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The concept of bad faith lawsuits emerged nearly 50 years ago, with a widespread problem of insurers denying claims and policyholders having to sue for breach of contract. Virginia's new bad faith law, effective from July 1, 2024, is a significant shift for underinsured or uninsured (UIM) carriers. The new law, Virginia Code § 8.01-66.1, creates a duty for UIM carriers to settle before trial when liability to the insured is reasonably foreseeable. This marks a notable change, as previously, UIM carriers only faced consequences for bad faith refusal to pay after a judgment had been obtained. Now, UIM carriers can be liable for bad faith denial, refusal, or failure to pay, or make a timely settlement offer. If a court determines that a UIM carrier acted in bad faith, it can award the insured up to double the judgment obtained against the tortfeasor, to a maximum of $500,000, along with attorney fees and costs.
| Characteristics | Values |
|---|---|
| Date of new bad faith law | July 1, 2024 |
| New law | Virginia Code § 8.01-66.1 |
| Previous law | Va. Code § 8.01-66.1 |
| Previous law duty | Created a remedy when UIM carriers refused in bad faith to pay once the insured had obtained judgment |
| New law duty | Triggered when liability to the insured has become reasonably foreseeable without the necessity of a judgment by its insured |
| UIM carrier can be liable if it | In bad faith denies, refuses, fails to pay, or fails to make a timely and reasonable settlement offer |
| UIM carrier can be liable if it | After all applicable liability policy limits and underlying UIM benefits have been tendered or paid, rejects a reasonable settlement demand within the UIM policy’s coverage limits or fails to respond within a reasonable time after being presented with such demand |
| Court determination of UIM carrier's conduct | Not in good faith |
| Court award | Amount due and owing by the UIM carrier to its insured, an amount up to double the judgment obtained against the tortfeasor (not to exceed $500,000), attorney fees for bringing the bad faith claim, and all costs and expenses incurred by the insured to secure a judgment against the tortfeasor, and interest |
| Statute that governs bad faith claims | Virginia Code 38.2-209(A) |
| Bad faith at its core | Fraud |
| Types of fraud | Fraud in the inducement, promissory fraud, fraud in the factum, and statutory fraud |
| General criteria for determining bad faith or fraud | Any misrepresentation of pertinent facts, attempting to steer the claimant away from legal services, misleading the claimant as to the statute of limitations, providing false information to any examining physicians who are rendering opinions about the claimant, intentionally misconstruing terms within the policy, reducing payments to claimants on a widespread basis with the idea of nickel and diming them |
| Unfair claim settlement practices | Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue, failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies, failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies, refusing arbitrarily and unreasonably to pay claims, failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed, not attempting in good faith to make prompt, fair and equitable settlements of claims in which liability has become reasonably clear, compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such insureds, attempting to settle claims for less than the amount to which a reasonable man would have believed he was entitled by reference to written or printed advertising material accompanying or made part of an application, attempting to settle claims on the basis of an application that was altered without notice to, or knowledge or consent of, the insured, making claims payments to insureds or beneficiaries not accompanied by a statement setting forth the coverage under which payments are being made, making known to insureds or claimants a policy of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration, delaying the investigation or payment of claims by requiring an insured, a claimant, or the physician of either to submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, when both contain substantially the same information, failing to promptly settle claims where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage, failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement, failing to comply with § 38.2-3407.15, or to perform any provider contract provision required by that section, payment to an insurer or its representative by a repair facility, or acceptance by an insurer or its representative from a repair facility, directly or indirectly, of any kickback, rebate, commission, thing of value, or other consideration in connection with such person's appraisal service, making appraisals of the cost of repairing a motor vehicle that has been damaged as a result of a covered loss unless such appraisal is based upon a personal inspection by a representative of the repair facility or a representative of the insurer who is making the appraisal |
What You'll Learn
Virginia's new bad faith law
On July 1, 2024, Virginia introduced a new bad faith law, creating a new cause of action that is significant for underinsured or uninsured ("UIM") carriers. The new law, Virginia Code § 8.01-66.1, marks a significant shift in the legal landscape for UIM carriers in the state.
Previously, UIM carriers did not have a duty to settle a case before a trial. The old law only provided a remedy when carriers refused in bad faith to pay once the insured had obtained a judgment. However, the new law states that the UIM carrier's duty is triggered "when liability to the insured has become reasonably foreseeable without the necessity of a judgment by its insured."
Once this duty is triggered, a UIM carrier can now be held liable if it, in bad faith:
- Denies, refuses, fails to pay, or fails to make a timely and reasonable settlement offer
- Rejects a reasonable settlement demand within the UIM policy's coverage limits or fails to respond within a reasonable time after being presented with such a demand, after all applicable liability policy limits and underlying UIM benefits have been tendered or paid
If a court determines that a UIM carrier's conduct was not in good faith, it shall award not only the amount due and owing by the carrier to its insured but also an amount up to double the judgment obtained against the tortfeasor (up to $500,000), along with attorney fees and all costs and expenses incurred by the insured to secure a judgment against the tortfeasor, including interest.
This new law will require UIM carriers to be diligent and cautious in handling the early resolution of UIM claims to mitigate risk. Given the tight timelines in the statute for investigating liability and damages and responding to demands, carriers should consider early engagement with legal counsel to ensure a timely and appropriate response.
In addition to the new law, it is important to note that Virginia has also adopted a version of the UCSPA (Unfair Claims Settlement Practices Act) and other claims-practices legislation. The Unfair Claim Settlement Practices statute creates a cause of action only for the Insurance Commission. However, it states that it does not "impair the right of any person to seek redress at law or equity for any conduct for which action may be brought." This means that while it does not create a statutory cause of action, the standards of conduct may be used to prove malfeasance by an insurer.
To determine whether an insurer acted in bad faith, the court applies a reasonableness standard and considers various factors, including whether reasonable minds could differ in the application of the policy terms, whether the insurer conducted a reasonable investigation, and whether the evidence reasonably supports a denial of liability.
Bad faith lawsuits
In the state of Virginia, bad faith lawsuits are governed by Virginia Code § 38.2-209(A), which allows insured individuals to recover costs and reasonable attorney's fees in certain cases. This statute limits claims to first-party claims by the insured and does not recognise third-party claims.
Virginia Code § 8.01-66.1, effective as of July 1, 2024, created a new bad faith cause of action that is significant for underinsured or uninsured ("UIM") carriers. This new code shifted the legal landscape for UIM carriers, as their duty to act is now triggered when liability to the insured becomes reasonably foreseeable, without the necessity of a judgment. If a UIM carrier is found to have acted in bad faith by denying or refusing to pay a claim, they can be held liable for the amount due to their insured, as well as additional costs and fees.
Examples of bad faith practices by insurance companies can include misrepresenting pertinent facts, failing to investigate claims properly, intentionally misconstruing policy terms, and failing to settle claims when liability is reasonably clear.
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Bad faith litigation
In the context of insurance, bad faith at its core is fraud. There are four general categories of fraud: fraud in the inducement, promissory fraud, fraud in the factum, and statutory fraud.
In Virginia, bad faith litigation aims to level the playing field between the insurer and the insured, ensuring that the insurer does not prioritise its interests over those of the insured. Bad faith lawsuits can be brought by either the insured (first party) or a third-party beneficiary, who is a party that has been injured and is asserting a claim against the insured.
Virginia Code § 8.01-66.1, which came into effect on July 1, 2024, created a new bad faith cause of action with significant implications for underinsured or uninsured (UIM) carriers. This new code replaced the previous version, which did not mandate UIM carriers to settle a case before a trial. Now, UIM carriers can be held liable if they act in bad faith by denying, refusing, or failing to pay a claim, or by failing to make a timely and reasonable settlement offer.
If a court determines that a UIM carrier acted in bad faith, it may award the insured the amount due, up to double the judgment obtained against the tortfeasor (up to $500,000), attorney fees, and all costs and expenses incurred by the insured to secure a judgment against the tortfeasor, including interest.
This new code represents a significant shift for UIM carriers in Virginia, who must now exercise greater diligence and caution when handling the early resolution of UIM claims to mitigate risk and ensure timely and appropriate responses.
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Bad faith at its core is fraud
Bad faith litigation has been a concept in the insurance industry for almost 50 years. It is essentially a form of fraud, with insurers denying claims, failing to investigate, or refusing to settle without justification. The core issue is the insurer acting in their own interests and against the interests of the insured, failing to uphold their duty of good faith.
In the state of Virginia, bad faith claims are limited by statute to first-party claims, and third-party claims are not recognised. However, a new law, Virginia Code § 8.01-66.1, came into effect on July 1, 2024, which created a significant shift for underinsured or uninsured (UIM) carriers. This new law establishes that a UIM carrier's duty to act is triggered when liability to the insured is reasonably foreseeable, without the need for a judgment.
If a UIM carrier acts in bad faith by denying or refusing to pay, failing to make a timely settlement offer, or rejecting a reasonable settlement demand, they can be held liable. The court may award the insured the amount due, up to double the judgment obtained against the tortfeasor (up to $500,000), attorney fees, costs, expenses, and interest.
This new law has important implications for UIM carriers in Virginia, who now need to be diligent and cautious in handling UIM claims and engaging with legal counsel to ensure timely and appropriate responses.
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Bad faith claims
In the context of insurance, bad faith at its core is fraud. This can take the form of luring someone into a contract to their detriment, having the intention not to perform the contract when it is entered into, or fraud in the performance of the contract. For example, when an insurance company consciously decides not to investigate but simply denies a claim.
In Virginia, bad faith claims are governed by Virginia Code 38.2-209(A). This statute limits claims to the insured, or first-party claims, and does not recognise third-party claims. If a court determines that an insurer was not acting in good faith in denying coverage or failing to make payments, it can award costs and attorney's fees to the insured.
In the case of uninsured motorist claims, there is no basis for a bad faith claim until statutory requirements are met, including obtaining a judgement. Once the insured has obtained a judgement, the uninsured motorist carrier has an obligation to pay.
On July 1, 2024, a new Virginia Code (§ 8.01-66.1) went into effect, creating a new bad faith cause of action that is significant for underinsured or uninsured (UIM) carriers. This new code states that a UIM carrier's duty is triggered "when liability to the insured has become reasonably foreseeable without the necessity of a judgement by its insured". As a result of this new law, UIM carriers need to be diligent and cautious in handling the early resolution of UIM claims to mitigate risk.
In summary, bad faith claims in Virginia are a legal tool to hold insurance companies accountable for acting in their own interests and intentionally disregarding the financial interests of their insured. The state's laws and court precedents provide a framework for policyholders to seek recourse and protect their rights.
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Frequently asked questions
Bad faith is when an insurance company intentionally disregards the financial interests of their insured and fails to settle a claim within the policy limits, resulting in a judgment exceeding those policy limits.
A bad faith claim is when an insured (first party) or a third-party beneficiary sues an insurance company for acting in bad faith.
Virginia Code § 8.01-66.1 mandates that UIM carriers are liable if they, in bad faith, deny or refuse to pay a claim, or fail to make a timely and reasonable settlement offer.
If a court determines that a UIM carrier has acted in bad faith, the carrier must pay the amount due to its insured, as well as up to double the judgment obtained against the tortfeasor (up to $500,000), attorney fees, and all costs incurred by the insured to secure a judgment against the tortfeasor.
