Businesses seeking insurance coverage most often have the short end of the stick when it comes to bargaining power in the negotiation of an insurance policy. Indeed, there is often no room for negotiation. Businesses need various types of insurance coverage to exist and operate and the insurance companies, with billions of dollars in their corporate pockets, largely dictate the terms of the policies and contracts that govern the necessary insurance coverage. Over the years, this disparate bargaining power led to insurance companies engaging in dilatory tactics, or “bad faith” conduct when handling insurance claims. As a result, many states, including California, responded to insurance companies’ bad faith conduct by codifying regulations to provide a comprehensive ‘checks and balances’ system for the insurance industry.
California is generally considered a leader in the bad faith arena and the decisions of California judges have paved the way for insureds in this state, and around the country, with avenues for redress against insurance companies acting in bad faith with respect to the handling of claims. Under California law, insureds that sue under bad faith have at least two bases, or sources of law, to support their claims.
Insurance bad faith
First, because an insurance policy is essentially a contract, it follows that with every insurance contract there is an implied covenant or promise to act in good faith and deal fairly with their insureds. When insurance companies unreasonably delay or fail to pay claims without good cause, common law provides insureds with a cause of action against their insurance companies for the breach of this covenant.
Second, California Insurance Code Section 790.03 enumerates a long list of acts which constitute statutory “unfair businesses and trade practices” on the part of insurance companies when handling policies and claims. Bad acts which may constitute statutory bad faith under California law include (a) misrepresenting to claimants pertinent facts or insurance policy provisions relating to any coverage at issue, (b) failing to acknowledge and act reasonably promptly to communications from insureds with respect to claims arising under insurance policies, (c) failing to properly investigate claims, (d) failing to affirm or deny coverage within a reasonable amount of time, and (e) offering settlements substantially lower than is evidenced by the circumstances of the claim.
Actionable bad faith
Actionable bad faith in California may also be with respect to a first party insured, in which the insurance company refuses to pay its own insured’s claim without a reasonable basis, or pertaining to a third party, in which the insurance company fails to defend, indemnify or settle claim within policy limits without a reasonable basis. If you believe that you or your company has been subject to an insurance company’s dilatory tactics or “bad faith” conduct in handling an insurance claim, it’s best to consult with legal counsel as soon as possible to ensure that your insurance claims are handled properly and without unnecessary time and expense.
To discuss a potential claim with an attorney experienced in dealing bad faith insurance matters, contact Drew E. Pomerance.