When a first party property insurance action in California, it’s common to see that a complaint contains the basic cause of action of breach of contract. A breach of contract claim is the foundation for all claims against an insurance company that denies a claim, withholds or delays payment. When an insured pays policy premiums and an insurer underwrites and issues a policy, the two parties have a contract which obligates the insurer in the event of a covered loss. Without a finding of a breach of contract, there can be no bad faith on the part of the insurer.

In many instances, clients believe that the withholding of benefits due under the insurance policy (or contract) makes a bad faith case. But in most instances, it’s not enough. California Courts have found that whether benefits are due is a contract issue and that the insured must have suffered a loss covered by the policy. Additionally, under Jordan v. Allstate Insurance Co. (2007) 148 Cal.App.4th 1062, an insured must comply with preconditions to coverage such as properly notifying an insurer of the loss, providing a proof of loss, and an examination under oath if requested.

Whether the withholding of benefits rises to the level of bad faith purely depends on whether or not the insurer’s actions are unreasonable. If an insurer has a reason to withhold payment, then there may not be bad faith or breach of contract. Bad faith doesn’t arise in every matter, and the particular facts of each case should be carefully considered before such a claim is made.