Guide · Insurance
What is insurance bad faith in California?
Insurance bad faith is an insurer’s unreasonable failure to honor its obligations under a policy, such as denying a covered claim without a proper investigation or delaying payment without cause. In California a policyholder can sue for bad faith in tort, and an insurer that acts in bad faith can owe more than the policy benefits.
The duty of good faith and fair dealing
Every insurance policy in California includes an implied promise that the insurer will not do anything to unfairly interfere with the policyholder’s right to receive the benefits of the policy. When an insurer unreasonably withholds benefits, the policyholder can sue in tort as well as for breach of contract (Gruenberg v. Aetna Insurance Co.).
What counts as bad faith
The test is whether the insurer acted unreasonably or without proper cause. A mistaken denial is not always bad faith, and an insurer that denies a claim because of a genuine dispute over coverage may not be liable in tort. Examples of conduct that can be bad faith:
- Denying a claim without a thorough and fair investigation
- Ignoring evidence that supports coverage
- Reading policy language in the insurer’s favor when it is reasonably read the other way
- Delaying a decision or payment without a reason
- Offering far less than the claim is worth
- Refusing to defend, or refusing a reasonable settlement offer within policy limits in a liability case
The claims practices rules
California lists unfair claims settlement practices in Insurance Code section 790.03(h) and sets claim-handling deadlines in the Fair Claims Settlement Practices Regulations. A policyholder cannot sue under section 790.03(h) itself (Moradi-Shalal v. Fireman’s Fund), but violations can be evidence that the insurer acted unreasonably.
What you can recover
- The policy benefits owed
- Attorney’s fees spent to recover the policy benefits (Brandt v. Superior Court)
- Other economic losses caused by the bad faith
- Emotional distress damages in some cases
- Punitive damages, if there is clear and convincing evidence of oppression, fraud or malice (Civil Code section 3294)
California and Nevada
Nevada lets insureds sue over claims practices
Nevada recognizes a bad faith tort too, and its unfair claims practices statute, NRS 686A.310, lets an insured sue for damages caused by listed practices. California does not allow that kind of direct suit.
What to do if you think your insurer acted in bad faith
- Keep every letter, email and note of every call with the insurer.
- Get the complete policy, including endorsements.
- Respond in writing to requests for information, and keep copies.
- Talk to an attorney before signing a release or accepting a final payment.
Sources
- Gruenberg v. Aetna Insurance Co. (1973) 9 Cal.3d 566.
- California Insurance Code § 790.03(h), unfair claims settlement practices.
- California Code of Regulations, title 10, § 2695.1 and following, Fair Claims Settlement Practices Regulations.
- Moradi-Shalal v. Fireman’s Fund Insurance Cos. (1988) 46 Cal.3d 287.
- Brandt v. Superior Court (1985) 37 Cal.3d 813.
- California Civil Code § 3294, punitive damages.
- Nevada Revised Statutes § 686A.310, unfair practices in settling claims.
Common questions
Don’t see yours? Call (323) 410-0300.
Is a denied claim always bad faith?
No. An insurer can deny a claim it reasonably believes is not covered. Bad faith requires unreasonable conduct.
How long do I have to sue for bad faith in California?
Bad faith tort claims generally must be filed within two years, and contract claims on a written policy within four, but many property policies shorten the time to one year. Get advice early.
Related
The information on this page is general and is not legal advice. Contacting the firm does not create an attorney-client relationship. Prior results do not guarantee a similar outcome.