California Insurance Bad Faith
California law allows consumers to bring bad faith tort action against their insurers for breaching the duty of good faith when refusing without proper cause to compensate its insured for a loss cover by the policy. Generally, every insurance policy has an implied obligation of good faith and fair dealing that neither the insurance company nor the insured will do anything to injure the right of the other party to receive the benefits of the agreement.
What does Insurance Bad Faith Mean?
To breach the implied obligation of good faith and fair dealing, an insurance company must, unreasonably or without proper cause, act or fail to act in a manner that deprives the insured of the benefits of the policy. It is not a mere failure to exercise reasonable care. However, it is not necessary for the insurer to intend to deprive the insured of the benefits of the policy.
Generally, the term bad faith for insurance purposes means an insurance company:
- Unreasonably denies a claim;
- Unreasonably delays the claims process;
- Unreasonably terminates the claim
- Unreasonably underpays a claim.
Who Can Bring Action for Insurance Bad Faith?
Both first and third party can bring suit for insurance bad faith.
What is a First Party Insurance Claims
First party claims are made between its policyholder or insured and the insurance company. These type of claims are contractual by nature and are contingent on the language of the insurance policy. For the insurer to fulfill its obligation not to impair the right of the insured to receive the benefits of the agreement, it again must give at least as much consideration to the latter’s interests as it does to its own.” (Egan v. Mutual of Omaha Insurance Co. (1979) 24 Cal.3d 809, 818—819 [169 Cal.Rptr. 691, 620 P.2d 141].)
What is a Third Party Insurance Claim
Third party insurance claim is made by a party that is not a named policyholder or insured.The most common type of third party insurance claim would be a liability claim i.e, you were rear-ended up by another driver and filed a claim with his/her insurance company.
Types of Insurance Bad Faith Claim
California Insurance Code §790.3 underlines what insurance companies are prohibited from doing:
- Deceptive practices or deliberate misrepresentations to avoid paying claims;
- Deliberate misrepresentation of record or policy language in the hopes of avoiding coverage;
- Unreasonable delay in resolving claims or a failure to investigate;
- Unreasonable litigation conduct;
- Arbitrary or unreasonable demands for proof of loss;
- Coercive or abusive tactics used to settle a claim;
- Compelling an insured to contribute to settlement;
- Failing to investigate the claim thoroughly according to its own procedures;
- Failing to maintain adequate investigative procedures; or
- Failing to disclose policy limits and explain applicable policy provisions or exclusions.
How To Establish Insurers Bad Faith
Insured must show that the insurer has:
- withheld benefits due under the policy, and
- that such withholding was ‘unreasonable’ or ‘without proper cause.’
The actionable withholding of benefits may consist of the denial of benefits due; paying less than due; and/or unreasonably delaying payments due.” (Major v. Western Home Ins. Co. (2009) 169 Cal.App.4th 1197, 1209 [87 Cal.Rptr.3d 556], internal citations omitted.)
What Types of Damages Are Available in California Insurance Bad Faith?
If an insurance company is successfully found to have acted in bad faith, they may be liable to pay for:
- The amount of loss;
- Emotional distress;
- Attorney fees, and;
- Punitive damages.
If you believe that your insurance company may be acting in bad faith, speak to a Los Angeles insurance attorney for a free consultation. Call our office at (310) 943-1171, our attorneys speak English, French, Spanish, Russian, Armenian, and Italian.
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