North Dakota

The law in North Dakota is somewhat unsettled in the area of bad faith.  While North Dakota maintains a statute governing unfair or deceptive acts or practices,[1] the North Dakota courts have not addressed whether the statute creates a statutory cause of action or merely defines the standard of conduct actionable at common law.  

The statute includes a section devoted to unfair claim settlement practices that is modeled off the Unfair Claims Settlement Practices Act.[2]  The statute defines an unfair claim settlement practice as, inter alia:

d. Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims submitted in which liability has become reasonably clear.

e. Compelling insureds to institute suits to recover amounts due under its policies by offering substantially less than the amounts ultimately recovered in suits brought by them when the insureds have made claims for amounts reasonably similar to the amounts ultimately recovered.

f. 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.

h. Attempting to settle a claim for less than the amount to which a reasonable person would have believed one was entitled by reference to written or printed advertising material accompanying or made apart of an application.

k. Refusing payment of claims solely on the basis of the insured’s request to do so without making an independent evaluation of the insured’s liability based upon all available information.[3]

An insurer’s duty to the insured “is implied by law to include a duty of fair dealing in paying claims, providing defense to claims, negotiating settlements, and fulfilling all other contractual obligations.”[4]  “The gravamen of the test for bad faith is whether the insurer acts unreasonably in handling an insured's claim.”[5]  However, an insurer’s decision to pursue litigation rather than settlement is not bad faith, so long as that decision is grounded in a reasonable assessment of the circumstances underlying the claim.[6]

At common law, a third party cannot raise a claim for bad faith.[7]  An insurer’s duty to its policyholders to negotiate a settlement of a potential claim in good faith and with fair dealing does not extend to injured third parties with potential claims against insureds.[8]  However, an intended third party beneficiary can raise a claim relating to the policy,[9] although an incidental third party beneficiary may not.[10]

Damages for bad faith actions include those for breach of contract and pecuniary loss,[11] in addition to those damages proximately caused by the bad faith act.[12]  Punitive damages are available where malice, wantonness, or oppression can be proven.[13]  Even where an insurer is found not to have acted in bad faith, fees and costs can sometimes be awarded to a claimant.[14]  “When the insured gets … policy protection only by court order after litigating coverage, it is both ‘necessary’ and ‘proper’ to award attorney fees and costs to give the insured the full benefit of his insurance contract.”[15]

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[1] ND Cent. Code §26.1-04-03

[2] ND Cent. Code §26.1-04-03 §§9.

[3] Id.

[4] Fetch v. Quam, 623 N.W.2d 357 (N.D. 2001).

[5] Hanson v. Cincinnati Life Ins. Co., 571 N.W.2d 363 (N.D. 1997).

[6] Corwin Chrysler-Plymouth v. Westchester Fire Ins. Co., 279 N.W.2d 638 (N.D. 1979).

[7] Dvorak v. American Family Mut. Ins. Co., 508 N.W.2d 329 (N.D. 1993); Volk v. Wisconsin Mtg. Assur. Co., 474 N.W.2d 40 (N.D. 1991).

[8] Dvorak,508 N.W.2d at 329.

[9]  Szarkowski v. Reliance Insurance Co.,404 N.W.2d 502 (N.D. 1987).

[10] Hellman v. Thiele, 413 N.W.2d 321(N.D. 1987).

[11] Vallejo v. Jamestown College, 244 N.W.2d 753 (N.D. 1976).

[12] Corwin, supra, 279 N.W.2d at 638.

[13] Id.; see also Vallejo v. Jamestown College, 244 N.W.2d 753 (N.D.1976).

[14] Western Nat’l Mut. Ins. Co. v. University of North Dakota, 643 N.W.2d 4 (N.D.2002); R.D. Offutt Co. v. Lexington Ins. Co., 494 F.3d 668 (8th Cir.2007).

[15] State Farm Fire & Cas. Co. v. Sigman, 508 N.W.2d 323, 327 (N.D. 1993).