Virginia's Bad Faith Actions: What's The Legal Stance?

Bad faith actions in Virginia pertain to insurance companies and their handling of claims. The state has a statute that addresses bad faith claims, with criteria including misrepresentation of facts, misleading claimants, and failing to investigate or settle claims. Virginia Code § 8.01-66.1, effective as of July 1, 2024, introduced a significant change by creating a bad faith cause of action for underinsured or uninsured carriers. This new law mandates that insurers can be held liable for double the amount of the judgment, up to $500,000, along with attorney fees and expenses, if they act in bad faith. This shift in legislation emphasizes the importance of diligent and cautious handling of claims by insurers to mitigate risk and ensure timely responses.

Bad faith lawsuits may be brought by the insured or a third-party beneficiary

In Virginia, bad faith litigation is a way to level the playing field and make the insurer deal with the insured in a fair fashion. The insurer must not put its interests above those of the insured.

The criteria for determining whether there is bad faith include any misrepresentation of pertinent facts, attempting to steer the claimant away from legal services, misleading the claimant about the statute of limitations, providing false information to examining physicians, and intentionally misconstruing terms within the policy.

Virginia Code 38.2-209(A) governs bad faith claims and allows the insured to recover costs and reasonable attorney's fees in certain cases. This statute limits the claims to the insured (first-party claims), and third-party claims are not recognized. The court must first determine that the insurer was not acting in good faith in denying coverage or failing to make payments before awarding costs and attorney's fees.

Additionally, Va. Code § 8.01-66.1 deals with bad faith claims regarding motor vehicles where the claim is $3,500.00 or less. It covers both first-party and third-party claims and allows double recovery and attorney's fees.

Bad faith is a type of fraud

In the context of insurance, bad faith refers to an insurer's misconduct, such as intentionally denying a claim, adjusting a claim dishonestly, or failing to process a claim promptly. This type of behaviour can give rise to a tort claim, where the insured can seek punitive or exemplary damages from the insurer.

In the state of Virginia, bad faith actions are allowed and governed by specific statutes. Virginia Code §38.2-2206(A) mandates that insurance carriers must pay the insured all sums that they are legally entitled to recover. Additionally, Virginia Code §8.01-66.1(D)(1) provides a remedy for pre-trial bad faith when an insurance company refuses to pay a first-party claim in bad faith.

The concept of bad faith lawsuits gained popularity nearly 50 years ago due to widespread problems with insurers denying claims without proper investigation or attempts to settle. The nature of a bad faith claim is to level the playing field and ensure that insurers deal with the insured in a fair manner, putting the interests of the insured on equal footing with their own.

To determine whether bad faith or fraud has occurred, courts will generally look for certain factors, including any misrepresentation of pertinent facts, misleading information provided to claimants, intentional misinterpretation of policy terms, and failure to fully investigate claims.

The criteria for determining bad faith or fraud

Bad faith refers to dishonesty or fraud in a transaction. It is a sustained form of deception and is associated with hypocrisy, breach of contract, affectation, and lip service. It may involve intentional deceit of others, or self-deception.

In the context of insurance, bad faith refers to an insurer's attempt to renege on its obligations to its clients, either by refusing to pay a policyholder's legitimate claim or by failing to process a claim within a reasonable time frame.

• Any misrepresentation of pertinent facts.
• Attempting to steer the claimant away from seeking legal services.
• Misleading the claimant about 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 saving money by making small individual deductions.
• Failing to fully investigate the claim.
• Failing to have and use reasonable standards for the investigation.
• Not accepting or denying the claim within a reasonable time.
• Failing to settle under one portion of a policy where there is clear coverage/liability to improve the carrier's position regarding another portion of the policy.
• Failing to provide a reasonable statement as to the basis for denial.
• Not negotiating in good faith if there is an obligation to negotiate.
• Forcing a plaintiff into arbitration when it is not mandatory.
• Failing to settle a liability claim where the liability of the insured is reasonably probable and some damages are reasonably probable.
• Failing to keep the insured informed of settlement offers so that the insured can make an intelligent decision about contributing to a settlement.

In the state of Virginia, bad faith claims are limited by statute, specifically Virginia Code 38.2-209(A). This statute limits claims to the insured, i.e., first-party claims, and does not recognize third-party claims. The court must first determine that the insurer was not acting in good faith in denying coverage or failing or refusing to make payments before awarding costs and attorneys' fees.

The Virginia Code § 38.2-2206(A) mandates UM/UIM carriers to pay the insured all sums owed

In Virginia, insurance laws are found in Title 38.2 of the Code of Virginia, and insurance regulations are promulgated by the State Corporation Commission (SCC). Under Virginia law, insurers must acknowledge receipt of all insurance claims promptly.

The Virginia Bureau of Insurance Regulations (“Virginia Administrative Code, 14VAC5-400- 700 entitled “Standards for Prompt, Fair and Equitable Settlements of Claims Applicable to All Insurers”) mandates in section D that every insurer must offer a first-party claimant (which includes UIM claimants) an amount that is fair and reasonable:

> "D. In any case where there is no dispute as to coverage or liability, every insurer must offer to a first party claimant, or to a first party claimant’s authorized representative, an amount which is fair and reasonable as shown by the investigation of the claim, provided the amount so offered is within policy limits and in accordance with policy provisions."

The Supreme Court of Virginia has held that a UM/UIM carrier’s obligation to pay its insured is triggered by a judgement against the defendant (the uninsured/underinsured motorist).

The Virginia Code also requires an insurer to attempt in good faith to make prompt settlements of claims in which liability has become reasonably clear. See Va. Code Ann. § 38.2-510.

The new Virginia Code § 8.01-66.1 marks a significant shift for UIM carriers

The new Virginia Code § 8.01-66.1 has brought about a significant shift for UIM carriers. The new code, which came into effect on July 1, 2024, has created a new bad faith cause of action that can have important implications for underinsured or uninsured ("UIM") carriers.

The previous version of the code did not require UIM carriers to settle a case before a trial. Instead, it only provided a remedy when UIM carriers refused to pay in bad faith after the insured had obtained a judgment. However, the new code has changed this by triggering the UIM carrier's duty when liability to the insured becomes reasonably foreseeable, even without a judgment. This shift means that UIM carriers now need to be diligent and cautious in handling the early resolution of UIM claims to mitigate risk. They should also consider engaging legal counsel early on to ensure a timely and appropriate response, given the tight timelines in the statute for investigating liability and damages and responding to demands.

Once the duty is triggered, a UIM carrier can be held liable if it, in bad faith, denies, refuses, or fails to pay or make a timely and reasonable settlement offer. Additionally, if all applicable liability policy limits and underlying UIM benefits have been paid, the carrier can be liable for rejecting a reasonable settlement demand within the UIM policy's coverage limits or failing to respond within a reasonable time.

If a court determines that a UIM carrier has acted in bad faith, it may award not only the amount due to the insured but also up to double the judgment obtained against the tortfeasor (up to $500,000), along with attorney fees and all costs incurred by the insured in securing the judgment. This new code represents a significant change for UIM carriers in Virginia, who now need to be more cautious and diligent in handling UIM claims.

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