As a property insurance attorney I am often asked whether bad faith damages are recoverable in California. Over the course of many years, California case law has changed and the recovery of bad faith damages, versus attorney fees and punitive damages, has evolved. Bad faith damages are tort damages while punitive damages are recoverable only upon the finding of bad faith and that the conduct of the insurer was malicious, oppressive or fraudulent.

Now, it is much more difficult to recover bad faith damages without taking matters through trial, and insurers are rolling the dice in an attempt to avoid payout of bad faith damages and placing their bets that insurers can convince jurors that their (jurors) premiums will be raised if large damages and bad faith judgments are awarded to Plaintiffs (despite the fact that the raising of premiums has nothing to do with bad faith awards).

The ruling of State Farm Mutual Automobile Insurance Company v. Campbell,1 heavily affected punitive awards in the California courts. Campbell showed us that the courts concentrated on the idea that pattern and practice evidence is the most essential element in procuring punitive damage awards as a furtherance of bad faith conduct. The Campbell opinion reaffirmed that the degree of reprehensibility of an insurer’s conduct is the most important factor in deciding a punitive damages award against an insurer. To demonstrate and prove reprehensibility, a court must consider factors of whether the conduct of the insurer involved: 1) repeated actions or was an isolated incident, and 2) whether the harm resulted from intentional malice, trickery, or deceit or simply an accident.

In California, in order to even have a bad faith cause of action, an insured must demonstrate that:

  1. a contractual relationship with the insurer;
  2. insurance benefits are still due under the policy; and
  3. the insurer’s withholding of benefits is unreasonable.

To recover punitive damages, a plaintiff would also plead the Campbell standard that in addition to bad faith, that the insurer’s conduct was malicious, oppressive or fraudulent. "The same evidence is relevant both to the finding of bad faith and the imposition of punitive damages, but the conduct required to award punitive damages for the tortuous breach of contract … is of a different dimension than that required to find bad faith."2 California Civil Code 3294(c) must be asserted for punitive damages to be considered and the standard to obtain punitive damages must be set at clear and convincing evidence.

Although the standard for punitive damages is high, this does not mean that insureds are not winning their breach of contract awards; it just means that obtaining bad faith damages, attorney fees, and punitive damages is a higher hurdle often decided by a jury versus a pre-trial settlement at mediation.

1 State Farm Mut. Auto. Ins. Co. v. Campbell (2003) 538 U.S. 408 [123 S.Ct. 1513].
2 Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 890 [3 Cal.Rptr.2d].