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Common Bad Faith Insurance Claims in California

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Posted on January 2, 2023

When California residents sign an insurance policy agreement, it’s typically with a friendly, smiling insurance company representative who informs us of the excellent coverage the policy provides for our protection. Unfortunately, private insurance companies exist to make profits, and that business model depends on taking in far more money in premiums than they pay out in claims. Insurance companies hire special insurance adjusters whose job descriptions are to find ways to undervalue claims or deny them outright. 

While at times there are legitimate reasons a claim does not fall under the coverage provided by the terms of the policy, in other cases, insurance companies deny claims for invalid reasons, unreasonably, and without cause. When this happens, they’ve acted in bad faith, and policyholders may sue for breach of contract. Fortunately, California has many laws protecting insurance policyholders from bad-faith actions on the part of insurance companies.

Establishing Bad Faith in Insurance Law

While not all claim denials are in bad faith, California codes consider evidence of the following to support a bad-faith claim:

  • Benefits were withheld when they are clearly due under the terms of the policy
  • Grounds for withholding benefits were unreasonable or lacked just cause
  • An insurer misrepresented the benefits when they sold the policy
  • The insurer made an unreasonably low settlement offer

California law on bad faith insurance claims can be nuanced, unclear, and difficult to navigate. It also frequently changes as legislation meant to clarify issues sometimes further complicates the matter. A skilled attorney with years of experience in bad-faith insurance claims in California can help determine if you have grounds for a bad-faith claim.

Insurance companies have a duty to uphold contracts in the following manner:

  • Promptly conduct proper investigations into claims
  • Provide reasonable valuation of claims
  • Approve claims that are valid under the contract terms
  • Provide proper explanations when they deny a claim legitimately
  • Pay approved claims in a timely manner

What Are the Most Common Bad Faith Insurance Claims in California?

There are many examples of insurance company actions that exhibit bad faith and breach their duty of acting in good faith and fair dealing. Some common examples of bad faith claims include:

  • Failure to pay out a claim within the specified time limit
  • Failing to settle third-party claims when liability is clear
  • Failing to communicate important information to policyholders about their claim in a timely manner
  • Deny a claim without proper investigation, or indefensible denial
  • Unreasonable document demands
  • Undervaluing claims
  • Unauthorized policy changes

If an insurance company treats you unfairly, the company has failed to uphold its duty of good faith toward you as a policyholder and you deserve compensation.

Can I Recover Damages in a Bad Faith Insurance Claim?

When policyholders sue an insurance company for breach of contract they typically recover the amount owed according to the terms of the policy, often with a significant amount of interest, depending on how long the policyholder had to unjustly wait for a payout on the claim. In some cases, damages include monetary compensation for the emotional pain and distress caused by the company’s breach of good faith. In the case of particularly egregious behavior on the part of the insurance company representatives, a policyholder could also gain punitive damages, a monetary award meant to punish the company and prevent a future repeat of the unjust action.

If you think your insurance provider has acted unjustly and in bad faith, an attorney experienced in bad faith insurance claims can evaluate your case and plan a strategy for your compensation.