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:
Insurance policies may select from a number of possible reasons to deny a claim. These include but are not limited to:
An insurer must provide a notice of denial if they choose to reject the claim, and 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 try to deny what is contractually obligated to their insured. The elements of insurance bad faith in denying coverage are more specific than a simple breach of contract. They are outlined in California Civil Jury Instructions 2331, and include:
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 in an “unreasonable” way. Just because an insurer breaches a contract by wrongfully denying a claim does not necessarily mean it 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 include, but are not limited to:
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