FAQ: Insurance Bad Faith and California Insurance Litigation

Frequently Asked Questions
Regarding Insurance Bad Faith and Insurance Litigation

1. What is insurance bad faith in California?

A. An insurance Company commits bad faith when it unreasonably handles its policyholders’ claim’s.  In every insurance bad faith contract there is an Implied Covenant of Good Faith and Fair Dealing.  If an insurance company unreasonably handles your insurance claim, it is a breach of the implied covenant.  Breach of the implied covenant is commonly referred to as bad faith.  The law of bad faith simply says that an insurance company has to treat its policyholders fairly.  Some examples of insurance bad faith in California include:

  • Unreasonable denial of a covered insurance claim
  • Underpaying an insurance claim
  • Unreasonable refusal to defend you if you are sued and you have liability coverage
  • Unreasonable delay in paying your insurance claim
  • Refusing to authorize medical treatment that is reasonable and necessary

2. What are some of the things you can do if you suspect that your insurance company is unreasonably handling your insurance claim in California?

Answer:

  • Send your insurance company a polite, but firm letter.  It does not have to be typewritten.  It can be handwritten as long as it is legible and understandable.  Be sure to keep a copy.  In the letter describe what has happened regarding your insurance claim and state that you want your claim honored fully, promptly and fairly.
  • Contact the California Department of Insurance (See Resources page) and file a complaint.
  • Talk to your insurance agent or broker and advise them of the problems you are having.
  • Contact an experienced insurance lawyer to obtain additional information about your rights.

3. If I cannot get my insurance company to handle my California claim properly and fairly, can I file a lawsuit against them?

A. The short answer is yes.  However, insurance law can be quite complex.  You should talk to insurance lawyers who have the experience and expertise to handle such litigation for you.

4. If I sue an insurance company for bad faith in California, what kind of damages can I recover?

A. Generally speaking, you can sue for contract damages, bad faith (tort) damages and punitive damages.

5. What are contract damages?

A. Generally, contract damages are those losses caused by the insurance company’s refusal to pay what it owes on a claim pursuant to the terms of the policy.  For example, if the claim is covered under a homeowner’s policy and your home is damaged, contract damages would include the cost to repair your home, plus interest if there is any significant delay.  If it is a healthcare policy, the contract damages would include your medical bills.  If the policy is a liability policy, then it would include the cost of defense and payment of any judgment or settlement on your behalf under the terms of the policy, and so on.

6. What are bad faith damages under California law?

A. In addition to your contract damages, if you prove that your insurance company unreasonably handled your claim you can recover the following types of (tort) damages in California on your bad faith claim:

  • Emotional Distress
  • Reasonable attorneys Fees
  • Any loss you sustained because of the unreasonable conduct, whether such loss is foreseeable or not such as:
    a) Lost earnings from your business
    b) Medical expenses if the stress from the bad faith harmed your health
    c) Opportunity cost in your business
    d) Loss of use of your property, etc.

7. How do I get punitive damages in a California bad faith case?

A. To obtain punitive damages, in addition to showing compensable damages under your bad faith action, you must also prove:
a) That the insurance company acted with malice, oppression, or fraud as defined by California Statute; and
b) That the malice, oppression or fraud was approved or ratified by a managing agent of your insurance company.

8. Are insurance companies’ claim handling procedures regulated in California?

A. Yes. (See Resources page) Insurance companies are required to handle claims fairly as mandated by statute and the California Fair Claims Settlement Practices Regulations.  The Regulations are written by the California Department of Insurance, a California State Agency.  These regulations provide minimum standards that insurance companies must follow when handling California claims.  Most insurance lawyers in California recognize that an insurance company’s failure to comply with the California Fair Claims Settlement Practices Regulations is evidence of bad faith claims handling.  Not surprisingly, many lawyers representing insurance companies take the unreasonable position that violation of the Regulations is not indicative of bad faith.

9. If insurance companies’ claims handling practices are regulated in California by the California Department of Insurance, can the Department of Insurance make an insurance company pay my claim?

A. Not directly.  The California Department of Insurance (“DOI”) does not have authority to adjudicate an insurance dispute (decide your case like a court) between you and your insurance company.  After you file a complaint with the DOI, it may investigate your insurance claim and advise whether the insurance company properly denied or handled your claim.  If the DOI determines that your claim was improperly handled, it may try to convince the insurance company to do the proper thing and pay your claim.  But, the DOI cannot force the insurance company to do so, nor can it order the insurance company to pay all of your damages.  The only effective way to force an insurance company to pay a claim that it has handled improperly, and to obtain all of your damages, is to litigate in the California courts aggressively.

Viau & Kwasniewski attorneys are experienced in insurance bad faith and insurance litigation. We also handle personal injury and wrongful death cases providing committed, professional and highly experienced legal representation in the state of California. For a complete overview of our professional legal services, please visit our Site Directory.

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