Paul Sanchez
California has an especially complex statutory and regulatory legal framework for insurance bad faith situations. Insurance bad faith refers to an insurance provider's actions after a claim is filed for compensation. California law requires insurance companies to investigate, process, and pay claims fully, promptly, and in good faith. If an insurance company fails to uphold its end of the bargain, it may be acting in bad faith. To prove this, one must show that the insurance company unreasonably failed to provide policy benefits. If you believe your insurance company has acted unfairly, you should contact an attorney. You may be able to report your insurance company to the California Department of Insurance or sue the company for damages.
| Characteristics | Values |
|---|---|
| Definition of bad faith | "Unreasonable" conduct by an insurance company when handling a claim filed for compensation for a loss. |
| California laws on bad faith | California has more laws to protect insurance policyholders than any other state. These laws are found in court decisions ("case law"), the California Insurance Code and the California Code of Regulations. |
| Bad faith practices | Denying a valid claim, offering a low settlement, failing to process a claim according to reasonable standards, refusing to investigate a claim, failing to communicate with the policyholder about a claim, threatening to cut off payments for temporary housing expenses, etc. |
| How to identify bad faith | Read your contract carefully, keep a record of all correspondence, appeal a claim, prove the insurance company acted unreasonably. |
| How to report bad faith | File a complaint with the California Department of Insurance, sue the insurance company for damages, or contact attorneys specializing in bad faith insurance cases. |
| Recoverable damages | Consequential economic losses, emotional distress, attorney's fees, punitive damages (if the insurer acted with fraud, oppression, or malice). |
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What You'll Learn
Know what constitutes bad faith
In California, insurance bad faith falls under the Fair Claims Settlement Practices Regulations. These statutes outline what constitutes good conduct by insurance providers and what they must do to demonstrate good faith to their policyholders.
California law requires insurance companies to investigate, process, and pay claims in full, promptly, and in good faith, treating customers fairly at all times. "Bad faith" conduct is deemed "unreasonable" conduct. When an insurance company is being unreasonable in handling a claim for compensation, they are acting in "bad faith".
Some examples of bad faith practices under California insurance law include:
- Unreasonably delaying or refusing to pay a valid claim
- Failing to promptly investigate a claim
- Not maintaining or following reasonable standards when investigating a claim
- Failing to communicate with the policyholder about the status of a claim
- Misrepresenting basic facts about a homeowners insurance policy, including available benefits or limits of coverage
- Discriminating in its claim settlement practices based on age, race, gender, income, religion, language, sexual orientation, ancestry, national origin, physical disability, or the territory of the property or person insured
- Threatening to cut off or terminating payments for temporary housing expenses before the policyholder can move back into a safe and habitable home
- Failing to pay for housing of comparable size/quality to what was lost
- Denying or underpaying a claim, or failing to defend a policyholder in a third-party claim
It's important to note that an insurer does not act in bad faith simply because it denies a claim, even if the policyholder believes it was legitimate. To prove bad faith, the insurer must have acted unreasonably and without justification.
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Document dealings with your insurer
If you are preparing to file a bad faith lawsuit, it is important to document any and all evidence of your dealings with your insurance company. Keeping a record of any correspondence will help to reconstruct an accurate timeline of events. This includes all verbal communications, from the report of the loss to the inspection of damage, as well as phone calls, emails, letters, and other forms of communication with adjusters and vendors. It is also recommended to make a copy of your policy, as some insurance companies are known to revise policies without prior notification.
You are legally entitled to be treated in "good faith" by your insurance company and its representatives at all times. This means that your insurer must be considerate of your needs, communicate fully and honestly with you about the policy and your rights and duties relating to your claim, and notify you of any changes they make to your policy. They must also provide you with a copy of certain claim-related documents contained in your file, including construction estimates, photographs, and documentation backing up their estimates. However, you are not entitled to receive attorney-client privileged communications and their attorney's work.
In turn, you are legally obligated to be honest and cooperate with reasonable requests for information relevant to your claim. It is also important to understand that an insurer does not act in bad faith simply by denying a claim, even if you believe it was a legitimate claim. Only if the insurer acts unreasonably, without justification, and in bad faith, may you be able to recover damages for emotional distress, financial distress, attorney's fees, or punitive damages.
Some examples of behaviours that constitute bad faith practices under California insurance law include:
- Unreasonably delaying or refusing to pay a valid claim
- Failing to promptly investigate a claim
- Failing to maintain or follow reasonable standards when investigating a claim
- Failing to communicate with the policyholder regarding the status of a claim
- Intentionally misrepresenting basic facts about a homeowners insurance policy, including available benefits or limits of coverage
- Refusing to settle a valid claim with a third party or engaging in unreasonable delays during settlement negotiations
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Understand your policy
Understanding your insurance policy is an important step in ensuring you are prepared in case of an accident or claim. While insurance policies can be filled with legal jargon and technical terms, taking the time to review your policy carefully can help you make informed decisions and avoid costly coverage gaps. Here are some key things to keep in mind when understanding your insurance policy in California:
Know the Basics
Start by familiarizing yourself with the key terms and definitions in your policy. Understand who and what is covered, as well as any exclusions or limitations on your coverage. Pay attention to words and phrases such as "does not apply to", "except", "all", and "however", as these can significantly alter the meaning of coverage explanations. If you come across any terms you don't understand, refer to the definitions page or contact your insurer for clarification.
Review the Declarations Page
The declarations page is a crucial component of your insurance policy. It outlines your coverage, insured drivers, vehicles, and more. Review this page periodically to ensure its accuracy and that it reflects any changes you have made to your policy, such as adding or removing a car or driver. This page should also include a schedule of coverages, listing the coverages, limits, deductibles, and premiums for each coverage.
Understand Your Coverage Limits and Deductibles
Know the limits of your coverage and the deductibles you are responsible for in the event of a claim. For automobile insurance, understand the minimum insurance limits required by law in California, and consider whether you may need higher liability limits for added protection. For health insurance, be aware of any limits or allowed amounts that your policy will pay for a service, as you may be responsible for any charges that exceed these limits.
Keep Records and Stay Organized
Maintain a copy of your insurance policy, declarations page, and any other relevant documents. Keep these documents easily accessible so that you can refer to them when needed. Whenever you make changes to your policy, send updates to your agent, broker, and/or insurance company in writing and keep a copy for your records. Also, keep a copy of any correspondence or communication with your insurance company, including claims or explanations of benefits.
Understand Your Rights and Responsibilities
Know your rights as an insured individual in California. Understand the grievance and appeal procedures outlined in your policy, and be aware of the process for filing a complaint with the California Department of Insurance (CDI) if you have issues with your health plan's review process or decision. Additionally, understand your responsibilities, such as reporting accidents promptly to law enforcement and your insurance company.
By following these steps and taking the time to understand your insurance policy, you can empower yourself to make informed decisions, avoid surprises, and ensure you receive the coverage you need when you need it most.
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Contact an attorney
Contacting an attorney is a recommended step when dealing with bad faith insurance in California. Attorneys specialising in insurance bad faith are well-versed in the complexities of insurance contracts and laws, and can help you navigate the claims process, which can be overwhelming, especially if you are dealing with urgent financial needs.
Insurance bad faith attorneys in California can help you understand your rights and entitlements, and guide you in gathering the necessary evidence to build a strong case. They can also manage all communications with the insurance company on your behalf, allowing you to focus on your well-being during this stressful time.
When choosing an attorney, it is important to select one with experience in handling bad faith insurance claims and a deep understanding of the insurance industry, including how insurance companies operate and the guidelines, statutes, and regulations that govern them. This expertise will enable your attorney to effectively represent your interests against the insurance company.
Some law firms in California that specialise in bad faith insurance claims include Dawson & Rosenthal, P.C., Cutter Law, and the law firm of Attorney Michael Rehm. These firms have experienced attorneys who can offer you a free initial consultation to discuss your case and provide guidance on the best course of action.
By consulting with an experienced attorney, you can gain peace of mind, knowing that you have a skilled advocate on your side who will fight for your rights and help you seek fair and just compensation for any harm caused by the insurance company's bad faith actions.
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File a complaint
If you believe your insurance company has acted in bad faith, you may be able to report them to the California Department of Insurance or sue the company for damages. It is important to understand whether you are dealing with a bad faith claim situation, as it will determine the types of damages that may be available to you.
Before claiming your insurance company is acting in bad faith, carefully read your insurance contract. Pay close attention to the fine print and any exceptions or exclusions. Insurance companies may use technical language to confuse policyholders and protect their business. If you can't figure out what your policy includes, don't hesitate to reach out for help. An experienced attorney can help you evaluate your insurance policy to determine if the insurance company's actions are allowed under the contract.
To prove an insurance company acted in bad faith, you must show that the insurance company unreasonably failed to provide policy benefits. Sometimes, an insurance company might reasonably deny benefits. For instance, if you drive an old car, your insurance company may not pay you much when it is totalled in an accident. This might be a reasonable payout, even if you were hoping for a bigger payment. After all, your car isn't worth much due to its age. However, if the insurance company offers a meagre payout for your brand-new sports car, that would likely be an unreasonable denial of your policy benefits. All evidence you have to back your claim can help prove the insurance company acted unreasonably.
If your insurer won't pay for housing of a comparable size or quality to what you lost, that may qualify as bad faith. Similarly, if your insurer threatens to cut off or terminates payments for your temporary housing expenses before you're able to move back into a safe and habitable home, that may also qualify as bad faith.
In California, insurance bad faith falls under the Fair Claims Settlement Practices Regulations. These statutes detail what constitutes good conduct by insurance providers and what they must do to ensure they are acting in good faith towards their policyholders. Specifically, Section 2695.7 details the state's "Standards for Prompt, Fair, and Equitable Settlements" that insurance providers must comply with to confirm they are acting in good faith towards their policyholders.
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Frequently asked questions
Insurance bad faith occurs when an insurance company fails to act in good faith and deal fairly with the policyholder. This includes unreasonably denying or delaying a valid claim, failing to promptly investigate a claim, or failing to communicate with the policyholder about the status of a claim.
If you suspect your insurance company is acting in bad faith, carefully review your insurance contract and keep a record of all correspondence and dealings with the company. Pay attention to any delays, denials, or unreasonable behaviour on the part of the insurance company.
If you believe your insurance company is acting in bad faith, you should contact an attorney who has experience with bad faith claims and insurance industry practices. They can advise you on your legal options, which may include reporting the insurance company to the California Department of Insurance or suing the company for damages.
