I recently received a call from a policyholder in Nevada who inquired about the statute of limitations for an insurance bad faith case in that state. As some of us have come to know, there are differences among the various states as to the time limitations by which one can bring an action against an insurance company for bad faith.
In Nevada, a bad faith cause of action can be brought under statutory grounds or under common law.
First, let me discuss the statutory basis. Nevada has the Unfair Claims Settlement Practices Act (“UCSPA”) which sets forth the specific actions taken by an insurer deemed to be unfair to the policyholder.1 An insurer violates the UCSPA if it, among other things, misrepresents insurance policy provisions, fails to communicate promptly with the insured about the claim, and dare I say, advising an insured not to seek legal counsel. If the insurer commits one of the acts prohibited in the UCSPA, then the policyholder is given a private right of action against the insurer and can seek any damages sustained as a result of any unfair practice. A claim brought under the UCSPA must be brought within three years of the violation.2
As for common law bad faith, Nevada recognizes an implied covenant of good faith and fair dealing in every contract. A breach of the covenant gives rise to a bad faith tort claim.3 “Bad faith is established where the insurer acts unreasonably and with knowledge that there is no reasonable basis for its conduct.”4 So, how long does a policyholder in Nevada have to sue the insurer when the claim is unreasonably denied or policy benefits are unreasonably withheld? According to Nevada law, a bad faith tort claim must be commenced within four years of the adverse action by the insurer.5
1 Nev. Rev. Stat..§ 686A.310.
2 Schumacher v. State Farm Fire & Casualty Co. (2006) 467 F. Supp. 2d 1090.
3 Allstate Ins. Co. v. Miller (2009) 212 P.3d 318.
4 Guaranty Nat’l Ins. Co. v. Potter (1996) 912 P.2d 267, 272.
5 Schumacher at 1094-95.