Insurance Bad Faith

When Is It Wrongful For An Insurer To Deny Coverage In California?

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:

• The plaintiff suffered a loss, and the insurance policy with [name of defendant] covered all or part of it
• The defendant was notified of the loss as required by the policy
• The amount of the covered loss that [name of defendant] failed to pay.

Insurance policies may select from a number of possible reasons to deny a claim, In addition this list includes:

1. The insurance policy does not cover the type of treatment needed for an injury.
2. The procedure sought is cosmetic or unnecessary.
3. The claimant lacked pre-authorization or a referral.
4. The out-of-network provider is giving the treatment.
5. The claim has typographical errors
6. The claimant did not make the claim in a timely manner.

An insurer must provide a notice of denial if they choose to reject the claim, in addition, they must 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 attempt to deny what the contract obligated to their insured. The elements of insurance bad faith in denying coverage are more specific than a simple breach of contract. California Civil Jury Instructions 2331 outlines them and includes:

1. The plaintiff suffered a loss covered under an insurance policy with [name of defendant];
2. The defendant was notified of the loss;
3. The defendant unreasonably [failed to pay/delayed payment of] policy benefits;
4. The plaintiff suffered harm; and
5. The defendant's [failure to pay/delay in payment of] policy benefits was a substantial factor in causing harm to the plaintiff

A Vital Part of Establishing Bad Faith

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, however, in an “unreasonable” way. A wrongful denial of a claim by an insurer does not automatically mean the insurer 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 are examples, but not an exhaustive list of:

1. Failure to acknowledge a claim or respond to it in a reasonable amount of time.
2. Ignoring or failing to provide evidence to support a claim decision.
3. Falsifying or misrepresenting relevant facts or evidence related to the claim.
4. Failing to investigate a reasonably made claim.

Additional Indications of Insurer Bad Faith in California

In addition to the examples outlined in California Civil Jury Instructions 2331, there are other actions that may indicate bad faith on the part of an insurer. For example, offering a grossly undervalued settlement amount without a clear reason could be considered an unfair settlement practice. Repeated requests for documents that have already been produced or requests for unrelated documents can also be red flags. Such actions can create artificial obstacles and delay the payment process. It is important to realize that under California law, insurance companies are required to review each case objectively. This includes an obligation to act in good faith and within a reasonable time frame.

The Value of Internal Correspondence and Investigation

Sometimes evidence of bad faith can be easily found in the internal correspondence of insurance company employees. For example, discovering that claims managers originally intended to deny a claim could seriously affect the outcome of the case. In addition, inadequate or cursory investigation of the circumstances of a claim is also considered a sign of bad faith. California case law confirms that insurance companies must conduct a thorough investigation of each case.

When to seek legal advice

If you suspect someone has violated your rights, contact a lawyer immediately. However, a dishonest refusal to pay may result not only in an obligation to pay damages, but also in sanctions in favor of the client. These include compensation for moral damages and reimbursement of legal costs. KAASS LAW FIRM provides qualified assistance to victims of unlawful actions of insurance companies.

Contracts are the foundation of countless transactions and relationships in our society, from buying a cup of coffee to complex business agreements. While the written terms of a contract define the explicit obligations of each party, California law goes further by recognizing an implied covenant of good faith and fair dealing in every contract. This covenant, though not explicitly written, requires parties to act honestly and fairly in their contractual dealings, ensuring that neither party unfairly interferes with the other's right to receive the benefits of the agreement. At KAASS LAW, we understand the nuances of contract law and commit to protecting your rights and interests. The following will explore the covenant of good faith and fair dealing in California, explaining its significance, potential breaches, and how we can help if your contractual rights have been in violation. Every contract and agreement in California contains an implied promise of good faith and fair dealing. This means that each party shouldn't do anything to unfairly interfere with the right of any other party for receiving benefits of the contract. Though, the implied promise of fair dealing and good faith can't create obligations that are inconsistent with the terms of the contract.

Judgement or settlement which exceeds policy limits after denying a settlement offer within policy limits and the excess settlement rule. California Court of Appeals ruled that primary insurance companies are responsible for paying all losses in excess of policy limits after denying a within-limits settlement offer, regardless of whether the excess loss arises out of a verdict, judgment or a settlement.

Insured or Excess Insurer Contributed to Excess Settlement or Judgement When Rejected a Within-Limits Settlement Offer or Policy Limit Demand

The Second District California Court of Appeal’s August 5, 2016 opinion in Ace American Ins. Co. v. Fireman’s Fund Ins. Co. found that “where the insured or excess insurer has actually contributed to an excess settlement, [the insured or excess insurer] may allege that the primary insurer’s breach of the duty to accept reasonable settlement offers resulted in damages in the form of the excess settlement.” The lack of a final judgment was immaterial, as there was “no persuasive reason to hold that the [policyholder] or its assignee, [the excess insurance company], must suffer that loss with no remedy simply because the case reached an eventual settlement instead of being litigated through trial.”