Ask a lawyer in most states what happens when an insurer denies a claim it had no business denying, and the answer is a tort. The insured sues for bad faith, a jury decides whether the denial was unreasonable, and the jury decides what that’s worth.
Minnesota did something else. In 2008 the Legislature enacted Minn. Stat. § 604.18, and it isn’t a tort. It’s a taxable-costs statute. It doesn’t create a cause of action for a jury to try. It creates an add-on that a judge awards after the fact finder has already decided what the policy owed. The amount isn’t a verdict. It’s a calculation, with two pieces and two dollar caps written right into the text.
That setup — a formula, awarded by the court, reachable only through a motion to amend the pleadings — is what this whole article is about, because it changes what my client is actually going after and what it’s worth.
The standard: two elements, and the second one is the case
Subdivision 2 sets the liability standard:
(a) The court may award as taxable costs to an insured against an insurer amounts as provided in subdivision 3 if the insured can show:
(1) the absence of a reasonable basis for denying the benefits of the insurance policy; and
(2) that the insurer knew of the lack of a reasonable basis for denying the benefits of the insurance policy or acted in reckless disregard of the lack of a reasonable basis for denying the benefits of the insurance policy.
Element one is objective. Element two isn’t. Proving that no reasonable basis existed is a claims-handling and coverage question: what the file said, what the policy said, what a competent adjuster would have concluded. Element two asks what the insurer knew about the absence of that basis, or whether it was recklessly indifferent to it. That’s a state-of-mind showing, and it lives in the claim file, the adjuster’s notes, the internal referrals, the coverage opinions, and the reserve history.
Two limits sit right next to the standard.
(b) A violation of this section shall not be the basis for any claim or award under chapter 325D or 325F.
That shuts the obvious workaround. An insured can’t recast a § 604.18 violation as a deceptive trade practice or a consumer fraud claim to get out from under the caps and the procedure that follow.
(c) An insurer does not violate this subdivision by conducting or cooperating with a timely investigation into arson or fraud.
Look at the adjective. The safe harbor is for a timely investigation. An investigation that’s real but slow isn’t what paragraph (c) protects.
The remedy is a formula
This is the heart of the statute, and it’s where most of what I read about Minnesota insurance bad faith goes wrong: it describes § 604.18 as though it produced damages. It doesn’t. Here’s subdivision 3:
(a) In addition to prejudgment and postjudgment interest and costs and disbursements allowed under law, the court may award an insured the following taxable costs for a violation of subdivision 2:
(1) 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; and
(2) reasonable attorney fees actually incurred to establish the insurer’s violation of this section.
Attorney fees may be awarded only if the fees sought are separately accounted for by the insured’s attorney and are not duplicative of the fees for the insured’s attorney otherwise expended in pursuit of proceeds for the insured under the insurance policy. Attorney fees must not exceed $100,000.
Take it one piece at a time.
The base is a difference, not a total. Clause (1) isn’t half the recovery. It’s half of “the proceeds awarded that are in excess of an amount offered by the insurer at least ten days before the trial begins.” The insurer’s own pre-trial offer comes off before anything gets halved.
There’s a ceiling on that item. Reading “or $250,000, whichever is less” so that the phrase does some work, the clause (1) item can’t exceed $250,000. (The sentence isn’t a model of drafting, and this article doesn’t cite any appellate construction of it.)
Fees are a separate item with a separate cap, and they’re narrow. Clause (2) reaches “reasonable attorney fees actually incurred to establish the insurer’s violation of this section” — not the fees of proving the coverage claim. Then the statute says so twice: the fees must be “separately accounted for,” must not be “duplicative of the fees . . . otherwise expended in pursuit of proceeds for the insured under the insurance policy,” and “must not exceed $100,000.” A lawyer who doesn’t keep the bad-faith time separate from the coverage time has forfeited the item as a matter of statutory text.
And you can’t stack. Paragraph (b): “An insured may not also recover punitive or exemplary damages or attorney fees under section 8.31 for a violation of this section.” The § 604.18 route and the private-attorney-general fee route are alternatives, not a menu.
Here’s the arithmetic, on invented figures used only to show how the clauses work together:
| Proceeds awarded on the policy | Insurer’s offer ≥10 days before trial | Excess | Clause (1): one-half of the excess | Clause (1) after the ceiling |
|---|---|---|---|---|
| $200,000 | $0 | $200,000 | $100,000 | $100,000 |
| $200,000 | $150,000 | $50,000 | $25,000 | $25,000 |
| $600,000 | $100,000 | $500,000 | $250,000 | $250,000 |
| $1,200,000 | $100,000 | $1,100,000 | $550,000 | $250,000 |
| $200,000 | $200,000 | $0 | $0 | $0 |
The ten-day offer is the insurer’s lever. The statute lets the insurer shrink the base of the bad-faith item at any point up to ten days before trial, just by offering money. An insurer that stonewalls for three years and then puts most of the claim on the table on the eve of trial has cut its clause (1) exposure to half of what’s left. And if it offers the full amount the fact finder later awards, clause (1) goes to zero. The conduct that made the claim bad faith hasn’t changed. The number has.
And the remedy stops growing. Past a $600,000 award against a $100,000 offer, clause (1) is at its ceiling, and more proceeds add nothing to it. In a large first-party loss, the bad-faith piece is a fixed sum, not a proportional one. So the bigger the claim, the weaker it is as a deterrent.
You’re not allowed to plead it
Subdivision 4(a) is a procedural gate, and it opens with a prohibition:
(a) Upon commencement of a civil action by an insured against an insurer, the complaint must not seek a recovery under this section. After filing the suit, a party may make a motion to amend the pleadings to claim recovery of taxable costs under this section. The motion must allege the applicable legal basis under this section for awarding taxable costs under this section, and must be accompanied by one or more affidavits showing the factual basis for the motion. The motion may be opposed by the submission of one or more affidavits showing there is no factual basis for the motion. At the hearing, if the court finds prima facie evidence in support of the motion, the court may grant the moving party permission to amend the pleadings to claim taxable costs under this section.
As a checklist:
- The complaint must not seek it. A coverage complaint that demands § 604.18 taxable costs is contrary to the first sentence.
- The vehicle is a motion to amend, after filing.
- The motion must be accompanied by affidavits showing the factual basis. Affidavits, not allegations and not argument.
- The insurer may answer with its own affidavits showing there is no factual basis. This is an evidentiary contest on paper.
- The finding is prima facie evidence in support of the motion.
- Even then, the court “may grant” permission. Not shall.
Minnesota uses the same structure for punitive damages, and any lawyer who’s brought that motion — I have — will recognize the shape of this one. But don’t assume the two are interchangeable. Section 604.18 expressly authorizes opposing affidavits, and it says the court “may grant” leave rather than “shall.” Both differences cut in the insurer’s favor, and both were deliberate choices by a Legislature writing against an existing template.
The award comes after the trial, from the judge
Subdivision 4(b) sets the order:
(b) An award of taxable costs under this section shall be determined by the court in a proceeding subsequent to any determination by a fact finder of the amount an insured is entitled to under the insurance policy, and shall be governed by the procedures set forth in Minnesota General Rules of Practice, Rule 119.
So the fact finder decides the policy proceeds, and then the court, separately and afterward, decides the taxable costs. The jury that heard the coverage case doesn’t put a number on the insurer’s conduct. It can’t, because the number depends on its own verdict and on an offer it never heard about.
Rule 119 is the general rules’ attorney-fee procedure. A motion is required for fee awards at or above a threshold amount, supported by an affidavit describing the work performed, when it was performed, the time spent on each item, and the hourly rate claimed, and the court can require fee agreements, bills, and time records. Put Rule 119 next to subdivision 3(a)’s “separately accounted for” and “not duplicative” language and the job is obvious: from the day the bad-faith theory shows up, the time entries have to be segregated in a way that survives line-item review.
Where the remedy just doesn’t exist
This is the part that decides whether § 604.18 is available at all, and definitions and exclusions decide it, not conduct.
| Gate | Text | Effect |
|---|---|---|
| Defense and indemnity are outside the definition | “Insurance policy does not include provisions of a written agreement obligating an insurer to defend an insured, reimburse an insured’s defense expenses, provide for any other type of defense obligation, or provide indemnification for judgments or settlements.” | By its terms the section addresses an insurer’s obligation “to pay proceeds directly to an insured” — a first-party obligation |
| Third-party claimants are not “insureds” | “An insured does not include any person or entity claiming a third-party beneficiary status under an insurance policy.” | The remedy belongs to the policyholder |
| Whole lines of coverage are excluded | Workers’ compensation under ch. 176; a health carrier agreement as defined in § 62A.011; a dental-only contract of a ch. 62C nonprofit health service plan corporation; agreements under § 60A.06, subd. 1, cl. (4) or (6), or § 64B.16, subd. 1; and agreements issued under § 67A.191 | Several of the most common claim denials in Minnesota are outside the section entirely |
| Some insurers are not “insurers” | Excludes “a political subdivision providing self-insurance or a pool of political subdivisions under section 471.981, subdivision 3,” and “the Joint Underwriting Association operating under chapter 62F or 62I” | Who the defendant is can end the analysis |
| Arbitration and appraisal | Subd. 4(c): “An award of taxable costs under this section is not available in any claim that is resolved or confirmed by arbitration or appraisal.” | See below — this is the largest exclusion in practice |
| Producers | Subd. 5: a licensed producer is not liable for errors, acts, or omissions attributed to the appointing insurer “except to the extent the producer has caused or contributed to the error, act, or omission.” | Narrows the defendant pool |
| Assignment | Subd. 4(e): “A claim for taxable costs under this section may not be assigned.” | The remedy cannot be packaged and transferred, though the paragraph preserves “the assignment of rights not established in this section” |
Subdivision 4(c) gets its own paragraph, because it takes the remedy out of the two forums where Minnesota first-party disputes most often end. Minnesota Statutes § 65B.525, subd. 1 directs the courts to “provide for the mandatory submission to binding arbitration of all cases at issue where the claim at the commencement of arbitration is in an amount of $10,000 or less against any insured’s reparation obligor for no-fault benefits or comprehensive or collision damage coverage.” And first-party property policies routinely carry appraisal provisions that either side can invoke to fix the amount of loss. A claim that gets “resolved or confirmed by arbitration or appraisal” carries no § 604.18 taxable costs. Full stop.
Subdivision 4(d) then shuts off a set of proof sources. Not admissible in a proceeding seeking taxable costs: findings or determinations from § 65B.525 arbitrations; “allegations involving, or results of, investigations, examinations, or administrative proceedings conducted by the Department of Commerce”; Department of Commerce administrative bulletins and informal guidance; and provisions under chapters 59A to 79A and their rules “as standards of conduct.”
That last one matters more than it looks. The insurance code’s unfair claims practices provisions are the natural place a lawyer would go to show what a reasonable claims process looks like. Subdivision 4(d)(4) says those provisions aren’t admissible as standards of conduct in a § 604.18 proceeding. The standard is the statute’s own two-element test, proved with evidence from the case in front of the court.
My working rules, on either side of the v.
If you represent the insured:
- Confirm the coverage is inside subdivision 1 before anything else. First-party proceeds, an insured rather than a third-party claimant, an insurer that isn’t an excluded entity, and a line of coverage that isn’t on the exclusion list.
- Think hard before you invoke appraisal or agree to arbitration. Subdivision 4(c) is unforgiving, and the choice of forum can wipe out the remedy before anyone reaches the merits.
- Don’t plead it. Subdivision 4(a) prohibits it. Plead the coverage claim, then build toward the motion.
- Aim discovery at element two from the start. The absence of a reasonable basis can be proved from the file. The insurer’s knowledge of that absence can be proved from the internal file: referrals, coverage counsel involvement, reserve changes, supervisor notes, and what happened between the adjuster’s recommendation and the denial letter.
- Segregate bad-faith time from coverage time from day one. Subdivision 3(a) and Rule 119 together turn commingled billing records into a self-inflicted cut.
- Price the case honestly. Clause (1) is capped at $250,000 and fees at $100,000, and clause (1) shrinks when the insurer makes a pre-trial offer. It’s a real remedy, not a lottery ticket, and I tell clients exactly that.
If you represent the insurer:
- The ten-day offer is in the statute for a reason. Whatever the merits of the denial, an offer made at least ten days before trial reduces the clause (1) base directly.
- Oppose by affidavit. Subdivision 4(a) expressly authorizes it, and the motion is decided on prima facie evidence, not on the pleading.
- Argue the definitions first. Coverage line, insured status, entity status, and the arbitration or appraisal history can resolve the claim without ever reaching conduct.
- Document the timeliness of any arson or fraud investigation. Subdivision 2(c) protects the timely one.
My read on the design
The usual complaint about Minnesota is that it’s an unfriendly state for insurance bad faith. That’s close, but I think it misses what the Legislature actually did.
Minnesota didn’t decline to punish bad faith. It declined to let a jury price it. Section 604.18 takes a claim that in other states is an open-ended tort tried to a jury and turns it into three things: a judicial finding on a two-element standard, a formula the court applies to a verdict the jury already returned, and a fee award reviewed line by line under Rule 119. Every discretionary word in the section — “may award” in subdivision 2(a), “may award” in subdivision 3(a), “may grant” in subdivision 4(a) — points to the same decision-maker, and it isn’t the jury.
There’s a defensible logic to that. Bad faith is a claims-handling question, claims handling leaves a paper record, and a judge reading a claim file against a statutory standard isn’t an unreasonable way to evaluate it. But the design has a cost, and the ten-day offer is where it shows: the statute makes the size of the remedy depend on what the insurer offered on the eve of trial rather than on how it behaved during the years the claim sat. An insurer that understands the arithmetic can manage its § 604.18 exposure without ever changing how it handles claims.
For the insured, here’s the lesson I take from it: the leverage in a Minnesota first-party case isn’t the size of the bad-faith number. It’s the motion. A granted motion to amend under subdivision 4(a) is a judicial finding, on the record, that there’s prima facie evidence the insurer knew it had no reasonable basis. In most cases that piece of paper is worth more than the calculation it unlocks.
Madgett Law, LLC handles Minnesota first-party insurance disputes — denied and underpaid property, disability, and other direct-benefit claims — including the § 604.18 motion practice that comes with them. If a Minnesota insurer has denied benefits you believe you’re owed, send us a message or call 612-470-6529.
Sources: Minn. Stat. § 604.18 (insurance standard of conduct — subd. 1(a), (b), (c), definitions of “insurance policy,” “insured,” and “insurer” and their exclusions; subd. 2(a), the two-element standard; subd. 2(b), no claim under ch. 325D or 325F; subd. 2(c), timely arson or fraud investigation; subd. 3(a), taxable costs, the one-half-of-the-excess formula, the $250,000 figure, and attorney fees “actually incurred to establish the insurer’s violation,” separately accounted for, not duplicative, and capped at $100,000; subd. 3(b), no punitive or exemplary damages and no § 8.31 attorney fees for a violation; subd. 4(a), the prohibition on pleading, the motion to amend, supporting and opposing affidavits, prima facie evidence, and “may grant”; subd. 4(b), determination by the court after the fact finder, governed by Minn. Gen. R. Prac. 119; subd. 4(c), unavailable where the claim is resolved or confirmed by arbitration or appraisal; subd. 4(d)(1)–(4), inadmissible evidence including chs. 59A to 79A as standards of conduct; subd. 4(e), no assignment; subd. 5, insurance producers) (History: 2008 c 208 s 1 — the section has not been amended since enactment); Minn. Stat. § 65B.525, subd. 1 (mandatory arbitration of no-fault and comprehensive or collision claims of $10,000 or less) — Minnesota Office of the Revisor of Statutes, 2025 Minnesota Statutes. Minn. Gen. R. Prac. 119 (attorney fees; motion requirement, supporting affidavit describing the work performed, dates, time spent, and hourly rate, and the court’s authority to require fee agreements, bills, and time records), Minnesota General Rules of Practice as published by the Office of the Revisor of Statutes — described here, not quoted. Currency check: the Revisor’s page for § 604.18 shows a History line of “2008 c 208 s 1” and no later session entries; no 2025 or 2026 session amendment to § 604.18 appears there. The dollar figures and worked examples in the table are arithmetic illustrations on invented numbers, not data about actual cases.
This article is general legal information about Minnesota law, not legal advice, and reading it does not create an attorney–client relationship. Whether § 604.18 applies to a particular policy, insurer, or denial depends on the policy language, the coverage line, the forum, and the claim record, and nothing here should be used to evaluate a specific claim. No outcome is promised or implied.