Montana protects policyholders and its citizens from bad faith and unfair claims practices made by wrongfully acting insurance companies. Numerous reputable Montana licensed attorneys explain the law of Montana bad faith law on their websites and invite policyholders wronged by their insurance company to file a bad faith lawsuit. The National Association of Mutual Insurance Companies published a paper saying that Montana is like 25 other states recognizing that insurance companies cannot act in bad faith and can be sued for doing so:

At least 25 states recognize the right to file a private cause of action alleging bad faith based on a statute and judicial recognition of an implied, private cause of action under an Unfair Trade Practices Act that includes an unfair claim settlement practices provision. Damages may include prejudgment interest and legal expenses, consequential, or incidental, damages for economic loss and mental distress, and, in some instances, punitive damages.

A Westlaw search noted that the insurance industry Defense Research Institute recognizes that claimants can bring bad faith lawsuits in Montana:

Is there a statutory basis for an insured to bring a bad faith claim? 

Yes. The Montana Unfair Trade Practices Act, Mont. Code Ann. § 33-18-101 et seq. (“UTPA”), is the only basis for pursuing a bad faith claim. Mont. Code Ann. §§ 33-18-242(1), 33-18-242(3). However, third-party claimants have broader rights to sue insurers, and ‘[a]n insured may not bring an action for bad faith in connection with the handling of an insurance claim.’ Mont. Code Ann. § 33-18-242(3).

Can a third party bring a statutory action for bad faith?

Yes. Mont. Code Ann. § 33-18-242(1).

Is there a common law cause of action for bad faith?

Yes. However, the common law causes of action available to insureds versus third parties are quite different.

An insured may bring a common law bad faith claim against an insurer for conduct that is unrelated to ‘the handling of an insurance claim.’ Thomas v. Northwestern Nat’l Ins. Co., 1998 MT 343, 292 Mont. 357, 973 P.2d 804 (1998); Williams v. Union Fid. Life Ins. Co., 2005 MT 273, ¶58, 329 Mont. 158, ¶58, 123 P.3d 213, ¶58 (2005).

Third-party claimants may assert common law bad faith claims for claim handling practices (in addition to UTPA claims). Brewington v. Employers Fire Ins. Co., 1999 MT 312, 297 Mont. 243, 992 P.2d 237 (1999) (plain language of § 33-18-242(3) only limits the causes of action available to ‘insureds’).

What cause of action exists for an excess carrier to bring a claim against a primary carrier?

In order to determine insurers’ rights under their respective policies, an excess insurance carrier may file a declaratory judgment action against the primary insurance carrier under Montana’s Uniform Declaratory Judgments Act. Mont. Code Ann. § 27-8-101, et seq.

What causes of action for extracontractual liability have been recognized outside the claim handling context?

Insurers have been held liable for bad faith for failure to disclose changes in policy provisions upon renewal. See, e.g., Thomas v. Northwestern Nat’l Ins. Co., 1998 MT 343, 292 Mont. 357, 973 P.2d 804 (1998).

Are punitive damages available?

Yes. The UTPA provides that ‘Exemplary damages may also be assessed in accordance with § 27-1-221.’ Mont. Code Ann. § 33-18-242(4). A plaintiff can recover punitive damages by proving by a preponderance of the evidence that the insurer violated one or more specified subsections of Mont. Code Ann. § 33-18-201, and by proving by clear and convincing evidence that the insurer acted with actual malice or actual fraud as defined in Mont. Code Ann. § 27-1-221.

Punitive damages may be awarded in common law claims if the claimant can prove that the insurer acted with actual fraud or actual malice in breaching the covenant of good faith and fair dealing…

Are attorneys’ fees recoverable?

Generally, no. Montana adheres to the American Rule that a party in a civil action is not entitled to attorneys’ fees absent a specific contractual or statutory provision…

Are consequential damages recoverable?

Yes….§ 33-18-242(4) allows plaintiffs to recover ‘such damages as were proximately caused by the violation of subsection (1), (4), (5), (6), (9), or (13) of 33-18-201.’ All special and general damages caused by the violation of the foregoing sections are included as damages.

Can a plaintiff recover damages for emotional distress?

Yes…Mont. Code Ann. § 33-18-242(4); see also Stephens v. Safeco Ins. Co. of America, 258 Mont. 142, 852 P.2d 565 (1993)….

This does not mean that the study of Montana bad faith law is simple because it is complex compared to some other states. A 2022 American Bar Association article written by an insurance defense attorney, “Giving Up the Spear: Will a Quartet of State Supreme Court Decisions Quell the Effort to Sue Insurance Adjusters Personally?” describes a part of Montana’s bad faith law and the history of its statutory construction:

These state model acts—especially those creating a private right of action—supplied plaintiffs with an alternate theory for suing adjusters personally. In 1993, the theory bore fruit. In O’Fallon v. Farmers Insurance Exchange, the Montana Supreme Court permitted an extracontractual lawsuit against a claim adjuster personally. The trial court had permitted the claim adjuster to be held liable under Montana’s version of the Model Act. The adjuster moved to dismiss the complaint against him ‘on the basis that he was not an ‘insurer’ under the provisions of the Unfair Trade Practices Act, and therefore, not subject to liability for violation of its terms.’ This resembles the arguments that had largely prevailed for decades.

On appeal, O’Fallon blazed a new trail and found a duty running from the adjuster to the insured under Montana’s version of the Model Act. Montana law had previously implied a common law right of action for violations of the state’s model act. O’Fallon extended the private right of action to adjusters personally because the state’s model act governed their conduct. The court reasoned: ‘Section 33-18-201, MCA, provides that ‘no person’ may engage in the prohibited conduct. Person is defined in § 33-1-202(3), MCA, as ‘an individual, insurer, company … or any other legal entity.’ ‘It is clear from the language of § 33-18-201, MCA, that not just insurers, but also claims adjusters, are prohibited from engaging in the acts that are prohibited.’

But in creating a private right of action against adjusters personally under Montana’s model act, the court required plaintiffs to meet a significantly higher burden of proof. And the court limited the remedy against adjusters to just those damages resulting from the adjuster’s own ‘breach’ of the state’s model act. O’Fallon did not require adjusters to pay the insurance benefits or all bad faith damages attributable to the insurer’s collective conduct.

Readers may be wondering, “We get the point, Chip. Why are you belaboring the point that Montana policyholders can bring bad faith lawsuits, seek punitive damages if certain proof is met, and that Montana bad faith law is complex?”

This blog came about because of a recent article noted on LinkedIn, No Bad Faith in Montana: Insurance Bad Faith in Disguise Fails, written by a respected colleague, Barry Zalma. Zalma and I often agree. Indeed, I have often suggested people subscribe to his newsletter and buy his books. This time, I thought his title went too far, suggesting that Montana does not recognize that insurers have a duty of good faith in Montana and that they cannot be sued in a statutory bad faith claim, which may eventually include punitive damages.

The case Zalma cited was simply dismissed because it was a very poorly plead bad faith lawsuit by a sole legal practitioner who is not one of the Montana lawyers I reference earlier in this post who routinely practice in the area of Montana bad faith law. The sole practitioner also had reasons cited in his brief to file the lawsuit in the manner that he did with a certain strategy, which may or may not prove fruitful in the long run. The decision is not an earth-shattering shift in Montana bad faith law, which says that bad faith does not exist in Montana.

I also object to this finding and statement by Barry:

The State of Montana does not like bad faith and claims seeking punitive damages. The plaintiff – to avoid the requirements of the state – composed its complaint to disguise its bad faith claim as a different type of tort. The attempt failed and the USDC limited the case to the simple breach of contract action and allowed that the plaintiff could amend his complaint to allege bad faith after discovery. When a plaintiff has a winnable breach of contract claim it should do so and give up the attempt to get rich with a bad faith suit.

Montana legislators passed unfair claims practice laws to protect its citizenry because the law common law did not do so. Zalma is right in a literal sense, “Montana does not like bad faith.” His projection about the policyholder is unfair and demeaning.

The policyholder in this case has a history of a bad back and is obviously working with his own physicians to get the pain from the back resolved. Like so many Americans dealing with our health insurance companies, the insurance company does not agree with the method of treatment and will not approve another back surgery. Most Americans that I know are sick and tired of their health insurance companies nickeling and dimeing them to death and not approving medical treatments they and their doctors want to do because the insurers pay less and make more money by paying less.

Policyholders like this one with a bad back having to do another surgery are not seeking out lawyers. These policyholders simply want to feel less pain and follow their doctors’ advice. They are not buying health insurance to get rich. They do not want to hire lawyers and do not want to be stuck in a lawsuit where everybody in the world knows about their medical issues in a public lawsuit. I felt his statement was insensitive and demeaning to the vast majority of policyholders and my clients, who are legitimately upset with even having to hire an attorney, much less get accused of seeking to get rich from the insurance lawsuit.

Bad faith punitive damages exist to deter and punish wrongful and illegally acting insurance companies. I can cite many examples of this behavior and the justification for punitive damages. I cannot think of one policyholder who has been proven to buy an insurance policy with the future intent at the point of sale to bring a bad faith lawsuit to get rich. It is an illusory argument that we hear too often from insurance company propagandists and lobbyists.

Thought For The Day 

I’m in love with Montana. For other states, I have admiration, respect, recognition, even some affection. But with Montana, it is love. And it’s difficult to analyze love when you’re in it.
—John Steinbeck