SF 3116

1st Engrossment - 85th Legislature (2007 - 2008) Posted on 12/15/2009 12:00am

A bill for an act
relating to insurance; providing for penalties and attorney fees for vexatious
insurance claims practices; proposing coding for new law in Minnesota Statutes,
chapter 604.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

new text begin [604.18] INSURANCE STANDARD OF CONDUCT.
new text end

new text begin Subdivision 1. new text end

new text begin Terms. new text end

new text begin For purposes of this section, the following terms have the
meanings given them.
new text end

new text begin (a) "Insured" means a person who, or an entity which, qualifies as an insured under
the terms of an insurance policy on which a claim for coverage is made. An insured does
not include any person who, or entity which, has received any assignment of rights under
an insurance policy, and does not include any person or entity claiming a third-party
beneficiary status under an insurance policy.
new text end

new text begin (b) "Insurer" means every insurer, corporation, business trust, or association engaged
in insurance as principal licensed to transact insurance under section 60A.06, but for
purposes of this section an insurer does not include a political subdivision providing
self-insurance or establishing a pool under section 471.981, subdivision 3.
new text end

new text begin (c) "Insurance policy" means a written agreement between an insured and an insurer,
which obligates an insurer to pay proceeds directly to the insured. Insurance policy
does not include provisions of a written agreement, which obligate an insurer to defend
the insured, reimburse an insured's defense expenses, provide for any other type of
defense obligation, or provide for indemnification for judgments or settlements. Insurance
policy also does not include any written agreement providing workers' compensation
insurance under chapter 176, any written agreement of a health carrier, as defined in
section 62A.011, or any written agreement authorized under section 60A.06, subdivision
1, clauses (4) and (6).
new text end

new text begin (d) "Vexatious" means conduct related to the payment of proceeds under an
insurance policy, which is deliberately arbitrary, capricious, frivolous, not supported by
law or a valid extension of law, and is without any expectation by the insurer that the
conduct at issue is in good faith. A disagreement between an insurer and an insured as to
the value or amount of proceeds owed to an insured is not vexatious conduct. An arson
investigation or a fraud investigation is not vexatious conduct. An insurer's reliance on the
advice of counsel is not vexatious conduct.
new text end

new text begin Subd. 2. new text end

new text begin Liability. new text end

new text begin (a) The court may award as taxable costs to an insured amounts
as provided in subdivision 3 if it determines by clear and convincing evidence that the
insurer's conduct as a matter of law is vexatious in the denial of or the delay of the
payment of proceeds to an insured under an insurance policy.
new text end

new text begin (b) The insured is not entitled to taxable costs under this section if it is determined:
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new text begin (1) the insurer did not breach the insurance policy; or
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new text begin (2) the insured is not entitled to proceeds under the insurance policy in an amount
that is in excess of an amount offered by the insurer.
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new text begin (c) A violation of this section shall not be the basis for any claim or award under
chapter 325D or 325F.
new text end

new text begin Subd. 3. new text end

new text begin Remedies. new text end

new text begin (a) An insured may be awarded either or both of the following
amounts by the court as taxable costs for an insurer's violation of subdivision 2:
new text end

new text begin (1) an amount not exceeding the lesser of:
new text end

new text begin (i) one-half of the proceeds awarded, which are in excess of an amount offered by
the insurer; or
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new text begin (ii) $50,000; and
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new text begin (2) reasonable attorney fees actually incurred to establish the insurer's violation
of this section. Attorney fees shall only be awarded if the fees sought are separately
accounted for by the insured's attorney, are not duplicative of the fees the insured's attorney
otherwise expends in pursuit of proceeds to an insured under an insurance policy and
which is in excess of an amount offered by the insurer, and shall not exceed the lesser of:
new text end

new text begin (i) one-half of the disputed amount of the proceeds sought from the insurer; or
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new text begin (ii) $20,000.
new text end

new text begin (b) An award under this section precludes the insured's right to an award under
sections 357.25; 549.02; 549.04; and 549.09, and under Minnesota Rules of Civil
Procedure, rule 68. An insured's request to the court for an award under sections 357.25;
549.02; 549.04; and 549.09, or Minnesota Rules of Civil Procedure, rule 68, shall preclude
the insured from an award under this section.
new text end

new text begin (c) An insured is not entitled to recover punitive or exemplary damages, or attorney
fees under section 8.31, because of any violation of this section.
new text end

new text begin Subd. 4. new text end

new text begin Claim for taxable costs. new text end

new text begin (a) Upon commencement of a civil action by
an insured against an insurer, the complaint must not seek a recovery under this section.
After filing the suit, a party may make a motion to amend the pleadings to claim recovery
of taxable costs under this section. The motion must allege the applicable legal basis
under this section for awarding taxable costs under this section, and must be accompanied
by one or more affidavits showing the factual basis for the motion. The motion may be
opposed by the submission of one or more affidavits showing there is no factual basis for
the motion. At the hearing, if the court finds prima facie clear and convincing evidence
in support of the motion, the court may grant the moving party permission to amend the
pleadings to claim taxable costs under this section.
new text end

new text begin (b) An award of taxable costs under this section shall be determined by the court in a
proceeding subsequent to any determination as to whether the insured is entitled to any
proceeds under the insurance policy, and shall be governed by the procedures set forth in
Minnesota Rules of General Practice, rule 119.
new text end

new text begin (c) An award of taxable costs under this section is not available in any claim that
is subject to any statutory or contractual arbitration, appraisal, or any alternative dispute
resolution proceeding.
new text end

new text begin (d) The following are not admissible in any proceeding that seeks taxable costs
under this section:
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new text begin (1) findings or determinations made in arbitration proceedings conducted under
section 65B.525 or any administrative rules promulgated thereunder;
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new text begin (2) allegations involving, or results of, investigations, examinations, or
administrative proceedings conducted by the Department of Commerce;
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new text begin (3) administrative bulletins or other informal guidance published or disseminated
by the Department of Commerce;
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new text begin (4) provisions under chapters 59A to 79A and all rules promulgated thereunder are
not admissible as standards of conduct to determine whether the insurer's conduct is
vexatious; and
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new text begin (5) expert testimony opining what conduct may be considered vexatious.
new text end

new text begin (e) Nothing in this section shall prohibit an insurer from asserting the defenses
of waiver, collateral or other estoppel, res judicata, or any other valid defense pursued
under the section.
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Sec. 2. new text begin EFFECTIVE DATE.
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new text begin Section 1 is effective August 1, 2008, and applies to causes of action for conduct,
which occurs on or after that date.
new text end