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 is worth.
Minnesota did something else. In 2008 the Legislature enacted Minn. Stat. § 604.18, and it is not a tort. It is a taxable-costs statute. It does not create a cause of action that a jury tries; it creates an add-on that a judge awards after the fact finder has already decided what the policy owed. The amount is not a verdict. It is a calculation, with two components and two dollar caps written into the text.
That structure — a formula, awarded by the court, reachable only through a motion to amend the pleadings — is the entire subject of this article, because it changes what an insured is actually pursuing and what it is worth.
The standard: two elements, and the second one is the case
Subdivision 2 states 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 is not. Establishing 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 is 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 beside the standard.
(b) A violation of this section shall not be the basis for any claim or award under chapter 325D or 325F.
That forecloses the obvious workaround. An insured cannot recast a § 604.18 violation as a deceptive trade practice or a consumer fraud claim to escape 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.
Note the adjective. The safe harbor is for a timely investigation. An investigation that is real but slow is not what paragraph (c) protects.
The remedy is a formula
This is the heart of the statute, and it is where most discussions of Minnesota insurance bad faith go wrong by describing § 604.18 as though it produced damages. It does not. 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 the components one at a time.
The base is a difference, not a total. Clause (1) is not half the recovery. It is 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 is subtracted before the halving.
There is a ceiling on that item. Reading “or $250,000, whichever is less” so that the phrase does work, the clause (1) item cannot exceed $250,000. (The sentence is not a model of drafting, and this article does not cite any appellate construction of it.)
Fees are a separate item with a separate cap, and they are 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. The statute then 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 does not keep the bad-faith time separate from the coverage time has forfeited the item as a matter of statutory text.
And you cannot 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 is the arithmetic, on invented figures used only to show how the clauses interact:
| 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 |
Two things fall out of that table immediately.
First, 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, 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 reduced the clause (1) exposure to half of what is 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 is unchanged. The number is not.
Second, the remedy stops growing. Past a $600,000 award against a $100,000 offer, clause (1) is at its ceiling and additional proceeds add nothing to it. In a large first-party loss the bad-faith component is a fixed sum, not a proportional one — which means its deterrent force is inversely related to the size of the claim.
You are 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 this same architecture for punitive damages, and any lawyer who has brought that motion will recognize the shape of this one. But do not 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 run 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) sequences the remedy:
(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, afterward — decides the taxable costs. The jury that heard the coverage case does not put a number on the insurer’s conduct. It cannot, because the number is a function of its own verdict and of 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, with the court able to require fee agreements, bills, and time records. Read Rule 119 together with subdivision 3(a)’s “separately accounted for” and “not duplicative” language and the compliance obligation is obvious: from the day the bad-faith theory appears, the time entries have to be segregated in a way that survives line-item review.
Where the remedy simply does not exist
This is the part that decides whether § 604.18 is available at all, and it is decided by definitions and exclusions rather than by 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) deserves its own paragraph, because it removes the remedy from 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 contain 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 closes 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 unfair claims practices provisions of the insurance code are the natural place a lawyer would go to establish what a reasonable claims process looks like. Subdivision 4(d)(4) says those provisions are not admissible as standards of conduct in a § 604.18 proceeding. The standard is the statute’s own two-element test, proved with case-specific evidence.
What to do
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 is not an excluded entity, and a line of coverage that is not on the exclusion list.
- Think hard before invoking appraisal or agreeing to arbitration. Subdivision 4(c) is unforgiving, and the choice of forum can extinguish the remedy before the merits are reached.
- Do not 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 is provable from the file; the insurer’s knowledge of that absence is provable 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 combine to make commingled billing records a self-inflicted reduction.
- Price the case honestly. Clause (1) is capped at $250,000 and fees at $100,000, and both shrink when the insurer makes a pre-trial offer. This is a meaningful remedy, not a lottery ticket, and telling a client otherwise is a disservice.
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 reaching conduct.
- Document the timeliness of any arson or fraud investigation. Subdivision 2(c) protects the timely one.
The observation
The usual complaint about Minnesota is that it is an unfriendly state for insurance bad faith. That is close, but it misses what the Legislature actually did.
Minnesota did not 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 converts 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 is not the jury.
That design has a defensible logic. Bad faith is a claims-handling question, claims handling is a document record, and a judge reading a claim file against a statutory standard is not an unreasonable way to evaluate it. But the design has a cost, and the ten-day offer provision 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, the practical lesson is that the leverage in a Minnesota first-party case is not the size of the bad-faith number. It is the motion. A granted motion to amend under subdivision 4(a) is a judicial finding, on the record, that there is prima facie evidence the insurer knew it had no reasonable basis. In most cases that document 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 goes with them. If a Minnesota insurer has denied benefits you believe are 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.