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The basics of California insurance bad faith law

Insurance is based on a contract. In exchange for the policyholder paying premiums, insurance companies have a legal duty to provide coverage, uphold the terms of the policy and pay valid claims as provided in the policy. However, insurance is also a business. This means that, in an effort to increase profits, many insurance companies deny valid claims or offer to pay far less than the claim is worth.

When this happens, policyholders have a right to hold their insurance companies accountable in “bad faith” lawsuits.

What is insurance bad faith?

At its core, bad faith exists whenever an insurance company unreasonably fails to uphold its end of a bargain. Insurance companies are legally required to act in good faith and to use only fair claims practices. California law defines certain acts and conduct that can qualify as bad faith. They include the following:

  • Unreasonable denial of policy benefits
  • Misrepresenting facts or policy provisions to claimants
  • Failing to respond or act promptly with respect to a claim
  • Not having reasonable standards for the prompt investigation and processing of claims
  • Failing to either approve or deny claims within a reasonable time period after the insured has submitted adequate proof of loss
  • Refusing to make a good faith effort to fairly settle claims when liability is reasonably clear or failing to settle one part of a claim in order to influence other parts of the claim
  • Compelling the insured to litigate the claim because the insurance company has refused to make an adequate settlement offer
  • Attempting to settle for an amount that appears unreasonable when compared to statements made in written or printed advertising material that accompanied the application for insurance
  • Attempting to settle claims using an application that was altered without the knowledge and consent of the insured or his or her agent
  • Threatening to appeal an arbitration award in an attempt to compel the insured to accept a settlement less than what was awarded in arbitration
  • Failing to provide prompt justification for the denial of a claim
  • Advising a claimant not to hire an attorney
  • Misleading a claimant as to the legal deadline for filing a claim or initiating a lawsuit

These are just some of the many examples that may constitute grounds for bringing a bad faith claim against an insurer. Because each claim is unique, it is advisable to consult with an attorney if you feel you have been treated unfairly by your insurance company. The attorney will be able to review the policy terms and the circumstances of your situation to determine whether you have a viable insurance claim.

Remedies for insurance bad faith

There are a number of potential remedies available if the insurer has committed bad faith. First, plaintiffs can recover damages for breach of contract, namely, the benefits due under the policy plus interest. In addition, plaintiffs may also be able to recover bad faith damages, which include consequential economic losses, emotional distress and attorneys’ fees. Plaintiffs may also be entitled to punitive damages if they can show the insurer acted with fraud, oppression, or malice.

The potential remedies will differ depending on the unique circumstances of each case. An attorney can advise you on the potential remedies available in your case.