1.1                          A bill for an act 
  1.2             relating to insurance; providing a remedy to an 
  1.3             insured when an insurer refuses in bad faith to pay or 
  1.4             to settle a claim; regulating fire loss claims; 
  1.5             amending Minnesota Statutes 1994, sections 72A.20, 
  1.6             subdivision 12; and 72A.201, subdivisions 4 and 8; 
  1.7             proposing coding for new law in Minnesota Statutes, 
  1.8             chapter 72A. 
  1.9   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.10     Section 1.  [72A.136] [INSURER BAD FAITH; REMEDY.] 
  1.11     Subdivision 1.  [CAUSE OF ACTION.] An insured under any 
  1.12  fire or homeowner's insurance policy issued pursuant to section 
  1.13  60A.06, subdivision 1, clause (1), may bring an action against 
  1.14  the insurer issuing the policy alleging that the insurer refused 
  1.15  in bad faith to pay a claim made by the insured under the 
  1.16  provisions of the policy.  An insurer has refused to pay a claim 
  1.17  in bad faith if the insurer refused to pay the claim without 
  1.18  having a reasonable basis for the refusal, and, at the time of 
  1.19  the refusal, the insurer knew there was no reasonable basis for 
  1.20  the refusal or acted in reckless disregard of the lack of a 
  1.21  reasonable basis for the refusal.  An insurer has not acted in 
  1.22  bad faith in refusing to pay an insured's claim if the claim is 
  1.23  fairly debatable, in law or in fact.  This section shall not 
  1.24  apply to an action by an insured or a third party against an 
  1.25  insurer for wrongful failure to provide a defense or to settle a 
  1.26  third-party claim under a liability insurance contract.  This 
  1.27  section shall not apply to a township mutual fire insurance 
  2.1   company. 
  2.2      Subd. 2.  [DAMAGES.] In an action under this section, an 
  2.3   insured may recover compensatory damages in excess of the policy 
  2.4   limits and also may recover punitive damages pursuant to 
  2.5   sections 549.191 and 549.20.  An insured shall not recover 
  2.6   punitive damages in excess of $100,000 under this section.  An 
  2.7   insured who prevails in an action under this section shall 
  2.8   recover reasonable attorney fees and costs. 
  2.9      Subd. 3.  [NONPREEMPTION.] The remedy specified in this 
  2.10  section does not preempt any other remedy or cause of action 
  2.11  provided for pursuant to statute or pursuant to the common law 
  2.12  of this state. 
  2.13     Subd. 4.  [LIMITATION PERIOD.] An action under this section 
  2.14  shall be commenced within three years of the bad faith act, 
  2.15  notwithstanding any policy provision to the contrary. 
  2.16     Sec. 2.  Minnesota Statutes 1994, section 72A.20, 
  2.17  subdivision 12, is amended to read: 
  2.18     Subd. 12.  [UNFAIR SERVICE.] Causing or permitting with 
  2.19  such frequency to indicate a general business practice any 
  2.20  unfair, deceptive, or fraudulent act concerning any claim or 
  2.21  complaint of an insured or claimant including, but not limited 
  2.22  to, the following practices:  
  2.23     (1) misrepresenting pertinent facts or insurance policy 
  2.24  provisions relating to coverages at issue; 
  2.25     (2) failing to acknowledge and act reasonably promptly upon 
  2.26  communications with respect to claims arising under insurance 
  2.27  policies; 
  2.28     (3) failing to adopt and implement reasonable standards for 
  2.29  the prompt investigation of claims arising under insurance 
  2.30  policies; 
  2.31     (4) refusing to pay claims without conducting a reasonable 
  2.32  investigation based upon all available information; 
  2.33     (5) failing to affirm or deny coverage of claims within a 
  2.34  reasonable time after proof of loss statements have been 
  2.35  completed; 
  2.36     (6) not attempting in good faith to effectuate prompt, 
  3.1   fair, and equitable settlements of claims in which liability has 
  3.2   become reasonably clear; 
  3.3      (7) compelling insureds to institute litigation to recover 
  3.4   amounts due under an insurance policy by offering substantially 
  3.5   less than the amounts ultimately recovered in actions brought by 
  3.6   the insureds; 
  3.7      (8) attempting to settle a claim for less than the amount 
  3.8   to which reasonable persons would have believed they were 
  3.9   entitled by reference to written or printed advertising material 
  3.10  accompanying or made part of an application; 
  3.11     (9) attempting to settle claims on the basis of an 
  3.12  application which was altered without notice to, or knowledge or 
  3.13  consent of, the insured; 
  3.14     (10) making claims payments to insureds or beneficiaries 
  3.15  not accompanied by a statement setting forth the coverage under 
  3.16  which the payments are being made; 
  3.17     (11) making known to insureds or claimants a policy of 
  3.18  appealing from arbitration awards in favor of insureds or 
  3.19  claimants for the purpose of compelling them to accept 
  3.20  settlements or compromises less than the amount awarded in 
  3.21  arbitration; 
  3.22     (12) delaying the investigation or payment of claims by 
  3.23  requiring an insured, claimant, or the physician of either to 
  3.24  submit a preliminary claim report and then requiring the 
  3.25  subsequent submission of formal proof of loss forms, both of 
  3.26  which submissions contain substantially the same information; 
  3.27     (13) failing to promptly settle claims, where liability has 
  3.28  become reasonably clear, under one portion of the insurance 
  3.29  policy coverage in order to influence settlements under other 
  3.30  portions of the insurance policy coverage; 
  3.31     (14) failing to promptly provide a reasonable explanation 
  3.32  of the basis in the insurance policy in relation to the facts or 
  3.33  applicable law for denial of a claim or for the offer of a 
  3.34  compromise settlement.; 
  3.35     (15) except for proof of ownership, requiring an insured as 
  3.36  part of executing a proof of loss on a claim arising from a fire 
  4.1   loss, to produce documentation or information that is dated more 
  4.2   than five years from the date of loss. 
  4.3      Sec. 3.  Minnesota Statutes 1994, section 72A.201, 
  4.4   subdivision 4, is amended to read: 
  4.5      Subd. 4.  [STANDARDS FOR CLAIM FILING AND HANDLING.] The 
  4.6   following acts by an insurer, an adjuster, a self-insured, or a 
  4.7   self-insurance administrator constitute unfair settlement 
  4.8   practices:  
  4.9      (1) except for claims made under a health insurance policy, 
  4.10  after receiving notification of claim from an insured or a 
  4.11  claimant, failing to acknowledge receipt of the notification of 
  4.12  the claim within ten business days, and failing to promptly 
  4.13  provide all necessary claim forms and instructions to process 
  4.14  the claim, unless the claim is settled within ten business 
  4.15  days.  The acknowledgment must include the telephone number of 
  4.16  the company representative who can assist the insured or the 
  4.17  claimant in providing information and assistance that is 
  4.18  reasonable so that the insured or claimant can comply with the 
  4.19  policy conditions and the insurer's reasonable requirements.  If 
  4.20  an acknowledgment is made by means other than writing, an 
  4.21  appropriate notation of the acknowledgment must be made in the 
  4.22  claim file of the insurer and dated.  An appropriate notation 
  4.23  must include at least the following information where the 
  4.24  acknowledgment is by telephone or oral contact:  
  4.25     (i) the telephone number called, if any; 
  4.26     (ii) the name of the person making the telephone call or 
  4.27  oral contact; 
  4.28     (iii) the name of the person who actually received the 
  4.29  telephone call or oral contact; 
  4.30     (iv) the time of the telephone call or oral contact; and 
  4.31     (v) the date of the telephone call or oral contact; 
  4.32     (2) failing to reply, within ten business days of receipt, 
  4.33  to all other communications about a claim from an insured or a 
  4.34  claimant that reasonably indicate a response is requested or 
  4.35  needed; 
  4.36     (3) unless provided otherwise by law or in the policy, 
  5.1   failing to complete its investigation and inform the insured or 
  5.2   claimant of acceptance or denial of a claim within 30 business 
  5.3   days after receipt of notification of claim unless the 
  5.4   investigation cannot be reasonably completed within that time. 
  5.5   In the event that the investigation cannot reasonably be 
  5.6   completed within that time, the insurer shall notify the insured 
  5.7   or claimant within the time period of the reasons why the 
  5.8   investigation is not complete and the expected date the 
  5.9   investigation will be complete.  For claims made under a health 
  5.10  policy the notification of claim must be in writing; 
  5.11     (4) where evidence of suspected fraud is present, the 
  5.12  requirement to disclose their reasons for failure to complete 
  5.13  the investigation within the time period set forth in clause (3) 
  5.14  need not be specific.  The insurer must make this evidence 
  5.15  available to the department of commerce if requested; 
  5.16     (5) failing to notify an insured who has made a 
  5.17  notification of claim of all available benefits or coverages 
  5.18  which the insured may be eligible to receive under the terms of 
  5.19  a policy and of the documentation which the insured must supply 
  5.20  in order to ascertain eligibility; 
  5.21     (6) unless otherwise provided by law or in the policy, 
  5.22  requiring an insured to give written notice of loss or proof of 
  5.23  loss within a specified time, and thereafter seeking to relieve 
  5.24  the insurer of its obligations if the time limit is not complied 
  5.25  with, unless the failure to comply with the time limit 
  5.26  prejudices the insurer's rights and then only if the insurer 
  5.27  gave prior notice to the insured of the potential prejudice; 
  5.28     (7) advising an insured or a claimant not to obtain the 
  5.29  services of an attorney or an adjuster, or representing that 
  5.30  payment will be delayed if an attorney or an adjuster is 
  5.31  retained by the insured or the claimant; 
  5.32     (8) failing to advise in writing an insured or claimant who 
  5.33  has filed a notification of claim known to be unresolved, and 
  5.34  who has not retained an attorney, of the expiration of a statute 
  5.35  of limitations at least 60 days prior to that expiration.  For 
  5.36  the purposes of this clause, any claim on which the insurer has 
  6.1   received no communication from the insured or claimant for a 
  6.2   period of two years preceding the expiration of the applicable 
  6.3   statute of limitations shall not be considered to be known to be 
  6.4   unresolved and notice need not be sent pursuant to this clause; 
  6.5      (9) demanding information which would not affect the 
  6.6   settlement of the claim; 
  6.7      (10) unless expressly permitted by law or the policy, 
  6.8   refusing to settle a claim of an insured on the basis that the 
  6.9   responsibility should be assumed by others; 
  6.10     (11) failing, within 60 business days after receipt of a 
  6.11  properly executed proof of loss, to advise the insured of the 
  6.12  acceptance or denial of the claim by the insurer.  No insurer 
  6.13  shall deny a claim on the grounds of a specific policy 
  6.14  provision, condition, or exclusion unless reference to the 
  6.15  provision, condition, or exclusion is included in the denial. 
  6.16  The denial must be given to the insured in writing with a copy 
  6.17  filed in the claim file; 
  6.18     (12) denying or reducing a claim on the basis of an 
  6.19  application which was altered or falsified by the agent or 
  6.20  insurer without the knowledge of the insured; 
  6.21     (13) failing to notify the insured of the existence of the 
  6.22  additional living expense coverage when an insured under a 
  6.23  homeowners policy sustains a loss by reason of a covered 
  6.24  occurrence and the damage to the dwelling is such that it is not 
  6.25  habitable; 
  6.26     (14) failing to inform an insured or a claimant that the 
  6.27  insurer will pay for an estimate of repair if the insurer 
  6.28  requested the estimate and the insured or claimant had 
  6.29  previously submitted two estimates of repair.; 
  6.30     (15) failing to inform the insured or claimant of 
  6.31  acceptance or denial of a claim arising from a fire loss within 
  6.32  180 days after receipt of notification of the claim. 
  6.33     Sec. 4.  Minnesota Statutes 1994, section 72A.201, 
  6.34  subdivision 8, is amended to read: 
  6.35     Subd. 8.  [STANDARDS FOR CLAIM DENIAL.] The following acts 
  6.36  by an insurer, adjuster, or self-insured, or self-insurance 
  7.1   administrator constitute unfair settlement practices:  
  7.2      (1) denying a claim or any element of a claim on the 
  7.3   grounds of a specific policy provision, condition, or exclusion, 
  7.4   without informing the insured of the policy provision, 
  7.5   condition, or exclusion on which the denial is based; 
  7.6      (2) denying a claim without having made a reasonable 
  7.7   investigation of the claim; 
  7.8      (3) denying a liability claim because the insured has 
  7.9   requested that the claim be denied; 
  7.10     (4) denying a liability claim because the insured has 
  7.11  failed or refused to report the claim, unless an independent 
  7.12  evaluation of available information indicates there is no 
  7.13  liability; 
  7.14     (5) denying a claim without including the following 
  7.15  information:  
  7.16     (i) the basis for the denial; 
  7.17     (ii) the name, address, and telephone number of the 
  7.18  insurer's claim service office or the claim representative of 
  7.19  the insurer to whom the insured or claimant may take any 
  7.20  questions or complaints about the denial; and 
  7.21     (iii) the claim number and the policy number of the 
  7.22  insured; 
  7.23     (6) denying a claim because the insured or claimant failed 
  7.24  to exhibit the damaged property unless:  
  7.25     (i) the insurer, within a reasonable time period, made a 
  7.26  written demand upon the insured or claimant to exhibit the 
  7.27  property; and 
  7.28     (ii) the demand was reasonable under the circumstances in 
  7.29  which it was made; 
  7.30     (7) denying a claim by an insured or claimant based on the 
  7.31  evaluation of a chemical dependency claim reviewer selected by 
  7.32  the insurer unless the reviewer meets the qualifications 
  7.33  specified under subdivision 8a.  An insurer that selects 
  7.34  chemical dependency reviewers to conduct claim evaluations must 
  7.35  annually file with the commissioner of commerce a report 
  7.36  containing the specific evaluation standards and criteria used 
  8.1   in these evaluations.  The report must be filed at the same time 
  8.2   its annual statement is submitted under section 60A.13.  The 
  8.3   report must also include the number of evaluations performed on 
  8.4   behalf of the insurer during the reporting period, the types of 
  8.5   evaluations performed, the results, the number of appeals of 
  8.6   denials based on these evaluations, the results of these 
  8.7   appeals, and the number of complaints filed in a court of 
  8.8   competent jurisdiction.; 
  8.9      (8) denying a claim arising from a fire loss without 
  8.10  informing the insured of the right to file a complaint with the 
  8.11  department of commerce and the address of the department. 
  8.12     Sec. 5.  [EFFECTIVE DATE; APPLICABILITY.] 
  8.13     Section 1 is effective the day following final enactment 
  8.14  and shall apply to all acts occurring on or after that date. 
  8.15     Sections 2 to 4 are effective January 1, 1996, and apply to 
  8.16  all claims submitted to an insurer after that date.