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Insurance Bad Faith

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Insurance Bad Faith

Every California contract contains an implied covenant of good faith and fair dealing, whereby each party covenants not to “do anything which will injure the right of the other to receive the benefits of the agreement.’” (Wolf v. Walt Disney Pictures and Television (2008) 162 Cal.App.4th 1107, 1120.) However, in insurance contracts, unlike other contracts, breach of the implied covenant by the insurer gives rise to an independent tort known as insurance bad faith. (Egan v. Mutual of Omaha Insurance Company (1979) 24 Cal.3d 809, 818.) As the California Supreme Court explained in addressing the tort of insurance bad faith, one of the reasons insurance contracts are treated differently is because “[t]he insured . . . does not seek to obtain a commercial advantage by purchasing the policy—rather, he seeks protection against calamity.”(Id. at 819)

“To fulfill its implied obligation, an insurer must give at least as much consideration to the interests of the insured as it gives to its own interests. When the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort. And an insurer cannot reasonably and in good faith deny payments to its insured without fully investigating the grounds for its denial.” Frommoethelydo v. Fire Insurance Exchange (1986) 42 Cal.3d 208, 214—215.

California law defines certain acts and conduct that can qualify as bad faith, which includes unreasonable denial of policy benefits, misrepresenting facts or policy provisions to claimants, failing to respond or act in a timely manner on a claim, lack of reasonable standards for the prompt investigation and processing of claims, failing to either approve or deny claims within a reasonable time period after the loss was submitted, refusing to settle the claim in good faith when liability is reasonably clear, forcing the insured to litigate the claim because the insurance company has refused to make an adequate settlement offer, misleading a claimant as to the legal deadline for filing a claim or initiating a lawsuit, advising the insured not to hire a lawyer, failing to give a reason for denial of a claim, and threats by the insurance company to compel its insured to accept an unreasonable settlement offer. In fact, when investigating a claim, an insurance company has a duty to diligently search for evidence which supports its insured’s claim in order to holds the interest of their insured above their own.” Mariscal v. Old Republic Life Ins. Co. (1996) 42 Cal.App.4th 1617, 1620.

Currently, California only recognizes first party bad faith, which involves an insured’s claims against their own insurance company. Waters v. United Servs. Auto Ass’n (1996) 41 Cal.App.4th 1063, 1069. This types of coverage that can be subject to bad faith involve commercial policies providing coverage to buildings, homeowners insurance provides coverage a homeowner’s property, uninsured and underinsured motor coverage designed to guarantee reimbursement to an insured motorist for injuries wrongfully inflicted by a financially irresponsible motorist without automobile liability coverage or with limited coverage, or even Life, Health & Disability insurance.

Damages for insurance bad faith comprise of contract damages, extra-contractual compensation, and sometimes punitive damages. “The damages awarded under a contract claim should place the injured party in the same position it would have held had the contract properly been performed, but such damage may not exceed the benefit which it would have received had the promisor performed.” Brandon & Tibbs (1990) 226 Cal.App.3d 442, 468. The main questions for the jury is whether a breach occurred and if so, is the insurer obligated under the terms of the policy to pay, defend, and/or indemnify the insured? The usual runaround by insurance companies is that they paid already – but the timing of payment is delayed, which is still a breach.

In addition, to contractual damages, extracontractual damages, including physical, mental, and emotional distress, attorney fees, and possibly punitive damages may be awarded. Silberg v. Calif. Life Ins. Co. (1974) 11 Cal.3d 452, 462. “An insurer that unreasonably delays, or fails to pay, benefits due under the policy may be held liable in tort for breach of the implied covenant.” Chateau v. Chamberay Homeowners Ass’n v. associated Int’l Ins. Co. (2001) 90 Cal.App.4th 335, 346-347. California law permits all consequential damages flowing from denial of policy benefits. “Because breach of the implied covenant is actionable as a tort, the measure of damages for tort actions applies, and the insurance company generally is liable for ‘any damages which are the proximate result of that breach.’” PPG Indus., Inc. v. Transamerica Ins. Co. (1999) 20 Cal.4th 310, 315. This may include personal injury or wrongful death damages under right circumstances. With respect to punitive damages, it requires a showing through clear and convincing evidence of oppression, fraud, or malice. Civ. C. § 3294; Amerigraphics, Inc. v. Mercury Cas. Co. (2010) 182 Cal.App.4th 1538, 1558. The award may be partially dependent on the net worth of the defendant. This is very easy in insurance cases because all admitted insurance companies must file a financial statement with the Department of Insurance and the net worth is listed.

Finally, where the case is being handled on a contingency fee basis, Brandt attorney fees are permitted and not limited to the agreed-upon percentage of the benefits owing under the policy. Rather, the award must compensate for the attorney's efforts to obtain those benefits. Cassim v. Allstate Ins. Co. (2004) 33 Cal.4th 780, 810. At the end of trial, it may be a question for the jury for a special verdict on attorneys’ fees.

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Bad Faith Policy Limit Demand

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