In 2009, archaeologists discovered what is believed to be the world’s oldest known granary, a building in which grain and other foods are stored for extended periods. Located just off the shores of the Dead Sea in Jordan, researchers believe this granary to be more than 11,000 years-old (for perspective, 11,000 years ago sabre-tooth tigers and wooly mammoths still roamed the Midwest). 

The development of granaries in the ancient world mark what is perhaps the greatest evolutionary shifts in human history. Before the development of granaries, people were nomadic; moving from place to place in search of available resources.  A granary, however, permitted long-term storage and stockpiling of foods.  In turn, the ability to store foods led to the domestication of plants and farming (because a community could now produce more than immediately necessary), which reduced the need to follow resources, which fostered the growth of sedentary and complex society.

The importance of a granary is this: it allows a people to withstand food shortages caused by the seasons and climate, insects, or other external factors. Without a granary, a people had no ability to manage the risk that their current location might not continue to offer enough food.  But with a granary, the community could harvest and collect food, stockpile and store what was not immediately consumed, and be protected from the risk of drought, famine, or insect infestation.  In other words, 11,000 years ago, humans first figured out how to insure against risk. 

Fast-forward 11,000 years, and we continue to protect ourselves against risk. In fact, insurance today operates on the same basic principles and protects us against risks that are no less severe as existed in ancient Jordan.  As we did a long time ago, we deposit our resources into a pool of funds or resources and, when needed, we draw upon that communal pool and are protected against the risk of loss.

Today, most of us do not insure against risk by depositing grain into a granary.  Instead, we enter into a contract with an insurer.  In fact, that’s all an insurance policy is; a contract.  Like any contract, the parties to an insurance policy agree to exchange certain rights for certain benefits (i.e., if I do this, you do that).  What rights and benefits are afforded are controlled by the policy’s terms, conditions, exclusions, and endorsements.  As such, it is important to understand your insurance policy, to ask questions, and to seek out qualified advice when necessary.

However, the terms, conditions, exclusions, and endorsements of the policy are not the exclusive source of an insured’s rights.  Because insurance is of such great importance to society, and indeed has been for at least 11,000 years, all legislatures, including Minnesota and Wisconsin, impose additional obligations upon an insurer for reasons of public policy.  The most important of these additional obligations is the duty of an insurer to act in good faith and fair dealing to its insured (at least as applied to first-party claims).

The duty of good faith and fair dealing is so highly valued, in fact, that the state legislatures impose special penalties upon an insurer who fails to act in good faith; or, in other words, acts in bad faith.  For example, in Minnesota a typical breach of contract claim under an insurance policy entitles the prevailing party to only contractual damages (i.e., those damages the party would have been entitled to had the contract been properly observed).  However, when the insurer acts in bad faith, the insured can recover not only the contractual damages, but also (1) attorneys’ fees incurred to establish the insurer’s bad faith up to $100,000 and (2) “an amount equal to one-half of the proceeds awarded that are in excess of an amount offered by the insurer at least ten days before the trial begins or $250,000, whichever is less.”  Minn. Stat. § 604.18, subd. 3(a).

To establish that an insurer failed to act in good faith (a.k.a. acted in bad faith) an insured must show (1) the absence of a reasonable basis for denying the benefits of an insurance policy; and (2) that the insurer knew of the lack of a reasonable basis for denying the benefits of the insurance policy.  Minn. Stat. § 604.18, subd. 2(a).  However, an insurer will not be liable for bad faith where the claim is “fairly debatable.”  A claim is fairly debatable where, in law or fact, whether the insurer must pay a claim is open to dispute on any logical basis.  An insurer ultimately being wrong in denying the claim is insufficient, if a reasonable basis existed at the time it denied the claim. 

Whether we wish to admit it, insurance was an is necessary to society.  But, because of that importance, insureds are afforded special protections under the law. Contact Wilson Law Group to schedule a consultation if you would like to know more about your insurance policy.

Matthew Lawlyes, Associate Attorney at Wilson Law Group