with someone making a claim, such as unreasonably denying benefits, delaying payment, or refusing to investigate properly.

Many injury victims believe they can sue an insurer for bad faith whenever they feel the company has treated them unfairly. However, this isn’t quite how it works. Under Nevada law, common-law bad faith tort claims are typically available only in first-party settings (against your own insurer), because there is no contractual relationship between a third-party claimant and the insurer of a negligent party.

What is Nevada’s “no bad faith without coverage” rule?

Nevada courts have held that a bad faith tort claim generally cannot proceed unless the insured first establishes a “covered loss” under the policy (sometimes called establishing “legal entitlement”), because bad faith requires more than just coverage disputes – it requires an underlying contractual obligation to pay.

This means you can’t win a bad-faith lawsuit against your insurer just because their claims process was handled poorly, if your specific loss was never covered to begin with.

Two types of claim disputes

Nevada courts make a clear divide between two main types of disputes. Coverage disputes concern whether the specific incident (like a car accident or property damage) even falls under the protection offered in your policy language. Claim handling disputes, on the other hand, often arise alongside, but sometimes after, coverage disputes.

Proving your right to coverage is generally the threshold (first) question; the court won’t consider questions of bad faith in claim handling unless coverage does exist for the underlying loss. It prevents unnecessary litigation about procedures or conduct where the insurance company did not have to pay the claim in the first place.

How this rule shapes personal injury and insurance claims

Nevada’s “no bad faith without coverage” rule shapes how injury victims, attorneys, and insurers approach each stage of the claims process. Having some context on how the rule affects your options can help you better prepare for challenges after an accident.

Limits on lawsuits for claim mishandling

If your insurance policy didn’t actually provide coverage for the type of loss you suffered, you can’t bring a successful bad faith lawsuit, even if the company gave you the runaround or treated you unfairly when handling your claim.

Importance of investigating and proving coverage

Lawyers and claimants need to review the language of the insurance policy carefully. Establishing that your claim falls within covered losses is the foundation for many subsequent legal remedies, including bad faith.

Pressure on insurers to define coverage clearly

This rule incentivizes insurers to be explicit in their policies and clarify when they do and do not owe policyholders payment. Both sides must look closely at definitions, exclusions, and exceptions in policy documents.

Nevada’s standard often means much of the battle is fought early during the coverage review phase.

When bad faith claims can be filed

Despite Nevada’s strict rules on coverage, there are times when injured parties can proceed with a bad faith lawsuit against their insurer. To succeed, you must clear legal hurdles and show appropriate grounds. Here are some situations where bad faith claims may be possible:

Clear demonstration of policy coverage

The first requirement is proof that the insurance policy actually protects against your particular loss. A review of your insurance contract is essential. Only after you point to clear policy language covering your situation can you even consider this type of claim.

Unjust or unreasonable denial of covered claim

If you establish that coverage does exist and the insurance company denied your claim without having a valid reason, it’s possible that this might be considered bad faith. You’ll need to compile communications between yourself and the insurer showing either dismissiveness or a refusal to reasonably investigate. Courts expect companies to look honestly at evidence and requests – to give equal consideration to policyholder interests, not just chase their own profits.

Intentional delay or offer of unreasonably low settlements

When coverage is clear, if an insurance company continually drags its feet or offers totally unreasonable settlements, bad faith may arise when the insurer lacks a reasonable basis for its conduct. This could involve obvious stalling despite submitted documentation, foul play intended to exhaust you into settling for less, or needlessly prolonging the outcome while policyholders struggle financially.

Ultimately, winning a bad-faith suit requires injured parties to demonstrate far more than the mere fact that a claim was denied. A lawyer can help you build your case and fight back in these difficult situations.

Are there any exceptions to the rule?

While Nevada’s “no bad faith without coverage” rule is strictly applied most of the time, there may be some nuances that injured parties would benefit from being aware of.

Declaratory judgment actions

In some cases, an injured party or an insurer may file a declaratory judgment action, asking a court to officially decide the meaning of a policy or whether coverage truly exists. However, declaratory judgment actions still resolve coverage first; bad faith claims proceed only if coverage is ultimately found.

Ambiguous policy language

In situations where policy language is genuinely ambiguous, disputes over coverage may overlap with allegations about how the insurer handled the claim. However, bad faith liability still depends on a final determination that coverage exists.

Failure to properly investigate coverage

Another scenario you should be aware of is when the insurer fails to conduct a full investigation of coverage or quickly jumps to denial, despite possible responsibility. Nevada requires coverage entitlement for bad faith liability, but an insurer’s failure to reasonably investigate a potentially covered claim can support bad faith once benefits are shown to be owed.

No two insurance disputes are alike, and potential exceptions to this rule may exist. If you’re dealing with an insurance claim or a bad faith situation, our team can provide guidance along the way. Call us today or complete our online contact form to schedule a free consultation.