Virginia’s New Bad Faith Law: What Insurers Need to Know

On July 1, 2024, new Virginia Code § 8.01-66.1 became effective and created a new bad faith cause of action that can be significant for underinsured or uninsured (“UIM”) carriers.

The prior Va. Code § 8.01-66.1 did not create a duty for UIM carriers to settle a case prior to trial. Instead, it only created a remedy when UIM carriers refused in bad faith to pay once the insured had obtained judgment. Manu v. GEICO Cas. Co., 293 Va. 371, 391 (2017).

But pursuant to the new Virginia Code § 8.01-66.1, the UIM carrier’s duty is no longer triggered by a judgment; instead, it is triggered “when liability to the [] insured has become reasonably foreseeable without necessity of a judgment by its insured . . .”

Once this duty is triggered, a UIM carrier can now be liable if it, in bad faith:

• denies, refuses, fails to pay, or fails to make a timely and reasonable settlement offer or
• after all applicable liability policy limits and underlying UIM benefits have been tendered or paid, rejects a reasonable settlement demand within the UIM policy’s coverage limits or fails to respond within a reasonable time after being presented with such demand.

If a court determines that a UIM carrier’s conduct was not in good faith, then it shall award not only the amount due and owing by the UIM carrier to its insured, but also an amount up to double the judgment obtained against the tortfeasor, not to exceed $500,000, along with attorney fees for bringing the bad faith claim, and all costs and expenses incurred by the insured to secure a judgment against the tortfeasor, and interest.

The new Virginia Code § 8.01-66.1 marks a significant shift in the legal landscape for UIM carriers in Virginia. As a result of this new bad faith law, UIM carriers need to be diligent and cautious in handling the early resolution of UIM claims to mitigate risk. And given the tight timelines in the statute for investigating liability and damages and responding to demands, UIM carriers should consider early engagement with legal counsel to ensure a timely and appropriate response.

If you have any questions about this post or other litigation issues, please contact Katie Decoster at kdecoster@sandsanderson.com.