COVERAGE POSITION / DENIAL RESPONSE TOOLKIT — ARKANSAS

JURISDICTION NOTE: Arkansas recognizes a common law tort of bad faith against first-party insurers. Under Aetna Casualty & Surety Co. v. Broadway Arms Corp., 281 Ark. 128, 664 S.W.2d 463 (1984), bad faith requires "affirmative misconduct" that is "dishonest, malicious, or oppressive" in an attempt to avoid liability under the policy. Arkansas also provides a powerful 12% statutory penalty under Ark. Code Ann. § 23-79-208 when an insurer fails to pay a valid claim within the time specified in the policy. The Unfair Claims Settlement Practices provisions (§ 23-66-206) do NOT provide a private right of action but define the expected standard of conduct.

PART ONE: FORMAL DENIAL RESPONSE LETTER

[LAW FIRM LETTERHEAD]

[__/__/____]

VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED, AND EMAIL

[________________________________]
[________________________________]
[________________________________]
[________________________________]

Re: Response to Coverage Denial
Insured: [________________________________]
Policy Number(s): [________________________________]
Claim Number: [________________________________]
Date of Loss: [__/__/____]
Your Denial Letter Dated: [__/__/____]

Dear [________________________________]:

This firm represents [________________________________] ("Insured") in connection with the above-referenced claim under Policy No. [________________________________] issued by [________________________________] ("Insurer"). We respond to your denial letter dated [__/__/____]. The denial is without merit, and we demand that it be reversed immediately. If the Insurer fails to pay this valid claim, the Insured will pursue all available remedies under Arkansas law, including the 12% statutory penalty under Ark. Code Ann. § 23-79-208 and common law bad faith damages.

I. IDENTIFICATION OF DENIAL AND STATED BASES

Your denial letter states that coverage is denied based on:

1. [________________________________]
2. [________________________________]
3. [________________________________]

Each basis is refuted below.

II. FACTUAL CORRECTIONS

Your denial letter contains the following material factual errors:

Misstatement 1: Your letter states: "[________________________________]"
Correct Fact: [________________________________] (See Exhibit [____])

Misstatement 2: Your letter states: "[________________________________]"
Correct Fact: [________________________________] (See Exhibit [____])

These errors are material and indicate that the claim was denied without a complete investigation, in violation of the standards of Ark. Code Ann. § 23-66-206(9)(C) and (D).

III. COVERAGE ANALYSIS AND REBUTTAL

A. The Insuring Agreement Provides Coverage

The Policy provides:

"[________________________________]"
(Policy, Section [____], p. [____])

The loss falls within this insuring agreement because:

1. [________________________________]
2. [________________________________]
3. [________________________________]

Under Arkansas law, insurance policies are construed liberally in favor of the insured and strictly against the insurer. Certain Underwriters at Lloyd's London v. Bass, 345 Ark. 340, 47 S.W.3d 253 (2001). Ambiguous policy terms are resolved in favor of coverage.

B. The Cited Exclusion(s) Do Not Apply

Your denial relies on the following exclusion:

"[________________________________]"
(Policy, Section [____], p. [____])

This exclusion does not bar coverage because:

☐ The exclusion is inapplicable. The facts do not satisfy the exclusion because [________________________________].

☐ An exception restores coverage. The following exception applies: "[________________________________]."

☐ The exclusion is ambiguous. Under Arkansas law, ambiguous exclusions are construed against the insurer. Southern Farm Bureau Cas. Ins. Co. v. Daggett, 354 Ark. 112, 118 S.W.3d 525 (2003).

☐ The insurer bears the burden of proving the exclusion. Aetna Casualty & Surety Co. v. Danley, 258 Ark. 390, 525 S.W.2d 664 (1975). The insurer has not met this burden.

☐ The efficient proximate cause was a covered peril. [________________________________]

C. Policy Conditions Have Been Satisfied

☐ Timely Notice: Notice was given on [__/__/____]. Arkansas applies the notice-prejudice rule in most circumstances.

☐ Cooperation: The Insured has cooperated fully.

☐ Proof of Loss: Submitted on [__/__/____].

☐ Examination Under Oath: Completed on [__/__/____].

D. Duty to Defend (Liability Policies)

☐ Under Arkansas law, the duty to defend is broader than the duty to indemnify. The insurer must defend if the complaint alleges facts that potentially bring the claim within coverage. Norwood v. Travelers Ins. Co., 204 Ark. 68, 161 S.W.2d 380 (1942).

IV. FORMAL DEMAND — INCLUDING DEMAND TRIGGERING 12% PENALTY

Based on the foregoing, we formally demand:

1. Withdraw the denial and confirm coverage in writing;
2. Pay the claim in the amount of $[________________________________] within the time specified in the Policy;
3. ☐ Assign defense counsel and commence defense immediately (liability claims);
4. Provide a complete copy of the claim file;
5. Provide a detailed written explanation if you maintain the denial.

NOTICE PURSUANT TO ARK. CODE ANN. § 23-79-208: This letter constitutes a formal demand for payment. Under § 23-79-208(a)(1), if the Insurer fails to pay the loss within the time specified in the Policy after demand, the Insurer "shall be liable to pay the holder of the policy or his or her assigns, in addition to the amount of the loss, twelve percent (12%) damages upon the amount of the loss, together with all reasonable attorney's fees for the prosecution and collection of the loss." This demand triggers the statutory penalty provisions.

V. NOTICE OF POTENTIAL BAD FAITH LIABILITY

Be advised that the denial, if maintained without a good faith basis, may constitute bad faith under Arkansas common law. Under Aetna Casualty & Surety Co. v. Broadway Arms Corp., 281 Ark. 128 (1984), bad faith requires:

1. Affirmative misconduct by the insurer;
2. Without a good faith defense;
3. That is dishonest, malicious, or oppressive;
4. In an attempt to avoid liability under the policy.

Damages available include:
- Compensatory damages for all losses
- Consequential damages
- The 12% statutory penalty plus attorney fees under § 23-79-208
- Punitive damages where the insurer's conduct warrants (subject to Ark. Code Ann. § 16-55-206 limitations)
- Pre-judgment interest

The Insured reserves all rights and remedies.

VI. CONCLUSION

Respond in writing no later than [__/__/____]. If we do not receive a satisfactory response, we will file suit and a complaint with the Arkansas Insurance Department.

Respectfully,

[________________________________]
[________________________________]
[________________________________]

Enclosures:
- Exhibit A: [________________________________]
- Exhibit B: [________________________________]

PART TWO: COVERAGE ANALYSIS FRAMEWORK

Step 1: Insuring Agreement Analysis

☐ Identify the specific insuring agreement
☐ Parse into elements:

☐ Ambiguities construed against insurer under Certain Underwriters at Lloyd's v. Bass, 345 Ark. 340 (2001).

Step 2: Exclusion Analysis

☐ Insurer bears the burden of proving exclusion. Danley, 258 Ark. at 393.

Step 3: Exception to Exclusion

Step 4: Condition Compliance

PART THREE: COMMON DENIAL REBUTTAL ARGUMENTS (ARKANSAS-SPECIFIC)

3.1 Late Notice Denial

☐ Arkansas applies the notice-prejudice rule: the insurer must demonstrate actual prejudice from late notice.

☐ Notice was timely provided on [__/__/____].

☐ The insurer waived the late notice defense by investigating the claim before raising the defense.

3.2 Exclusion-Based Denial

☐ Under Arkansas law, exclusions are strictly construed against the insurer. Daggett, 354 Ark. at 117.

☐ The insurer bears the burden of proving every element. Danley, 258 Ark. at 393.

☐ Any ambiguity is resolved in favor of coverage.

3.3 The "Dishonest, Malicious, or Oppressive" Standard

Under Broadway Arms, bad faith requires more than a good faith denial — it requires "affirmative misconduct." Consider:

☐ Did the insurer engage in affirmative misconduct (not just a passive failure)?

☐ Was the misconduct dishonest, malicious, or oppressive?

☐ Was the conduct an attempt to avoid liability under the policy?

☐ Did the insurer have a good faith defense? If so, bad faith cannot be established, even if the defense ultimately fails. Broadway Arms, 281 Ark. at 133.

However: A good faith denial or an honest error of judgment is not bad faith. The insured must show the insurer's conduct went beyond mere disagreement about coverage.

3.4 The 12% Penalty Under § 23-79-208

Key points on the 12% penalty statute:

☐ The penalty applies when the insurer fails to pay a loss within the time specified in the policy after demand

☐ The penalty is 12% of the amount of the loss, plus reasonable attorney fees

☐ The penalty does NOT apply if it was "reasonably necessary" for the insurer to continue investigation beyond the time payment was due. § 23-79-208(a)(2)

☐ The penalty is separate from and in addition to bad faith damages

☐ A formal demand letter triggers the statutory time period

☐ The insurer's failure to pay after demand shifts the burden to prove the investigation necessity

3.5 Misrepresentation Defense

☐ Under Ark. Code Ann. § 23-79-107, misrepresentation must be material and either fraudulent or material to the risk.

☐ The insurer bears the burden of proving materiality.

PART FOUR: BAD FAITH NOTICE

[LAW FIRM LETTERHEAD]

[__/__/____]

VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED

[________________________________]
[________________________________]

Re: Formal Notice of Bad Faith
Insured: [________________________________]
Policy Number: [________________________________]
Claim Number: [________________________________]

Dear [________________________________]:

This letter constitutes formal notice that the denial of the above-referenced claim constitutes bad faith under Arkansas common law.

Arkansas Bad Faith Standard

Under Aetna Casualty & Surety Co. v. Broadway Arms Corp., 281 Ark. 128 (1984), bad faith exists where the insurer's conduct constitutes "affirmative misconduct" that is "dishonest, malicious, or oppressive" in an attempt to avoid liability. See also Employers Equitable Life Ins. Co. v. Williams, 282 Ark. 29 (1984).

Specific Bad Faith Conduct

☐ Denial without investigation. The insurer denied the claim without conducting a reasonable investigation, which constitutes affirmative misconduct.

☐ Misrepresentation of policy terms. The denial letter distorts the scope of the exclusion at [________________________________].

☐ Ignoring evidence of coverage. The insurer disregarded evidence that [________________________________], which clearly supports coverage.

☐ Unreasonable delay. The insurer delayed [____] days before responding.

☐ Lowball offer. The insurer offered $[________________________________] on a claim documented at $[________________________________].

Available Remedies

• 12% statutory penalty plus attorney fees under § 23-79-208
• Compensatory damages for all losses caused by the bad faith
• Consequential damages beyond policy limits
• Punitive damages under Ark. Code Ann. § 16-55-206 (limited to three times compensatory damages or $250,000, whichever is greater, except no limit for intentional conduct)
• Pre-judgment interest

Demand

Reverse the denial and pay the claim within fifteen (15) days.

Respectfully,

[________________________________]
[________________________________]

PART FIVE: ARKANSAS INSURANCE DEPARTMENT COMPLAINT

[DATE: __/__/____]

Arkansas Insurance Department
1 Commerce Way, Suite 102
Little Rock, AR 72202
Phone: (501) 371-2600
Consumer Services: 1-800-852-5494

Re: Consumer Complaint Against [________________________________]
Insured: [________________________________]
Policy Number: [________________________________]
Claim Number: [________________________________]

Dear Commissioner:

I file this formal complaint against [________________________________] ("Insurer") for unfair claim settlement practices.

Facts

1. Policy No. [________________________________], effective [__/__/____] to [__/__/____].
2. Loss occurred on [__/__/____].
3. Claim reported on [__/__/____].
4. Denial issued on [__/__/____], citing [________________________________].

Violations Under Ark. Code Ann. § 23-66-206(9)

☐ § 23-66-206(9)(A) — Misrepresenting pertinent facts or policy provisions
☐ § 23-66-206(9)(B) — Failing to acknowledge and act promptly on communications
☐ § 23-66-206(9)(C) — Failing to adopt reasonable standards for prompt investigation
☐ § 23-66-206(9)(D) — Refusing to pay claims without reasonable investigation
☐ § 23-66-206(9)(E) — Failing to affirm or deny coverage within a reasonable time
☐ § 23-66-206(9)(F) — Not attempting good faith settlement when liability is clear
☐ § 23-66-206(9)(G) — Compelling insureds to litigate by offering substantially less than amounts recovered
☐ Other: [________________________________]

Requested Relief

1. Investigate the Insurer's claim handling;
2. Require re-evaluation and payment;
3. Take enforcement action;
4. Advise of findings.

Enclosed Documents

☐ Insurance policy ☐ Denial letter ☐ All correspondence ☐ Supporting documentation

Respectfully submitted,

[________________________________]

PART SIX: DEMAND FOR RECONSIDERATION

[LAW FIRM LETTERHEAD]

[__/__/____]

Re: Demand for Reconsideration
Claim Number: [________________________________]

Dear [________________________________]:

We demand reconsideration of the denial dated [__/__/____] based on the following supplemental evidence:

☐ Independent expert report (Exhibit [____])
☐ Repair/replacement estimate of $[________________________________] (Exhibit [____])
☐ Engineering report (Exhibit [____])
☐ Witness statements (Exhibit [____])
☐ Photographs/video (Exhibit [____])
☐ Other: [________________________________]

How This Evidence Refutes the Denial

1. As to [denial basis 1]: [________________________________]
2. As to [denial basis 2]: [________________________________]

Reverse the denial and pay within fifteen (15) days. Maintaining a denial in the face of this evidence may constitute bad faith under Broadway Arms and trigger the 12% penalty under § 23-79-208.

Respectfully,

[________________________________]

PART SEVEN: LITIGATION PRE-FILING CHECKLIST (ARKANSAS)

7.1 Pre-Suit Requirements

☐ No statutory pre-suit notice requirement for bad faith in Arkansas
☐ Formal demand letter sent (required to trigger § 23-79-208 penalty)
☐ Response deadline expired
☐ Insurance Department complaint filed (optional)

7.2 Statute of Limitations

☐ Breach of contract: Five (5) years. Ark. Code Ann. § 16-56-111.
☐ Bad faith tort: Three (3) years. Ark. Code Ann. § 16-56-105.
☐ § 23-79-208 penalty claim: Governed by the contract statute of limitations (five years).
☐ Discovery rule: Limitations period begins when the insured knew or should have known of the cause of action.

7.3 Causes of Action

☐ Breach of insurance contract
☐ Common law bad faith (Broadway Arms tort action)
☐ Statutory penalty under § 23-79-208 (12% plus attorney fees)
☐ Declaratory judgment

Note: Arkansas does NOT provide a private right of action under § 23-66-206. AHCP, Inc. v. O'Brien, 318 Ark. 95 (1994). The statute is enforced by the Insurance Commissioner.

7.4 Damages

☐ Contract damages: Full unpaid claim amount
☐ 12% statutory penalty: Under § 23-79-208, 12% of the loss amount plus reasonable attorney fees
☐ Compensatory damages (tort): All damages caused by bad faith
☐ Consequential damages: Beyond policy limits
☐ Punitive damages: Subject to § 16-55-206 caps (three times compensatory or $250,000, whichever is greater; no cap for intentional conduct)
☐ Pre-judgment interest

7.5 Venue

☐ Arkansas Circuit Court (general jurisdiction)
☐ Venue: county where insured resides, loss occurred, or contract was made
☐ Federal court if diversity exists

PART EIGHT: ARKANSAS-SPECIFIC PRACTICE NOTES

8.1 Key Arkansas Bad Faith Cases

8.2 The 12% Penalty Statute (§ 23-79-208)

This is one of the most important tools for Arkansas policyholders. Key provisions:

• Trigger: Insurer fails to pay loss within the time specified in the policy after demand
• Penalty: 12% of the loss amount plus reasonable attorney fees
• Exception: Penalty does not apply if it was "reasonably necessary" to continue investigation beyond the payment deadline
• Burden: Once the insured shows demand was made and payment not timely made, the burden shifts to the insurer to prove the investigation necessity defense
• Independent claim: The § 23-79-208 claim is independent of the common law bad faith claim and has different elements
• Attorney fees: Attorney fees under this statute are mandatory if the penalty applies

8.3 Arkansas Bad Faith vs. § 23-79-208

These are distinct causes of action:

8.4 No Private Right of Action Under § 23-66-206

Arkansas's Unfair Claims Settlement Practices provisions (§ 23-66-206) do not provide a private right of action. AHCP, Inc. v. O'Brien, 318 Ark. 95 (1994). However, violations may be used as evidence of the standard of care in a bad faith action. The Insurance Commissioner enforces the statute administratively.

8.5 Punitive Damages Caps

Under Ark. Code Ann. § 16-55-206:
- General cap: Greater of three times compensatory damages or $250,000
- No cap for intentional misconduct
- Must be proven by clear and convincing evidence

8.6 Practical Tips for Arkansas Practice

• Always send a formal demand letter to trigger the § 23-79-208 time period
• Document the date of demand and track the policy's payment timeline
• The § 23-79-208 claim is often easier to prove than bad faith — consider pleading both
• Arkansas has a relatively high bar for common law bad faith ("affirmative misconduct"), so build the record carefully
• File the Insurance Department complaint early to create an additional record

SOURCES AND REFERENCES

• Arkansas Code Title 23 (Insurance): https://law.justia.com/codes/arkansas/title-23/
• Ark. Code Ann. § 23-66-206 (Unfair Claims Practices): https://law.justia.com/codes/arkansas/title-23/subtitle-3/chapter-66/subchapter-2/section-23-66-206/
• Ark. Code Ann. § 23-79-208 (12% Penalty): https://law.justia.com/codes/arkansas/title-23/subtitle-3/chapter-79/
• Arkansas Insurance Department: https://insurance.arkansas.gov/
• Arkansas Insurance Department Consumer Complaints: https://insurance.arkansas.gov/consumers/
• Ark. Code Ann. § 16-55-206 (Punitive Damages): https://law.justia.com/codes/arkansas/title-16/subtitle-4/chapter-55/

This template is provided for informational purposes only and does not constitute legal advice. It must be reviewed and customized by a qualified attorney licensed in Arkansas before use.

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