California Claims Compliance

held that an insurer does not necessarily have an affirmative duty to settle absent a demand, subsequent commentary and cases (such as the principles affirmed in Hedayati and the Restatement of Liability Insurance) emphasize that insurers must proactively communicate with the insured about the risks of litigation.

Absence of an Effective Settlement Demand (Third-Party): An insurer cannot be sued for failure to settle if the third-party plaintiff never made a reasonable, clear, and unconditional demand to settle within policy limits, or if the insurer was deprived of adequate time to investigate (Reid v. Mercury Ins. Co., 220 Cal. App. 4th 262 (2013); Graciano v. Mercury General Corp., 231 Cal. App.

clarified that the genuine dispute doctrine is primarily a tool for summary judgment; it is not appropriate as a separate jury instruction, as it is subsumed within the standard jury instruction requiring the plaintiff to prove the insurer acted "unreasonably" .

Lowball Offers: Attempting to settle a claim by making an "unreasonably low" or "nuisance value" settlement offer despite clear liability and damages (White v. Western Title Ins. Co., 40 Cal. 3d 870 (1985)) .

An insurer cannot rely on a policy exclusion (e.g., dry rot) to deny a claim without first fully investigating all possible bases that might support coverage (e.g., collapse coverage).

on Buss reimbursement. URL: https://caselaw.findlaw.com/court/ca-court-of-appeal/1462636.html

Clarified and limited the "genuine dispute doctrine." The court held that a dispute is not "genuine" (and thus cannot defeat a bad faith claim as a matter of law) unless the insurer's position is maintained in good faith and on reasonable grounds.

/Requirement: The court explicitly differentiated between an insurer's internal "administrative closure" of a claim and an "officially closed" claim. The court held that an insurer closing its internal claim file has "no legal effect" on the employee's ability to pursue a claim.

In this landmark third-party bad faith case arising from an auto accident, the Utah Supreme Court upheld liability against an insurer for failing to settle a third-party claim within the $50,000 policy limits when there was a substantial likelihood of an excess judgment against the insured.

there is no rigid mathematical formula, but punitive damages exceeding a single-digit ratio (i.e., 9:1) to compensatory damages are generally suspect. In cases with substantial compensatory damages, a 1:1 ratio may be the constitutional limit .

Held that a bad faith claim for failure to settle requires an underlying judgment in excess of policy limits. A stipulated judgment without an adversarial trial is generally insufficient to bind the insurer. Binding (CA Supreme Court) Good Law; sets the trigger for excess liability.

25 Cal.4th 489, the Court held that an insurer may fund a settlement of a potentially uncovered claim and later seek reimbursement from the insured. To do so, the insurer must not only have an initial ROR, but must explicitly notify the insured of the intent to accept the settlement and offer the insured the opportunity to assume their own defense .

Confirmed the broad scope of workers' compensation exclusivity.

Expanded the genuine dispute doctrine to include factual disputes, not just legal interpretations, providing insurers a strong defense if they relied on qualified experts in good faith. Binding (CA Court of Appeal) Good Law; routinely cited in first-party property disputes.

Solidified the "genuine dispute doctrine" as applied to factual disagreements (such as differing expert opinions). The court held that an insurer denying or delaying payment due to the existence of a genuine, objectively reasonable dispute over coverage liability or valuation is not liable for bad faith.

44 Cal.App.4th 194, the courts highlighted that the content of the insurer's communications (and the files they must make available) must be comprehensive enough to prevent the concealment of negligent claims handling. The courts noted that an insurer acts in bad faith if it refuses to cooperate with an insured's request for a claims audit or fails to disclose how reserves are being set .

An insurer acts in bad faith by unreasonably failing to honor its obligations under an insurance policy to defend and indemnify an employer.

70 Cal.App.4th 911, the appellate court approved a jury instruction specifically directing the jury to consider "[w]hether the workers' compensation insurance company did or did not communicate with the insured concerning the administration or settlement of a workers' compensation claim or claims" when determining if the insurer acted in bad faith .

An employer may sue its workers' compensation insurer in tort for bad faith based on the insurer's failure to estimate reasonable claim reserve levels, which results in the employer paying higher premiums and receiving lower dividends.

. https://law.justia.com/cases/california/court-of-appeal/4th/71/920.html

An insurer's direct violation of duly promulgated administrative regulations issued by the California Insurance Commissioner, specifically requiring the insurer to notify a claimant of time limits pertaining to the claim (10 CCR § 2695.4(a) and § 2695.7(f)), provides the basis of an estoppel against the insurer's assertion of a contract limitations defense .

the court established that insurers have an affirmative regulatory duty to notify claimants of impending statute of limitations expirations . The failure of an insurer to proactively communicate this information can equitably estop the insurer from using the statute of limitations as a defense .

16 Cal.4th 35 . When a lawsuit involves a mix of covered and uncovered claims, the insurer must defend the entire action . However, Buss established that an insurer has a quasi-contractual right to seek reimbursement from the insured for defense costs that can be allocated solely to claims that were never even potentially covered by the policy .

the appellate court clarified that while an insurer may not misrepresent facts or fail to clarify an insured's obvious misunderstanding, "it does not have an ongoing duty to keep the insured informed of his or her rights once those rights have been clearly set forth in the policy," unless the insurer is engaging in conduct designed to mislead .

An insurance company breaches the covenant of good faith and fair dealing if it ignores evidence that supports coverage. The insurer has a duty to look for evidence supporting the claim, not just evidence justifying denial . Binding vs. Persuasive: Binding authority on trial courts (California Court of Appeal). Current Status: Good law .

46 Cal.App.4th 1810, the court found the insurer estopped from denying coverage after delaying its reservation for two and a half years, identifying the insured's detriment as the loss of the right to independent counsel and adequate trial preparation time . Similarly, in Miller v.

Estoppel requires detrimental reliance. An insurer is not estopped from denying coverage merely because of a delayed ROR unless the insured can prove they suffered actual prejudice (e.g., lost opportunity to settle) due to the delay. A globally stated, reasonably timely ROR is sufficient to prevent waiver. Current Status: Persuasive/Appellate precedent; active law.

. URL: https://law.justia.com/cases/california/court-of-appeal/4th/24/1619.html

; Samson v. Transamerica Ins. Co., 30 Cal. 3d 220 (1981)) .

17 Cal.App.4th 887. In this case, the insured employer alleged that the insurer engaged in a pattern of failing to pay claims promptly, failing to defend them diligently, assigning unreasonable reserves, and—critically—refusing to communicate .

An insurer breached the implied covenant of good faith and fair dealing by failing to inform its insured about potential first-party benefits (uninsured/underinsured motorist coverage) available under the policy when the insured suffered an accident.

which ended direct private rights of action by third-party claimants under the Unfair Claims Settlement Practices Act (Ins. Code § 790.03) . Furthermore, the exclusive remedy provisions of the California Labor Code strictly prohibit an employee from suing the carrier for claims handling delays or denials .

The duty of good faith does not permit an insurer to passively assume that its insured is aware of their rights under the policy. The insurer must take affirmative steps to ensure the insured is informed of their remedial rights (such as arbitration or peer review) when a claim is denied or disputed . - Current Status: Good law; landmark California Supreme Court decision. - Davis v.

When an insurer's tortious conduct compels an insured to retain an attorney to obtain benefits due under the policy, the attorneys' fees reasonably incurred to compel payment of those contract benefits are recoverable as an element of tort damages . Context: Established the concept of "Brandt fees." The Court clarified that the fees are treated as economic damages proximately caused by the bad ...

Failure to Reconsider: Failing to objectively reconsider a denied claim after the insurer receives new, substantive information supporting coverage (Austero v. National Cas. Co., 84 Cal. App. 3d 1 (1978)) .

; Brehm v. 21st Century Ins. Co., 166 Cal. App. 4th 1225 (2008)) .

162 Cal.App.3d 358, the appellate court ruled that when an insurer defends under an ROR based on possible noncoverage, the divergent interests of the insurer and the insured create an actual, ethical conflict of interest .

Advice of Counsel: While not an absolute shield, an insurer's reliance on the advice of competent legal counsel regarding coverage interpretation can serve as evidence that the insurer's conduct was reasonable and not in bad faith.

The California Court of Appeal unequivocally held: "[I]f a liability insurer with knowledge of a ground of forfeiture or noncoverage under the policy, assumes and conducts the defense of an action brought against the insured, without disclaiming liability and giving notice of its reservation of rights, it is thereafter precluded in an action upon the policy from setting up such ground of forfeitur...

The insurer's implied duty of good faith and fair dealing includes the duty to reasonably inform an insured of their rights and obligations under the insurance policy, particularly in situations where a lack of knowledge may potentially result in a loss of benefits or a forfeiture of rights. Current Status: Good law; foundational for the affirmative duty to apprise insureds of policy rights...

An insurer may breach the covenant of good faith and fair dealing by failing to properly investigate its insured's claim. To protect the insured's interests, an insurer must fully inquire into all possible bases that might support the insured's claim . Context: A disabled roofer filed a claim.

An insurer's "good faith," though erroneous, belief that there is no coverage affords no defense to liability flowing from the insurer's refusal to accept a reasonable settlement offer. In evaluating a settlement offer, the insurer may only consider whether the ultimate judgment is likely to exceed the amount of the offer, irrespective of coverage doubts . Binding vs.

The California Supreme Court held that the duty of good faith and fair dealing is implied in every insurance contract, and an insurer's unreasonable and bad faith withholding of payment for a first-party claim subjects the insurer to liability in tort . This case effectively created the tort of first-party bad faith.

While the workers' compensation system is the exclusive remedy for negligent claims investigations, an exception exists where an insurance carrier intentionally commits outrageous and extreme conduct (e.g., deceitful investigator romantic entrapment) that is totally unnecessary to and far beyond the bounds of normal investigation and defense.

Reaffirmed Comunale and explicitly recognized that bad faith failure to settle a third-party claim constitutes a tort, permitting the recovery of damages for mental suffering/emotional distress . Context: A tenant fell through a wooden staircase on the insured's property, suffering severe physical and psychological injuries.

Extending the principles of Comunale, the Court held that in determining whether an insurer has given proper consideration to the interests of the insured in a third-party settlement context, the test is whether a prudent insurer without policy limits would have accepted the settlement offer.

It is the duty of the insurer to keep the insured informed of settlement offers and significant developments as they arise.

The California Supreme Court established that the implied obligation of good faith and fair dealing requires an insurer to settle in an appropriate case, even if the express terms of the policy do not impose such a duty.

In addition to other obligations, the implied covenant of good faith imposes upon the insurer an affirmative duty to communicate to the insured the results of any investigation indicating liability in excess of policy limits, and any offers of settlement, so that the insured may take proper steps to protect their own interests. Current Status: Good law; heavily cited landmark case for third...

courts apply state law to marine insurance contracts in the absence of a specific and controlling judicially-created federal admiralty rule . As noted in recent Maryland jurisprudence, such as Joseph Fish v. The Cincinnati Insurance Co. (2022) and GEICO Marine Ins. Co. v.

264 Cal.App.2d 451 (Discussing Ins. Code § 533 and LC § 11661). URL: https://caselaw.findlaw.com/court/ca-court-of-appeal/1770320.html

1 Cal.App.5th 545 . In Baldwin, the plaintiff argued that the insurer's refusal to pay diminished value violated the implied covenant of good faith and fair dealing.

78 Cal.App.4th 1390, the court addressed the insurer's duty regarding pre-litigation communication. An insurer's blanket refusal to contact its insured to request permission to disclose policy limits to a claimant can constitute bad faith because it forecloses the possibility of settlement, thereby exposing the insured to excess liability .

78 Cal.App.4th 1390 . Often, a third-party claimant will ask for the insured's policy limits before making a formal settlement demand . Insurers frequently refused to disclose this information, citing confidentiality . In Boicourt, the court held that it can be bad faith for an insurer to neglect to contact its own insured to ask for consent to disclose the policy limits .

210 Cal.App.4th 409 . In Carson, the plaintiff brought a class action alleging bad faith against Mercury Insurance for failing to account for diminished value. The appellate court held that an insurance company does not act in bad faith by failing to consider depreciation when electing to repair a vehicle .

courts use a specific apportionment formula to calculate Brandt fees in contingency fee cases, segregating the time spent solely on the contract claim from the time spent on the tort claim .

19 Cal.App.5th 789 .

42 Cal.App.4th 1142, "an insurer is estopped from asserting a right, even though it did not intend to mislead, as long as the insured reasonably relied to its detriment upon the insurer's action" .

25 Cal.3d 418), an insurer must include "relevant information so as to enable the insured to take action to secure rights afforded by the policy," which means updates cannot merely state a delay, but must advise the insured of remedial rights, arbitration options, and specific coverage implications to avoid "implied misrepresentation" .

. In Davy, the insurer was defending a taxicab operator against a catastrophic personal injury suit. The plaintiff offered to settle within the policy limits. The insurer rejected the offer without adequately consulting the insured, resulting in a massive excess judgment . The appellate court explicitly outlined the extra-statutory communication duty:

157 Cal.App.3d 262, the court explicitly noted that an insurance company is required to make reasonable efforts to keep the insured informed as to the status of the claim.

a federal court interpreting California law found that an insurer did not waive a "no-voluntary payments" defense despite failing to explicitly cite it in the initial letter.

696 F.3d 108, the Ninth Circuit initially ruled that an insurer has an affirmative duty to effectuate a settlement where liability is reasonably clear, even without a demand . However, upon rehearing, the court vacated that portion of the opinion. Later, in Reid v. Mercury Insurance Co.

219 Cal. App. 4th 29, the court noted that where an insurer has not expressly reserved its right to deny coverage under a particular exclusion, there can be no actual conflict based on that exclusion . Furthermore, failing to cite specific provisions can lead to arguments of waiver, though California courts generally require an intentional relinquishment of a known right to find true waiver .

—clarify that a conflict of interest does not arise every time an insurer provides a defense under a reservation of rights .

reserving rights just two months before trial was deemed too late and prejudiced the insured, precluding the insurer from seeking reimbursement . Generally, courts expect an ROR within 30 to 90 days of claim tender .

65 Cal.2d 263 . In Gray, the California Supreme Court established that an insurer has a broad duty to defend any suit that potentially seeks damages within the coverage of the policy . Because the duty to defend is broader than the duty to indemnify, insurers frequently face lawsuits alleging both covered claims (e.g., professional negligence) and uncovered claims (e.g., intentional fraud).

the Court of Appeal reaffirmed that an insurer may be liable for bad faith if it breaches duties owed to the insured, including the duty to communicate, particularly regarding settlement opportunities .

Failure to inform insured of demands prevents settlement and triggers excess liability exposure.

228 Cal.App.3d 1345, the California Court of Appeal definitively outlined this obligation . The court held:

the court found bad faith where an insurer conducted a "biased and one-sided investigation" and unreasonably filed a declaratory judgment action without an objective coverage analysis from outside counsel .

195 Cal.App.3d 1308, the court affirmed that an ROR is a legally recognized method for providing a defense while preserving the right to litigate coverage later .

an insurer must evaluate settlement offers within policy limits by considering the probable liability of the insured and the potential damages, without regard to any coverage defenses . The insurer must give the insured's financial interests at least as much consideration as its own .

9 Cal.4th 27. URL: https://scocal.stanford.edu/opinion/la-jolla-beach-tennis-club-inc-v-industrial-indemnity-co-31639

169 Cal.App.4th 1197, the court highlighted that an insurer must conduct a prompt and thorough investigation . If the frequency of communication is so sparse that it leaves the insured prejudiced or financially exposed, the insurer violates the requirement to give "at least as much consideration to the welfare of its insured as it gives to its own interests" (established in Egan v.

28 Cal.2d 594, holding that if damaged property cannot be completely repaired to its pre-injury value, the measure of damages is the cost of repairs plus the depreciation (diminished value) notwithstanding the repairs .

50 Cal.App.4th 1093, the court addressed a scenario where the State Fund assumed the defense of a mixed civil/WC claim under a "complete reservation of rights" . The Michaelian court held that the unilateral assumption of a defense under an ROR does not create a bilateral contract requiring the insurer to defend indefinitely, nor does it waive the insurer's noncoverage claim .

6 Cal.4th 287, the duty to defend is triggered whenever the facts known to the insurer at the inception of a third-party lawsuit suggest a claim that is even potentially covered by the policy .

21 Cal.3d 910, the California Supreme Court affirmed a finding of bad faith and a punitive damage award where the insurer utilized delay tactics as a lever to force a favorable settlement .

reiterate that the conflict must be significant, actual, and directly related to the defense counsel's ability to manipulate the coverage outcome .

2 Cal.App.4th 1197 ("the ultimate test of [bad faith] liability in the first party cases is whether the refusal to pay policy benefits... was unreasonable") ; Chateau Chamberay Homeowners Assn. v. Associated Internat. Ins. Co. (2001) 90 Cal.App.4th 335 .

8 Cal.5th 93, the notice-prejudice rule is a fundamental public policy of California . Under this rule, an insurer cannot deny a claim based solely on the insured's delayed notice or failure to obtain consent unless the insurer can prove that it suffered "actual and substantial prejudice" as a result of the delay .

even a demand that technically exceeds policy limits (e.g., a subrogation demand letter) can represent an opportunity to settle within limits under California customs, triggering the insurer's duty to adequately communicate and investigate the settlement opportunity .

Insurers cannot passively hide behind policy text if they know the insured is ignorant of available funds.

. In Ray, the plaintiff argued that because his wrecked and repaired car suffered a diminution in market value, it was not restored to "like kind and quality," and thus Farmers breached its contract by refusing to pay the difference in value .

220 Cal.App.4th 262, a California appellate court explicitly ruled that an insurer does not have an affirmative duty to settle a claim in the absence of a settlement demand or an indication that the plaintiff is interested in settlement .

162 Cal.App.3d 358 . The court recognized that when an insurer provides a defense under a reservation of rights, a conflict of interest can arise for the defense attorney appointed by the insurer.

43 Cal.3d 1 dictates that an insurer cannot passively assume an insured knows their rights; it must take "affirmative steps to make sure that the insured is informed of his remedial rights."

Failure to affirmatively explain remedial rights (e.g., arbitration) breaches the implied covenant.

where independent counsel was required because defense counsel could control whether liability fell on employees (covered) or independent contractors (excluded) .

. URL: https://www.casemine.com/judgement/us/5914b826add7b0493478367f

12 Cal.App.4th 715 (Discussing Ins. Code § 533 and LC § 4553). URL: https://law.justia.com/cases/california/court-of-appeal/4th/12/715.html

and Nede Mgmt. v. Aspen (2021) reiterate that the conflict must be significant, actual, and directly related to the defense counsel's ability to manipulate the coverage outcome .

Expanding on Spray, Gould, the court held that even if the first-party claimant is represented by an attorney, the insurer is still required to give notice of any contractual limitation period, and failure to do so results in equitable estoppel .

an insurer's withdrawal of the reservation of rights eliminates its ongoing obligation to pay for the insured's independent Cumis counsel, allowing the insurer to resume control of the defense .

. In this cyber liability coverage dispute, despite the court ultimately finding no coverage under the "CyberFirst Policy," it refused to dismiss the bad faith claim against the insurer. The court held that the insurer could be liable for failing to "diligently investigate, fairly evaluate, and promptly and reasonably communicate" with the insured regarding the cyber claim .

30 Cal.App.4th 230, where the court allowed a bad faith action to proceed based on allegations that the insurer failed to reasonably evaluate claims, unnecessarily delayed closing claims, and exhibited a "failure to communicate with the insured" .

The court held that an insurer can "adequately" and unilaterally reserve its right to assert non-coverage merely by giving notice to the insured.

26 Cal.4th 1142, the court recognized that an insurer's failure to properly communicate or investigate can estop them from asserting the statute of limitations, further cementing the necessity of proper closure documentation .

If an insurer delays issuing an ROR and prejudices the insured's ability to mount their own defense, they are estopped from denying coverage.

11 Cal.4th 1. In Miller, the California Court of Appeal ruled that an insurer may become estopped from setting up a ground of noncoverage by defending its insured without disclaiming liability and giving notice of its reservation of rights .

a federal court explicitly stated that "an insurer's violations of the state's insurance regulations 'is a factor that may be considered by a jury' in determining whether the insurer acted in bad faith" . Therefore, a failure to provide the mandatory 30-day status update can directly substantiate a bad faith claim .

a federal court applying California law held that an insurer's violation of California insurance regulations (specifically, failing to process a claim or provide a status update within the mandated 40 days) is a significant factor a jury may consider in finding bad faith . For cyber policies, delaying approval for a ransomware payout by even a few days can destroy a business.