June 26, 2020

Homeowners whom have been subject to an insurance carrier’s deceptive practices, in an attempt to avoid paying out claims under their homeowner insurance policy, may find themselves asking; do I have a bad faith insurance claim?  Unfortunately, there is no quick answer to this question, Insurance bad faith claims are highly fact specific.  California Insurance Code § 790.03(h) has attempted to encapsulate insurance bad faith as follows, “unfair methods of competition and unfair and deceptive acts or practices in the business of insurance”.  

Despite the legislatures attempt to codify Insurance Bad Faith, ambiguity remains.  Fortunately, California common law has five precedent rulings which help explain an Insurance Carrier’s duties, specifically those owed to the Insured. These insurance cases shed light on unlawful insurance bad faith practices.  The common theme in all insurance bad faith claims, is the implied covenant of good faith and fair dealing that every insurer owes their insured on all insurance policies, including homeowner’s insurance coverage.

The five precedent bad faith insurance holdings are as follows:

  • The first of these holding occurred in 1958, when the court in Communale found that an insured’s interest is material to every claim and insurance carriers must consider their insured’s interests when evaluating a loss. Specifically, when an insured’s risk of exposure is beyond that of the policy or exceeds that which the policy covers the insurer must settle the claim, and an unwarranted refusal to do so constitutes bad faith. Communale v. Traders & General Ins. Co. (1958) 50 Cal 2d. 654, 658.
  • The court in Gruenburg held that every insurance contract has an implied covenant of good faith and fair dealing which prevents an insurance carrier from impairing an insured right to benefits under their homeowner’s insurance contract. An insurer breaches this obligation and acts in bad faith when they unjustly refuse or unreasonably delay in compensating an insured for a loss covered under the policy.  Gruenburg v. Aetna Insurance Co. (1973) 9 Cal. 3d 566.
  • Shortly after the Gruenburg holding, the court in Egan found that the duty of good faith and fair dealing implied in every insurance contract requires an insurer to investigate all claims submitted by its insured. In essence this means that an insurance carrier must thoroughly investigate all claims and have a justified basis for their denial, failure to comply with these requirements constitutes bad faith and breach of their implied covenant of good faith and fair dealing.  Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 819.
  • Further emphasizing the importance of the insured’s interest when evaluating claims is the holding in Vu. The court held that an insurer is not in a fiduciary relationship with their insured per se, however there is a heightened duty to consider an insured’s interest and deemed this special relationship a “fiduciary-like” relationship.  Vu v. Prudential Property & Casualty Ins. Co. (2001) 26 Cal. 4th 1142, 1150-51.
  • Most recently the court in Krasnsco held that even if an insured has breached the insurance contract in some fashion it does not excuse an insurer’s obligation and the implied covenant of good faith and fair dealing remains applicable. Kransco v. American Empire Surplus Lines (2000) 23 Cal. 4th 390.

For additional articles discussing, insurance bad faith claims, please see links below:

What Types of Damages are available in a California Insurance Bad Faith action?

If an insurance company is found to have acted in bad faith, they may be liable for: Compensatory Damages, Punitive Damages, and Attorney Fees. Our previous articles discussing compensatory damages and punitive damages are linked below:

If you are wondering, do I have an Insurance Bad Faith Claim, we invite you to contact us today at 619-432-5145 for a free consultation with one of our experienced California Insurance Bad Faith Lawyers.

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