Calif. requires insurance companies to act fairly and in good faith

The average California consumer does not feel empowered to deal with insurance companies on equal footing. People and many businesses are not able to dictate or negotiate the terms of their insurance policies, and yet insured parties must pay high insurance premiums and rely on insurers to protect them in many types of crises.

Because of this unique relationship with its built-in power imbalance, California law provides that every insurance contract carries with it an implied duty of good faith and fair dealing that requires the insurance company to reasonably comply with the terms of the insurance policy when an insured party suffers a covered loss. When the insurer does not fulfill this implied duty, the injured insured party has the right to file a lawsuit for insurance bad faith.

For an insurance company to act in bad faith in handling an insurance claim, it has to do something worse than making an honest or careless mistake; in fact, the actions have to be even worse than negligence. To be held to have acted in bad faith, the insurer has to have acted unreasonably.

If the insurance company is found to have acted unreasonably in its dealings with its insured, it could be found liable in a bad faith lawsuit and subject to paying the insured party damages for financial losses, damage to reputation or creditworthiness, legal fees and other compensatory damages, depending on the details of the particular case.

Once financial or economic damage is established, the insurer may also be liable for emotional harm - severe or even otherwise, such as ongoing stress, worry or fear.

The unreasonableness that equates to liability for bad faith, however, does not have to rise to the level of malicious treatment of the insured party. Here are some more common examples of bad faith on the part of insurance companies, of course dependant on the type of insurance policy:

  • Failure to defend the insured against liability
  • Failure to investigate a claim
  • Unreasonable delay processing or paying a claim
  • Fraud or misrepresentation
  • Failure to abide by the policy terms
  • Failure to offer or accept a reasonable settlement on the insured's behalf
  • Unreasonably refusing to pay a loss
  • Wrongful policy termination

In California, though, if the insurer acting in bad faith displayed behavior amounting to something even worse like malice, fraud or oppression, the defending insurance company may also be liable for punitive damages, those meant not to reimburse the plaintiff insured for losses, but rather to punish the insurer for its behavior and deter other insurers from the same behavior in the future.

Seek legal assistance with problems dealing with insurers

California insurance laws and insurance contracts themselves are very complicated. If you are a California policyholder who feels a claim has been unfairly denied or otherwise improperly handled by the insurer, talk to an experienced bad faith insurance attorney as soon as possible to understand your rights under the policy and under the law.

Time may be of the essence as there are deadlines for bringing legal claims, so don't hesitate to look into your potential legal remedies, which could be a bad faith insurance lawsuit or other types of claims.