Wrongful Denial of a Health Insurance Claim in California

When Is It Wrongful For An Insurer To Deny Coverage In California?

California Civil Jury Instructions Section 2300 outlines the requirements to establish that an insurer breached its contract to cover a loss for its insured. The 3 elements are:

• The plaintiff suffered a loss, and the insurance policy with [name of defendant] covered all or part of it
• The defendant was notified of the loss as required by the policy
• The amount of the covered loss that [name of defendant] failed to pay.

Insurance policies may select from a number of possible reasons to deny a claim, In addition this list includes:

1. The insurance policy does not cover the type of treatment needed for an injury.
2. The procedure sought is cosmetic or unnecessary.
3. The claimant lacked pre-authorization or a referral.
4. The out-of-network provider is giving the treatment.
5. The claim has typographical errors
6. The claimant did not make the claim in a timely manner.

An insurer must provide a notice of denial if they choose to reject the claim, in addition, they must include the reason for their decision. A claimant may submit an appeal of this notice, which outlines the arguments against the rejection. If the insurer denies the appeal, legal action may be necessary. When an insurer wrongfully denies a claim appeal, they are acting in bad faith, the insurer must not attempt to deny what the contract obligated to their insured. The elements of insurance bad faith in denying coverage are more specific than a simple breach of contract.

California Civil Jury Instructions 2331 outlines them and includes:

1. The plaintiff suffered a loss covered under an insurance policy with [name of defendant];
2. The defendant was notified of the loss;
3. The defendant unreasonably [failed to pay/delayed payment of] policy benefits;
4. The plaintiff suffered harm; and
5. The defendant’s [failure to pay/delay in payment of] policy benefits was a substantial factor in causing harm to the plaintiff

A Vital Part of Establishing Bad Faith

A vital part of establishing that an insurer acted in bad faith is proving that the insurer not only breached the contract but did so, however, in an “unreasonable” way. A wrongful denial of a claim by an insurer does not automatically mean the insurer acted in bad faith. Some examples of this would include an insurer denying coverage of a procedure that is debatably cosmetic or denying a claim based on an honest error from the insurer. To constitute bad faith, the denial must be based on unreasonable action, which is harder to establish. California Judicial Code 2331 gives some factors that tend to constitute bad faith in denying a claim, these are examples, but not an exhaustive list of:

1. Failure to acknowledge a claim or respond to it in a reasonable amount of time.
2. Ignoring or failing to provide evidence to support a claim decision.
3. Falsifying or misrepresenting relevant facts or evidence related to the claim.
4. Failing to investigate a reasonably made claim.

Additional Indications of Insurer Bad Faith in California

In addition to the examples outlined in California Civil Jury Instructions 2331, there are other actions that may indicate bad faith on the part of an insurer. For example, offering a grossly undervalued settlement amount without a clear reason could be considered an unfair settlement practice. Repeated requests for documents that have already been produced or requests for unrelated documents can also be red flags. Such actions can create artificial obstacles and delay the payment process. It is important to realize that under California law, insurance companies are required to review each case objectively. This includes an obligation to act in good faith and within a reasonable time frame.

The Value of Internal Correspondence and Investigation

When to seek legal advice