Insurance Companies can breach the implied covenant of good faith and fair dealing by failing to pursue adjustment of the claim with reasonable diligence. This means that both insured and insurance companies must pay close attention to the company’s diligence (or lack thereof) in handling a claim.
In particular, it’s important to know what sort of documents the insurer and policyholder are entitled to during the claims handling process in California, and how to best cooperate during the process.
For all residential property insurance policies, the insurer is required to notify the insured of their right to obtain all “claim-related documents,” and to provide these documents within fifteen days after the request. This is also the case with standard form fire insurance policies. A residential property insurance policy includes policies insuring individually-owned residences of up to four dwelling units, individually-owned condominiums, or individually-owned mobile homes and their contents, tenant’s policies insuring personal contents, and residential earthquake insurance policies.1 As a policyholder, your insurer may be required to provide the following:
- repair and replacement estimates and bids;
- appraisals and “scopes of loss;”
- drawings, plans, reports;
- third party findings on the amount of loss;
- “all other valuation, measurement, and loss adjustment calculations of the amount of loss, covered damage and cost of repairs.”2
However, the insurer need not provide items such as attorney work product or attorney-client privileged documents, or documents that indicate fraud by the insured.3 Note that these insurance code provisions do not apply to other first-party insurance policies, although the insurer’s general implied covenant of good faith and fair dealing still applies in the context of adjusting a claim.
But while an insurer must turn over documents related to the handling process, the insurance policy also typically requires the insured to cooperate in the investigation of a claimed loss. For instance, the California Standard Form Fire Insurance Policy provides:
The insured, as often as may be reasonably required, shall exhibit to any person designated by this company all that remains of any property herein described, and submit to examination under oath by any person named by this company, and subscribe the same; and, as often as may be reasonably required, shall produce for examination all books of accounts, bills, invoices, and other vouchers. . . .4
If an insured fails to submit a claim, (or voluntarily withdraws the claim after giving notice of loss), the insurer has no liability due to the insured’s failure to submit. The burden is on the insured to initiate and submit the claim.5 But what if the insured initiates a claim and submits documentation to support its proof of loss and the insurer believes (or claims) that the proof of loss is incomplete? It is then the duty of the insurer to promptly notify the policyholder that it is rejecting the proof of loss as incomplete. However, while an “insurer may assert defenses based upon a breach by the insured of a condition of the policy such as a cooperation clause, the breach cannot be a valid defense unless the insurer was substantially prejudiced thereby.”6
1 Ins. C. §§ 2071(a), 790.031, 10082.3, 10087.
2 Ins. C. §§ 2071(a), 10082.3.
3 Ins. C. §§ 2071(a), 10082.3.
4 Ins. C. § 2071.
5 HOA v. State Farm Fire & Cas. Co., 135 Cal.4th 1008, 1018 (2006).
6 Campbell v. Allstate Ins. Co., 60 Cal.2d 303, 306 (1963) (emphasis added).