A Fair Investigation Means Considering and Weighing All Facts and Circumstances

The Minnesota Supreme Court issued an opinion in late July that significantly addresses Minnesota Statute § 604.18, commonly known as Minnesota’s “Bad Faith Law.” While arising in the context of an automobile accident, the case of Peterson v. Western National Mutual Insurance Company,¹ is still applicable to property insurance claims as § 604.18 applies to both automobile and property insurance claims.

In order for there to be a finding of bad faith in Minnesota, two prongs must be established:

1. the absence of a reasonable basis for denying policy benefits, and
2. the insurer knew it lacked a reasonable basis for denying benefits, or acted with recklessness or disregard for the insured’s rights to the benefits of the policy.

The Supreme Court in Peterson addressed the first prong holding as follows:

[T]he proper inquiry under the first prong of the section 604.18, subdivision 2 standard is whether a reasonable insurer under the circumstances would not have denied the insured the benefits of the insurance policy. In applying that standard, the factfinder should consider the level of investigation a reasonable insurer would have conducted under the circumstances of the case and how a reasonable insurer would have evaluated the claims in light of that investigation. The insurer’s evaluation of the insured’s claim must be fair. A fair evaluation means an evaluation that considers and weighs all of the facts and circumstances that a reasonable insurer would consider relevant.

The Minnesota Supreme Court went on to discuss that an insurer who was paid a premium for coverage is expected to reasonably investigate all the facts and fairly evaluate the claim in light of all the evidence. The insurer “cannot ignore evidence that supports coverage; they must weight all the evidence in the balance to determine whether coverage exists.”²

This decision supports what policyholder advocates have long argued: an insurer should not ignore evidence submitted by an insured during the course of its investigation. Thankfully the Peterson decision in Minnesota solidifies that not only should an insurer not ignore information submitted by an insured, but now it can be considered an element of bad faith if they do.
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¹ Peterson v. Western National Mutual Ins. Co., No. A18-1081, 2020 WL 4342929 (Minn. July 29, 2020).
² Id. at 12.