Did you know:
The following may constitute insurance company bad faith:
1. An insurance company’s misrepresentation of pertinent facts in letters to the insured may constitute a violation of the California Regulations, Title 10, Chapter 5, subchapter 7.5 (“Regulations”), section 2695.7(b)(1) and Insurance Code sections 790.03(h)(1), (13).
2. The Regulations require that an insurer accept or deny a claim within forty days. If the carrier requires additional information, it must specify the information needed, and provide written notice to the insured every thirty days regarding status of the claim. An insurance company’s failure to do so, particularly as part of a pattern and practice, may constitute bad faith. See, Regulations, sections 2695.7(b), (c)(1), (d), and Insurance Code sections 790.03(h)(2), (4), (5).
3. An insurance company must conduct a fair, objective, or thorough investigation. Its failure to do so may violate the Regulations, section 2695.7(d), and also may constitute insurance company bad faith.
4. An insurance company’s persistence in seeking information not reasonably required for or material to the handling of an insured’s claim may constitute bad faith. See, Regulations, section 2695.7(d) as well as Insurance Code sections 790.03(h)(4) and (5).
5. An insurance company that forces its insured to file a lawsuit to obtain policy benefits to which the insured was and is entitled violates the Insurance Code section 790.03(h)(6).
6. An insurance company’s unreasonably requiring an insured – or non-insureds – to submit to numerous and repetitive recorded statements, and Examinations Under Oath, and may constitute carrier bad faith. See, Regulations, section 2695.7(d).
Some insurance company conduct that may demonstrate insurance company bad faith:
In Twaite v. Allstate Ins. Co. (1989) 216 Cal.App.3d 239, 256 – 257, the Court measured the conduct of the insurance company to section 790.03 in determining whether there was a breach of the implied covenant. A breach of that Code section may be evidence of “bad faith.”
Insurance Code section 790.03 has been held to be “a codification of the tort of breach of the implied covenant of good faith and fair dealing as applied to insurance.” See, Kelly v. General Ins. Exchange (1987) 194 Cal.App.3d 1, 6.
Importantly, the Insurance Code section 790.03 provisions are the “factors” for a jury “to consider in evaluating” an insurance company’s conduct – and whether the insurance company acted in bad faith. See, CACI 2337.
Similarly, a violation of the Regulations is evidence of bad faith, and an insurer can be estopped from denying coverage for violations of the Regulations. See, e.g., Spray, Gould and Bowers v. Associated International Ins. Co. (1999) 71 Cal.App.4 1260.
In a first party case, such as a homeowner or automobile lawsuit, the gravamen of tortious insurer conduct is the insurance company’s unreasonable withholding of benefits. The implied covenant enjoins the insurer from doing anything to impair the insured’s right to receive the benefits for which the insured contracts. See, Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 818 – 819.
As the Court stated in Austero v. National Cas. Co. of Detroit, Michigan (1978) 84 Cal.App.3d 1, in a first party case, an insurer’s wrongful denial of coverage has particular far reaching consequences:
“As correctly reflected by the jury instruction quoted, it is now firmly established that every policy of insurance imports an implied covenant of good faith and fair dealing which enjoins upon each party to the agreement a duty that neither shall do anything which impairs the right of the other to receive the benefit of agreement. (Liberty Mut. Ins. Co. v. Altfillisch Constr. Co., 70 Cal.App. 3d 789, 797.). . .
“In the usual first party case the promise of the insurer to pay money, due under the policy, to the insured upon the happening of the event, the risk of which has been insured against. The benefit contracted for by the insured is the availability of money promptly upon the happening of the event insured against, and when an insurer refuses unreasonably to make a payment of the benefits due under the terms of the policy, it deprives the insured of the essential benefit of the agreement.
“This follows, for the insured bargained for prompt payment, not a right of action against the insurer.” (Emphasis in original and added.)
See, Austero v. National Cas. Co. of Detroit, Michigan, supra, 84 Cal.App.3d at 48-49, and 57-58 (disapproved on other grounds in Egan v. Mutual of Omaha Ins. Co., supra).
An insurance company’s unreasonable refusal to pay a covered claim, based on insupportable distortions of the facts, may demonstrate an unreasonable withholding of policy benefits and consequent breach of the implied covenant. See, Neal v. Farmers Ins. Exchg., supra; Gruenberg v. Aetna Ins. Co. (1973) 24 Cal.3d 809, 824.
The Courts acknowledge that the term “bad faith” is an “imprecise label for what is essentially some kind of unreasonable insurer conduct.” See, Austero v. National Cas. Co., supra, 84 Cal.App.3d at 26. Nevertheless, the Courts and the Legislature have found the following to constitute bad faith:
● The insurer’s failure to fully investigate facts demonstrating coverage:
“For the insurer to fulfill its obligation not to impair the right of the insured to receive the benefits of the agreement. . . it is essential that an insurer fully inquire into possible bases that might support the insured’s claim.” (See, Egan v. Mutual of Omaha, supra, 24 Cal.3d at 819.)
● Failure to fully investigate further violates Insurance Code section 790.03(h)(3), and the Regulations, section 2695.7(b), (c). See also, BAJI 12.92, 12.93, 12.94; Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 879 (adequacy of investigation is “[a]mong the most critical factors bearing on the insurer’s good faith”).
● The insurer’s failure to evaluate a claim “objectively.” See, Hughes v. Blue Cross of No. Calif. (1989) 215 Cal.App.3d 832, 845 – 846; Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc., supra, 78 Cal.App.4th at 880.
● The insurer’s arbitrary or capricious interpretation of its policy or the facts. See, Moore v. American United Life Ins. Co. (1984) 150 Cal.App.3d 610, 621; Beck v. State Farm Mut. Auto. Ins. Co. (1976) 54 Cal.App.3d 347, 354 – 355.
● The insurer’s engaging in deceptive or unfair practices to avoid paying a claim – such as through unreasonable conduct regarding an Examination Under Oath, or a misleading response/denial letter. See, Delos v. Farmers Ins. Group, Inc. (1979) 93 Cal.App.3d 642, 664.
● The insurer’s wrongfully accusing an insured of having committed a crime he or she did not commit. See, Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 575; Mustachio v. Ohio Farmers Ins. Co. (1975) 44 Cal.App.3d 358, 362.
It is instructive that the California courts have upheld a finding of breach of the implied covenant – as well as the imposition of punitive damages – in first party cases for conduct as outlined above:
In Neal v. Farmers Ins. Exchg. (1978) 21 Cal.3d 910, 923, the California Supreme Court held that the withholding of policy benefits resulting from delay and a failure to thoroughly investigate the claim constitutes breach of the implied covenant. The Court affirmed the finding of bad faith, and the punitive damage award against Farmers, stating in part:
“We are satisfied that an award of punitive damages was here proper. There was substantial evidence before the jury from which it might reasonably have been concluded that defendant Farmers here acted maliciously, with an intent to oppress, and in conscious disregard of the rights of the insured. That evidence, in brief, indicated. . . a conscious course of conduct, firmly grounded in established company policy, designed to utilize the [insured’s] lamentable circumstances. . . And the exigent financial situation resulting from it, as a lever to force a settlement more favorable to the company than the facts would otherwise have warranted.”
See, Neal v. Farmers Ins. Exchg., supra, 21 Cal.3d at 922 – 923.
Further, an unreasonable delay in the processing or payment of a claim will support an implied covenant breach claim, and punitive damages. See, Fleming v. Safeco Ins. Co. (1984) 160 Cal.App.3d 31, 37; Neal v. Farmers Ins. Exchg., supra, 21 Cal.3d at 922 – 923.
In addition, abusive tactics and threats of charging the insured with a crime, to avoid the payment of a claim, subjects an insurer to punitive damages. See, Rios v. Allstate Ins. Co. (1977) 68 Cal.App.3d 811, 817; Downey Savings and Loan Ass’n v. Ohio Cas. Ins. Co., supra, 189 Cal.App.3d at 1091.
An insurance company is required to make reasonable efforts to keep the insured informed as to the status of the claim. The insured pays the premium for peace of mind. That peace of mind for which the insured bargains when buying the policy is jeopardized when the insurance company ignores the insured. See, Delgado v. Heritage Life Ins. Co. (1984) 157 Cal.App.3d 262, 278.
As the Court stated in Mariscal v. Old Republic Life Ins. Co. (1996) 42 Cal.App.4th 1617:
“Insureds seek protection against calamity and purchase insurance to buy peace of mind and security. (Egan v. Mutual of Omaha Ins. Co. . .) The insurer has a duty to protect the insured’s interests as if it were its own, and it may not deny a claim without thoroughly investigating it. (Id.)
“A trier of fact may find that an insurer acted unreasonably if the insurer ignores evidence available to it which supports the claim. The insurer may not just focus on those facts which justify denial of the claim. If an insurer unreasonably refuses a claim, it is liable for breach of the covenant of good faith and fair dealing inherent in every policy. (Neal v. Farmers Ins. Exchg. . . McCormick v. Sentinel Life Ins. Co. . .)
“An insurer must liberally construe claim forms and the policy in favor of coverage; exclusions are strictly interpreted against the insurer. (Delgado v. Heritage Life Ins. Co. . .).”
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