Insurance policies are intended to provide financial protection when covered losses or events occur. When an insurance company unreasonably denies benefits, delays payments, or fails to properly investigate a claim, disputes may arise over whether the insurer fulfilled its contractual obligations.
In California, insurance bad faith claims involve allegations that an insurer violated its duty to act fairly and in good faith toward a policyholder. Courts examine the insurance policy, claims handling practices, and circumstances surrounding the dispute to determine whether the insurer acted unreasonably.
Understanding Insurance Bad Faith Under California Law
California law recognizes an implied covenant of good faith and fair dealing in insurance contracts. This obligation generally requires insurers to avoid unreasonably withholding benefits owed under an applicable insurance policy.
Insurance bad faith claims may arise when an insurer denies covered benefits without a reasonable basis or improperly handles a claim. Courts distinguish between legitimate coverage disagreements and conduct that violates the insurer’s duty of good faith.
How Courts Examine Insurance Claim Denials
Insurance companies may deny claims when they determine that a loss falls outside the policy’s coverage or is subject to an exclusion. Courts review the policy language and the circumstances of the loss to determine whether benefits were contractually owed.
When a denial is challenged, courts also examine whether the insurer had a reasonable basis for its decision. An incorrect coverage determination does not automatically establish bad faith if the insurer’s position was reasonable under the circumstances.
The Role of Claims Investigations
Insurance companies are generally expected to conduct reasonable investigations before making claim determinations. Inadequate investigations, overlooked evidence, or unsupported conclusions may become relevant when evaluating allegations of bad faith.
Courts may examine inspection reports, communications, internal claim records, and other documentation concerning the insurer’s investigation. These materials can help establish whether the company reasonably evaluated the information available before reaching its decision.
How Courts Evaluate Delayed Insurance Payments
Insurance bad faith disputes can also involve unreasonable delays in processing or paying covered claims. Delays may create financial difficulties for policyholders who rely on insurance benefits to address covered losses.
Courts consider the reasons for the delay, the complexity of the claim, and the insurer’s actions throughout the process. A delay does not necessarily constitute bad faith when additional investigation or a legitimate coverage issue reasonably requires more time.
Evidence Used in Insurance Bad Faith Litigation
Insurance policies, claim correspondence, payment records, and investigation materials often play an important role in bad faith litigation and are typically obtained through the discovery process. These documents can establish what coverage was requested, how the insurer responded, and whether its decisions were reasonably supported.
Courts may also consider testimony from claims representatives, policyholders, and insurance industry experts when appropriate. The evidence helps clarify the insurer’s handling of the claim and whether its conduct violated applicable legal obligations.
Potential Remedies for Insurance Bad Faith
When an insurer breaches its contractual obligations, a policyholder may be entitled to recover benefits owed under the insurance policy. If bad faith is established, additional damages may be available for losses caused by the insurer’s unreasonable conduct.
Depending on the circumstances, recoverable damages may include certain consequential losses, attorney fees incurred to recover policy benefits (often called Brandt fees), and other compensation recognized under California law. Punitive damages may also be available in qualifying cases when the requirements of Civil Code Section 3294 are established.
First-Party and Third-Party Bad Faith
Insurance bad faith claims fall into two broad categories. First-party bad faith involves an insurer handling of a claim submitted by its own policyholder for benefits under the policy, such as property, disability, health, life, or uninsured motorist coverage. These cases typically focus on wrongful denials, unreasonable delays, inadequate investigations, and lowball settlement offers.
Third-party bad faith arises when an insurer defends its policyholder against a claim by someone else. In cases such as Comunale v. Traders and General Insurance Co. and Crisci v. Security Insurance Co., the California Supreme Court held that an insurer that unreasonably refuses to accept a settlement offer within policy limits may be liable for the full amount of a resulting judgment, even if it exceeds those limits.
The Genuine Dispute Doctrine and Claims Handling Regulations
Insurers often defend bad faith claims by arguing that a genuine dispute existed over coverage or the amount owed. Under this doctrine, an insurer that withholds benefits because of a reasonable, good faith disagreement is generally not liable for bad faith. California courts have emphasized, however, that the doctrine applies only when the insurer position is reasonable and based on a thorough and fair investigation.
California Fair Claims Settlement Practices Regulations, found in Title 10 of the California Code of Regulations beginning at Section 2695.1, set standards for claims handling. For example, insurers generally must acknowledge a claim within 15 days and accept or deny it within 40 days after receiving proof of claim. Although policyholders generally cannot sue directly under these regulations, they can serve as evidence of whether an insurer acted reasonably.
Frequently Asked Questions About Insurance Bad Faith
What counts as insurance bad faith in California?
Bad faith generally involves an insurer unreasonably withholding benefits owed under a policy. Examples may include denying a covered claim without a reasonable basis, failing to investigate, unreasonably delaying payment, misrepresenting policy terms, or refusing a reasonable settlement offer within policy limits.
Can I recover more than the policy limits?
In some cases. When bad faith is established, a policyholder may recover damages beyond the policy benefits, such as consequential losses, Brandt fees, and in qualifying cases punitive damages. In third-party cases, an insurer may be responsible for a judgment that exceeds policy limits.
Is there a deadline to file a bad faith lawsuit?
Yes. Bad faith tort claims are generally subject to a two-year limitations period, while contract claims under a written policy are generally subject to four years. Many property policies also contain a shorter suit limitation provision, so policyholders should review the policy and act promptly.
Should I keep records of my communications with my insurer?
Yes. Keeping a written log of every call, saving emails and letters, and documenting the dates you submitted information can be very helpful if a dispute develops. These records can show how long the insurer took to respond, what it requested, and whether it fairly considered the information you provided, which are often central questions in a bad faith case.
Get Help With an Insurance Dispute in California
If your insurer has denied, delayed, or underpaid a claim, the civil litigation attorneys at Wade Litigation can review your policy and claim file to determine whether the insurer’s conduct may support a bad faith claim. Contact our office to schedule a free case evaluation.
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