What Constitutes Insurance Company Bad Faith?

Under California law, after notice of a valid insurance claim your insurance company must:

  • Generally look for coverage rather than deny you insurance coverage, and
  • May not put their interests above yours (the policyholder)

It is a violation of California law for an insurance company to unreasonably and/or willfully and deliberately deny or delay providing your insurance policy benefits.

Improper Insurance Company Conduct

The following constitute some examples of improper, unreasonable insurance company conduct in California:

Unduly restrictive or unreasonable interpretation of an insurance claim form:

An insurance carrier’s denial of benefits on the basis of minor defects in an insurance claim form may be unreasonable.

  • Failing or refusing to investigate insurance claims thoroughly:
    The implied covenant of good faith and fair dealing requires an insurance company to fully inquire into all possible bases that might support the insured’s claim.A corollary to this is that an insurance company may not ignore evidence which supports insurance coverage.  If it does so, it breaches the covenant of good faith and fair dealing.
  • Failing to evaluate an insurance claim objectively:
    An insurance company must consider all evidence relevant to an insurance claim objectively and without bias.  This includes considering all facts, not merely those that support denial, and utilizing objective standards in making insurance claim decisions.Whether an insurance company is willing to keep an open mind, and reconsider any prior denials or claim payment restrictions, is important in determining whether the insurance carrier evaluated the claim objectively.

    An insurance company’s use of independent investigators to evaluate an insurance claim may indicate that the claim was investigated objectively; however, this does not necessarily insulate an insurance carrier from a claim of bad faith.  The investigators must truly be “independent,” must be honestly selected, and must be objective and reasonable.

    Furthermore, when an insurance company makes an unreasonably low offer to settle an insurance claim (a “lowball” offer), the insurance carrier breaches the implied covenant of good faith and fair dealing.

  • Denying or underpaying an insurance claim based on unreasonable standards:
    It is unreasonable for an insurance company to deny or refuse to pay the full value of an insurance claim based on impermissible standards, or policy interpretations contrary to established California laws, statutes, or Regulations.
  • Unreasonably delaying the handling, investigation, and payment of an insurance claim:
    An insurance policy is a promise by the insurance company to promptly and properly pay a covered claim.  An insured should not have to be subjected to extensive delay or oppressive information requests, in order to have a valid insurance claim paid.  The carrier’s failure to investigate the insurance claim with reasonable diligence may constitute tortious breach of the insurance contract.
  • Engaging in abusive practices to avoid payment of an insurance claim:
    It is unreasonable for an insurance company to misrepresent insurance coverage, attempt to intimidate witnesses or have an overtly aggressive or hostile attitude towards insureds who make valid insurance claims.  An insurance carrier who makes groundless accusations of crime against an insured may breach the implied covenant.
  • Refusing to defend an insured in a lawsuit when there is a possibility of a covered insurance claim:
    The duty to defend issue pertains to the insurance company’s obligation to defend its insured when the insured is sued by a third party, and when there is insurance coverage for that lawsuit.  The carrier’s duty to defend a covered insurance claim arises upon the insured’s tender of the third party lawsuit.  An insurance company is obligated to defend a lawsuit which potentially seeks damages within the coverage of the policy.  An insurance carrier’s obligation to defend is excused only where the third party complaint can by no conceivable theory raise a single issue which could bring it within the policy coverage.Any doubt as to whether the facts alleged against the insured give rise to a duty to defend is resolved in the insured’s favor – the insurance company must defend the insured.

    The insurance company must defend any insurance claim that would be covered if true, even where the claim is groundless, false, or fraudulent.  In other words, the duty to defend extends even to those insureds that the insurance company believes to be innocent of the conduct alleged against that insured.

The above is not an exhaustive list of insurance company misconduct in California.  Each case must be analyzed on its own to determine if the insurance company committed “bad faith” and/or breached the insurance policy contract.

Don’t be cheated out of the insurance coverage you paid for by your insurance carrier’s improper interpretation of your California insurance policy or unreasonable denial of insurance coverage on a claim.
If you suspect improper insurance company conduct by your insurance carrier in the handling of your insurance claim, you have a right to seek the help of experienced bad faith insurance attorneys.