In California, insurance companies operate in superior positions when handling claims as compared to the businesses or individuals filing them. Since they control when a claim might be paid and how much they might offer to settle them, the state requires them to act in good faith and to deal fairly with people and companies that file claims. When an insurance company unreasonably delays processing a claim, investigating it, or paying it, the insured party might have grounds to file a bad faith insurance claim under the state’s common or statutory laws.
Common law bad faith insurance claims
Not all denials or incorrect decisions made by insurers will support bad faith insurance claims. To establish a bad faith insurance claim in California, you must be able to show that the insurance company withheld benefits owed to you under your policy and that it withheld them without cause or unreasonably. Bad faith might also be found when an insurance company failed to defend its insured, investigate a claim, or reasonably settle a claim. The evidence that might be required to support a common law claim will depend on the circumstances and facts of what happened.
Statutory bad faith insurance claims
Under Cal. Ins. Code § 790.03, a number of practices are prohibited during the settlement process, including the following:
- Misrepresentation of facts about coverage
- Failing to reasonably acknowledge and act upon notice of claims
- Failing to have reasonable standards to promptly investigate claims
- Not affirming or denying claims within a reasonable time
- Failing to exercise good faith to resolve claims when liability is clear
- Making unreasonably low offers to force claimants to litigate
- Trying to settle a claim for an amount that is much less than what the company advertised
- Altering a claim without the knowledge or consent of the insured to try to settle it
- Telling insureds or claimants that the company regularly appeals arbitration awards
- Requiring insureds or claimants to submit excessive documents to delay payments
- Telling claimants not to hire business law attorneys
While insurance companies are expected to exercise good faith and fair dealing when handling claims, some try to do anything possible to avoid or unreasonably reduce the amounts they might have to pay. Individuals and businesses that believe their insurance companies are acting in bad faith might want to consult with an experienced attorney.