A North Dakota association must now win a breach case before it can allege bad faith
A North Dakota association must now win a breach case before it can allege bad faith
2026-09-15 · North Dakota · Regulation
A North Dakota association that believes its carrier handled a claim in bad faith can no longer say so in the same lawsuit that establishes the carrier was wrong. Senate Bill 2374 created N.D.C.C. § 26.1-39-29, effective August 1, 2025:1
“Notwithstanding any provision under title 26.1, before a named insured may proceed with a bad faith claim against a property insurer, the named insured shall establish through an adverse adjudication by a court of law the property insurer breached the insurance contract and a final judgment or decree must have been rendered against the insurer.”
Three requirements are stacked in that sentence: an adjudication by a court, a finding that the insurer breached the contract, and a final judgment or decree against the insurer. A settlement produces none of them. Neither does an appraisal award.
Arbitration endorsements are now regulated, and optional
The same Act created § 26.1-30-22, which permits mandatory binding arbitration in a North Dakota property policy only on conditions. The provisions must sit “in a separate endorsement,” the named insured must accept them in writing, and the policy “does not require mandatory binding arbitration upon request.”
The acceptance form has prescribed wording, in at least twelve-point bold font:
“By signing this form, I agree to resolve all covered property insurance claims through mandatory binding arbitration. I understand that by agreeing to mandatory binding arbitration: I am giving up my right to have disputes resolved in court. I am giving up my right to a jury trial. I am accepting these terms in exchange for a premium discount of [dollar amount or percentage of premium amount]. This agreement is binding on all insureds under the policy and remains effective upon policy renewal, replacement, or reinstatement unless I request removal of the mandatory binding arbitration endorsement in writing”
What a board is actually signing away
Read that disclosure as the checklist it is. The endorsement is binding on all insureds under the policy — for an association master policy, that reaches beyond the board that signed it. It survives renewal, replacement and reinstatement until someone asks in writing to remove it. And it is paid for with a premium discount that must be stated in dollars or as a percentage, which means the trade is quantified on the face of the form.
A board signing an arbitration endorsement is making a multi-year decision on behalf of every owner, in exchange for a number the form obliges the carrier to print. That is a decision worth minuting, and worth revisiting at renewal rather than letting it roll.
Managed repair programs
Section 26.1-30-23 does the same for the other common premium-discount trade:
“A property insurance policy may be issued or delivered in this state with a managed repair program provision offering premium incentives for managed repair program participation. As used in this section, 'managed repair program' means an insurance policy providing a program with a specified reduction in premium or other specified incentive for participation in a program restricting an insured's choice of repair vendors or contractors for covered repairs.”
It applies “to insurance policies issued or renewed after August 1, 2025.” For an association the restriction bites in an unusual place: a managed repair program narrows the contractor list for common-element repairs, which can collide with a declaration or architectural standard that specifies materials, colours or finishes. See our North Dakota architectural review page for who decides that inside the community.
What the judgment-first rule changes in practice
Bad faith is no longer leverage in a first-round negotiation. Before August 2025 the threat of a bad-faith count could be pleaded alongside breach. Now it cannot exist until breach has been adjudicated to final judgment. That removes a bargaining chip associations and their counsel routinely used.
Settling forecloses it. An association that settles a coverage dispute — which is what nearly all of them do — never obtains the adverse adjudication the statute requires, and so never has a bad-faith claim at all. This is not a drafting quirk; it is the operative effect.
Appraisal forecloses it too. An appraisal award is not a court adjudication that the insurer breached the contract. That matters more in North Dakota than it might elsewhere: the Eighth Circuit held in September 2026 that an association is bound by the dollar figure an appraisal panel produces and cannot have it reviewed for adequacy.
Two full proceedings now, not one. Breach first, to final judgment. Bad faith after. The cost and the calendar of that sequence are the real deterrent, and for an association the money is assessment money.
What a board faces before its next renewal
Ask the broker, in writing, three questions: is there a mandatory binding arbitration endorsement on this policy; if so, what premium discount is stated on the acceptance form; and is there a managed repair program provision, with what contractor restriction. All three are now statutorily required to be visible, so a broker who cannot answer plainly is the answer.
Then decide deliberately. Both endorsements are legitimate trades — a real discount for a real limitation — but under § 26.1-39-29 the limitations compound. An association that has signed an arbitration endorsement has, in practical terms, given up the bad-faith remedy as well, because it has given up the adjudication that unlocks it.
What to watch next
Watch how many North Dakota property policies arrive at renewal carrying the separate arbitration endorsement now that the statute has told carriers exactly how to offer one. Watch, too, for the first North Dakota decision on whether a judgment confirming an appraisal award counts as “an adverse adjudication by a court of law” that “the property insurer breached the insurance contract” — on the face of the statute it does not, but that is the argument a policyholder will have to make.
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