Did the Insurance Company Commit Bad Faith?

Most California authorities say that the “implied covenant of good faith and fair dealing” obligates the insurer to investigate, process, and evaluate the insured’s claim promptly, thoroughly, and fairly.¹ The seminal case describes bad faith as insurer conduct that impairs the insured’s right to receive the benefits for which they contracted.² My favorite line from case law describes bad faith as an “imprecise label for what is essentially some kind of unreasonable insurer conduct[.]”³

Thoroughness is of “the most critical factors bearing on the insurer’s good faith.”⁴ “[I]t is essential that an insurer fully inquire into all possible bases that might support the insured’s claim.”⁵ Similarly, “an insurer cannot reasonably and in good faith deny payments to its insured without thoroughly investigating the foundation for its denial.”⁶ Acting on “assumptions and conjecture rather than fact” is classic bad faith.⁷ It can also be bad faith for an insurer to not reconsider and reevaluate evidence when appropriate, or failing to thoroughly consider new evidence.⁸ And certainly, an “insurance company may not ignore evidence which supports coverage. If it does so, it acts unreasonably towards its insured and breaches the covenant of good faith and fair dealing.”⁹

In determining whether a claim adjustment was fair, a court may consider the insurer’s purpose and attitude.¹⁰ “[W]hile an insurer’s subjective bad intentions are not a sufficient basis on which to establish a bad faith cause of action, an insurer’s subjective mental state may nonetheless be a circumstance to be considered in the evaluation of the objective reasonableness of the insurer’s actions.”¹¹ An insurer that searches for ways to deny a claim rather than to find coverage is likely acting unfairly and in bad faith.¹² Similarly, it can be bad faith to attempt to dissuade insureds from pursuing their claims.¹³ The lack of having objective claim adjustment standards in place can also reflect an unfair investigation.¹⁴ Failing to follow the applicable claim regulations is also evidence of bad faith.¹⁵

Insurers often respond that they have the “right to be wrong.” But an incorrect decision cannot be in good faith “unless it is founded on a basis that is reasonable under all the circumstances.”¹⁶ “An expert’s testimony will not automatically insulate an insurer from a bad faith claim based on a biased investigation.”¹⁷ Thus, an insurer cannot insulate itself from liability for bad faith conduct by “the simple expedient of hiring an expert for the purpose of manufacturing a ‘genuine dispute.”¹⁸

At the end of the day, whether bad faith exists is “a question of fact” requiring consideration and weighing of all the circumstances.¹⁹ Thus, while this summary of bad faith law may be helpful, it is not definitive. Attorneys exist for a reason, it is not just to write blog posts. We are available to help with claims across the entire state of California and nationwide.
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¹ Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 723.
² Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal. 3d 809, 818-819.
³ Austero v. National Cas. Co. (1978) 84 Cal.App.3d 1, fn. 22, disapproved of by Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809.
⁴ Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 879.
⁵ Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal. 3d at 818-819.
⁶ Ibid.
⁷ Wilson v. 21st Century Ins. Co., supra., 42 Cal.4th 713, 723.
⁸ Austero v. National Cas. Co. of Detroit, Mich., supra, 84 Cal.App.3d 1 at 35.
⁹ Mariscal v. Old Republic Life Ins. Co. (1996) 42 Cal.App.4th 1617, 1624.
¹⁰ Hanson By & Through Hanson v. Prudential Ins. Co. of America (9th Cir. 1985) 783 F.2d 762, 767 (applying Calif. Law.)
¹¹ Bosetti v. U.S. Life Ins. Co. (2009) 175 Cal.App.4th 1208, 1239 (original italics.)
¹² Wilson v. 21st Century Ins. Co., supra, 42 Cal.4th 713, 721.
¹³ Hangarter v. Provident Life & Accident Ins. Co. (9th Cir. 2004) 373 F.3d 998, 1011 (applying Cal. law); Delos v. Farmers Group, Inc. (1979) 93 Cal.App.3d 642, 664; Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 575.
¹⁴ Wilson v. 21st Century Ins. Co., surpa, 42 Cal.4th at 721.
¹⁵ Ibid.
¹⁶ Wilson v. 21st Century Ins. Co., supra., 42 Cal.4th 713, 724 & fn. 7.
¹⁷ Fadeeff v. State Farm Gen. Ins. Co. (2020) 50 Cal.App.5th 94, 102.
¹⁸ Ibid. (citations omitted.); see also Brehm v. 21st Century Ins. Co. (2008) 166 Cal.App.4th 1225, 1239-1240 (failing to provide experts with all necessary facts.)
¹⁹ Pulte Home Corp. v. American Safety Indemnity Co. (2017) 14 Cal.App.5th 1086, 1119.