The Stanzler Law Group
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Jordan Stanzler


2275 East Bayshore Road
Palo Alto, California

(650) 739 – 0200



            There is an implied covenant of good faith and fair dealing in every contract, requiring that neither party do anything that will injure the right of the other party to receive the benefits of the agreement. Foley v. Interactive Data Corp., 47 Cal. 3d 654, 684 (1988).

            When an insurer unreasonably, or without proper cause, withholds a payment or denies a payment that is due under the policy, the insurer has not only breached the contract, but is subject to the tort of bad faith. Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 574-75 (1973);Waters v. United Services Auto Ass’n, 41 Cal. App. 4th 1063, 1070 (1996).

            The ultimate test is whether the insurance company acted unreasonably. Opsal v.United Services Auto Assoc., 2 Cal. App. 4th 1197, 1205 (1991); Guebara v. Allstate Ins. Co., 237 F. 3d 987, 992 (9th Cir. 2001).


            An insurance company has a duty to 1) investigate the pertinent matters thoroughly, impartially, and promptly; 2) to communicate honestly and promptly with the policyholder as the claim is processed; 3) to make timely decisions about the claim; and 4) to explain clearly and forthrightly the bases on which the carrier premised its decision.

             Unreasonable conduct can take many different forms. The most common examples are denial of coverage, withholding of benefits, delay in payment of benefits,  improper investigation, misrepresenting coverage, refusal to settle claims against the  insured, and refusal to provide a defense to the insured. But the list is not exhaustive.


            Not every denial of coverage amounts to bad faith. The denial must be unreasonable.  It is possible that the insurance company breached the contract by failing to pay a covered claim, but did not act unreasonably in doing so.  In that instance, there is no bad faith. Tomaselli v. Transamerica Ins. Co., 25 Cal. App. 4th 1269, 1280-1281 (1994); Opsal v. United Services Auto Ass’n, 2 Cal. App. 4th 1197, 1205 (1991).

            Whether an insurance company acted unreasonably normally presents a question of fact for the jury. Walbrook Ins Co. v. Liberty Mutual Ins. Co., 5 Cal. App. 4th 1445, 1454 (1992); Filippo Industries, Inc. v. Sun Ins. Co., 74 Cal. App. 4th 1429, 1438 (1999); Davy v. Public National Ins. Co.,  181 Cal. App. 2d 387, 397 (1960). But there are instances in which the court may decide, as a matter of law, that the conduct was either reasonable or unreasonable. See


 Chateau Chamberay Homeowners Ass’n v. Associated Intern. Ins. Co., 90 Cal. App. 4th 335 (2001)( under so-called “genuine dispute doctrine”, there is no bad faith if there was a “legitimate dispute” as to the insurance company’s liability); Century Sur. Co. v. Polisso, 139 Cal. App. 4th 922, 948-949 (2006)( explaining and limiting the doctrine); Filippo, supra at 1438
(doctrine not appropriate where there was no uncertainty in case law about words in policy at issue); Amadeo v. Principal Mutual Life Ins. Co., 290 F.3d 1152 (9th Cir. 2002)(doctrine not appropriate where insurance company’s interpretation of disability was arbitrary and pretextual).

            At one end of the spectrum, an insurance company acts in bad faith when it  knows there is coverage, but denies coverage anyway. Richardson v. Employers Liability Assurance Co., 25 Cal. App. 3d 232, 245 (1972)(punitive damages awarded where insurance company knew that insured had a valid uninsured motorists claim, but nevertheless forced insured to undergo a lengthy arbitration process); Delgado v. Heritage Life Ins. Co., 157 Cal. App. 3d 262, 277 (1994)(actual knowledge that denial of claim is wrongful demonstrates bad faith). At the other end of the spectrum, there may be only modest inferences of bad faith. Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc., 78 Cal. App. 4th 847, 909 (2000). 


            An insurance company commits bad faith when it fails to act reasonably in processing and handling a claim. Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566 (1973). One  hallmark of bad faith  is unreasonable delay in adjusting a claim. Insurance Code section 790(h); Fleming v. Safeco Ins. Co., 160 Cal. App. 3d 31, 37 (1984); Palmer v. Financial Indem. Co., 215 Cal. App. 2d 419, 429 (1963);  Austero v. National Cas. Co., 84 Cal. App. 3d 1, 29-30 (1978); Bodenhamer v. Superior Court,  192 Cal. App. 3d  1472,1476 (insurance company deliberately delayed payment); Richardson v. Employers’ Liability Assurance Co., 25 Cal. App. 3d 232, 247 (1972)(nine month delay in paying benefits on a claim carrier knew to be valid constitutes bad faith as a matter of law).                                                                                                              


            An insurer cannot deny payments to its insured without conducting a thorough investigation. Egan v. Mutual of Omaha Ins. Co., 24 Cal. 3d 809, 819 (1979)(“[I]t is essential that an insurer fully inquire into the possible bases that might support the insured’s claim”).

            An insurance company has a duty to look for coverage and cannot just  look for ways to deny coverage. Mariscal v. Old Republic Ins. Co., 42 Cal. App. 4th 1617 (1996)(insured determined that insured died of illness but ignored other medical records indicating that insured’s death was caused by auto accident); Betts v. Allstate Ins. Co., 154 Cal. App. 3d 688, 702 (1984)(insurance company relied on insured’s self-serving account of accident and ignored mass of other available evidence indicating insured’s negligence; obstinate “no pay” attitude justified punitive damages); Downey Savings & Loan Association v. Ohio Cas. Ins. Co., 189 Cal. App. 3d 1072 (1987); Hughes v. Blue Cross of Northern California,  215 Cal. App. 3d 832, 846 (1989)(insurer made no reasonable effort to obtain all medical records in reviewing medical necessity of hospitalization).
An insurer must affirmatively seek out witnesses who can provide information in support of the insured’s claim. Frommoethelydo v. Fire Ins. Exchange, 42 Cal. 3d 208, 220 (1996); Mariscal at 1624; McCormick v Sentinel Life Ins. Co., 153 Cal. App.3d 1030, 1047-1048 (1984).

The insurer cannot in good faith reject its own experts’ advice. Neal v. Farmers Insurance Exchange, 21 Cal. 3d 910, 921-23 (1978).

            Delgado v. Heritage Life Ins Co., 157 Cal App. 3d 262, 278-279 (1994)(evidence that insurer ignored evidence in file which supported claim, while focusing on facts to deny claim, supported award of $3 million in punitive damages); Sprague v. Equifax, Inc., 166 Cal. App. 3d 1012, 1025 (1985)($ 4 million in punitive damages upheld where claims adjuster testified that he was instructed by supervisor not to find ways to pay claims, but to find ways to deny claims); Caddice v. Ins. Co. of North America, 126 Cal. App. 3d 86 (1981)( de facto practice of minimizing payment of claims, as inferred through testimony of claims adjusters and policy manuals); Tibbs v. Great American Ins. Co., 755 F. 2d 1370 (9th Cir. 1985)(bad faith failure to investigate where in –house counsel conducted little investigation and ignored employees who said insured probably entitled to a defense). 

            The duty to investigate includes the duty to consider legal issues. Shade Foods, Inc. v. Innovative Product Sales & Marketing, Inc, 78 Cal. App. 4th 847, 908 (2000)( bad  faith failure to evaluate choice-of-law issues).

            Betts v. Allstate Ins. Co., 109 Cal. App. 3d 688 (1984). Refusal to face up to adverse evidence of insured’s liability for accident. Punitive damages upheld.

            Campbell v. Cal-Gard Security Services, Inc., 62 Cal. App. 4th 563, 571 (1998).”PAT took no investigation of Campbell’s claim or her excuse for late reporting. The jury could reasonably infer from that evidence that PAT had an established practice of not investigating claims and denying payment of them and therefore acted in conscious disregard of the rights of its insured.” Punitive damages upheld.

            Jordan v. Allstate Ins. Co., 148 Cal. App. 4th 1062 (2007). Although insurance company’s interpretation of policy was reasonable, factual issues remained as to whether it conducted a reasonable investigation.

            Walker v. Farmers Insurance Co, 153 Cal. App. 4th 965 (2007) (failure to investigate and other bad acts)


            California Code of Regulations section 2695.4 requires an insurer to disclose all benefits, coverages or other provisions of the insurance policy that may apply to the claim presented. Failure to advise the policyholder of pertinent time limits resulted in waiver to enforce those time limits. Spray, Gould & Bowers v. Associated International Ins. Co., 71 Cal. App. 4th 1260, 1272-73 (1999); Sarchett v. Blue Shield  of California.  43 Cal. 3d 1, 15 (1987); See also Textron Financial Corp. v. National Union, 118 Cal. App. 4th 1061 (2004)(punitive damages awarded for concealment of coverage); Hangarter  v. Paul Revere  Life Ins. Co., 236 F. Supp. 2d 1069 (N.D.Cal. 2002), aff’d, 373 F. 3d 998 (9th Cir. 2004)(failure to advise insured of coverage amongst many other bad faith acts); Ramirez v. U.S.A.A., 234 Cal. App. 3d 391 (1991)( duty to disclose possible existence of underinsured motorist coverage).

            Baron v. Fire Insurance Exchange, 154 Cal. App. 4th 1184 (2007). Misrepresentations and concealment of coverage for fire loss. Punitive damages upheld.


            Pershing Park  Villas v. United Pacific Ins. Co., 219 F. 3d 895 (9th Cir. 2000); Campbell v. Superior Court, 44 Cal. App. 4th 1308 (1996); Shade Foods, supra; Century Surety Co v. Polisso, 139 Cal. App. 4th 922 (2006); Amato v. Mercury Cas. Co., 53 Cal. App. 4th 825 (1997); Walker v. Farmers Insurance Exchange, 153 Cal. App. 4th 965 (2007).


            The insurance company has a duty to make good faith efforts to negotiate towards a reasonable settlement.  Shade Foods, supra, at 906-907. An insurance company is required to attempt to settle a claim against the insured when there is a reasonable likelihood of a judgment in excess of the insured’s policy limits. Garner v. American Mutual Liability Co., 31 Cal. App. 3d 843, 848 (1973); Communale v. Traders General Ins. Co., 50 Cal. 2d 654, 659-660 (1958); Crisci v. Security Ins. Co., 66 Cal. 2d 425, 429 (1967); Murphy v. Allstate Ins. Co., 17 Cal. 3d 937, 941 (1976).

            However, the duty may also be breached when there is an unreasonable denial of a settlement offer below the limits of the policy. Shade Foods, supra, at  905-907.

            The duty to settle is implied at law, even if the policy does not contain such a provision. Murphy, supra.

When the insurer’s own counsel advises the insurer to seek settlement rather than gamble on a verdict, the insurer acts in bad faith when it heedlessly gambles on a verdict and loses. Kinder v. Western Pioneer Ins. Co., 231 Cal. App. 2d 894, 901 (1965).

            Conditioning settlement upon demand that insured give up other coverage constitutes bad faith. Shade Foods, Inc. Innovative Product Sales & Marketing, Inc., 78 Cal. App. 4th 847 (2000).

            Walker v. Farmers Insurance Exchange,  153 Cal. App. 4th 965 (2007)


            Clayton United Servs. Auto Ass’n, 54 Cal. App. 4th 1158 (1997)(insurance company offered $10,000 on policy limits of $300,000 to parents whose only child was killed in automobile accident); White v. Western Title Ins. Co., 40 Cal. 3d 870 (1985)( low settlement offers made in course of bad faith litigation). Note California Fair Claims Settlement Practices Regulations on this subject.


            Coe v. State Farm Mutual Auto Ins. Co., 66 Cal. App. 3d 981 (1977); Shade Foods, supra (insurance company offered to pay only a fraction of the covered loss).


Hillenbrand, Inc v. Ins. Co. of North America,  102 Cal. App. 4th 584 (2002).


            Plainly unreasonable interpretation of coverage led to punitive damages in Amadeo v. Principal Mutual Life Ins. Co., 290 F. 3d 1152, 1165 (9th Cir. 2001); Hangarter v. Paul Revere Life Ins. Co., 236 F. Supp. 2d 1069 (N.D.Cal. 2002), aff’d, 373 F. 3d 998 (9th Cir. 2004) and 
Walker v. Farmers Ins. Exchange, 153 Cal. App. 4th 965 (2007)

            Unduly restrictive interpretation of disability on questionnaire. Moore v. American   United Life Ins. Co., 150 Cal. App. 3d 610, 621 (1984); Delgado v. Heritage Life Ins. Co., 157 Cal. App. 3d 262, 277 (1984); Miller v. National American Life Ins. Co., 54 Cal. App. 3d 331, 339 (1976).


            An insurer may not attempt or threaten to rescind the policy where there are no valid grounds for rescission. Fletcher v. Western Nat’l Life Ins. Co., 10 Cal. App. 3d 376, 392 (1970).

            An insurer may not attempt to “retire the file without payment” if the insurer, in fact, has no defense to the claim and is simply trying to pressure the claimant into accepting the settlement offer. Mustachio v. Ohio Farmers Ins. Co.,  44 Cal. App. 3 358 (1975).

            Unsupported allegations that the insured is guilty of insurance fraud constitute evidence of bad faith. Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 575-76 (1973); Mustachio, supra at 362 (accusation of arson after basis for charge eliminated by investigator).

            Hostile attitude of claims personnel may constitute evidence of bad faith. Egan v. Mutual of Omaha Ins. Co.,  24 Cal. 3d 809, 821 (1979)(claims personnel reduced an insured to tears in view of wife and daughter by asserting that insured was a fraud and did not want to return to work).

            Adjuster’s curt and sarcastic attitude, combined with threats to sue insured, will support a finding of bad faith. Pistorius v. Prudential Ins. Co., 123 Cal. App. 3d 541, 547 (1981).

            False promise to provide coverage. Diamond Woodworks, Inc. v. Argonaut Ins. Co., 109 Cal. App. 4th 1020 (2003).

            Low settlement offers made during course of bad faith litigation. White v. Western Title Ins. Co.,  40 Cal. 3d 870 (1985).

            Trickery, fraud, backdating documents, concealing evidence, persisting in denial during course of litigation. Textron Financial Corp v. National Union, 118 Cal. App. 4th 1061 (2004).

            Misleading policyholder about uninsured motorist coverage. Delos v. Farmers Ins. Group, 93 Cal. App. 3d 642 (1979).

            Forcing the policyholder to sue in order to obtain benefits. Richardson v. Employers Liab. Assur. Corp.,  25 Cal. 3d 232, 246 ( 1972). Punitive damages upheld where insurance company forced policyholder to litigate an uninsured motorists claim in which there was clear liability and no grounds to contest the claim. The insurance company stalled for months, forcing Richardson to pursue his claim through arbitration and then through court proceedings to confirm the award.

            George F. Hillenbrand, Inc. v. Insurance Co. Of North America, 104 Cal. App. 4th 784, 818 (2002). Insurance company engaged in protracted nonmeritorious litigation against insured, when coverage should have been provided. Punitive damages upheld.

            Notrica v. State Compensation Insurance Fund, 70 Cal. App. 4th 911, 949 (1999).
Punitve damages upheld where senior management misled insureds about reserving practices of company

            Bertero v. National General Corp., 13 Cal. 3d 43, 65 (1974)(“defendants’ conduct consisted of filing fabricated claims in order to coerce Bertero to settle or abandon a legitimate claim. This flagrant abuse of the judicial process is precisely the type of tortious conduct that an award of exemplary damages is designed to deter”)

            Caddice v. Ins. Co. Of North America, 126 Cal. App. 3d 86 (1981)(punitive damages upheld where claims representatives misled insured and concealed coverage)

            Walker v. Farmers Insurance Exchange, 153 Cal. App. 4th 965 (2007) ( breach of duty to defend, to investigate, to evaluate coverage appropriately; punitive damages upheld but reduced )


            Evidence that insurance company violated these regulation is admissible to prove bad faith. Jordan  v. Allstate Ins. Co., 148 Cal. App. 4th 1062, 1076 (2007). Policyholder submitted declaration from expert in opposing summary judgment on bad faith.


            Four years for actions based on breach of contract and two years for actions based on tort. Breach of failure to settle may be pled in tort or contract. Archdale v. American International Specialty Lines, 154 Cal. App. 4th 449 (2007).


            Policyholder may recover fees and costs  in proving coverage, but not fees incurred proving bad faith. Brandt v. Superior Court, 37 Cal. 3d 813 (1988).  May be proved to a judge or jury. But a subtraction must be made for time spent pursuing bad faith. Keeping accurate time records is advisable. Problems arise when case is handled on contingency basis and no time records are kept. See Cassim v. Allstate Ins. Co., 33 Cal. 4th 780 (2004) for complicated calculations in this situation.

            There is no specific allocation method for subtracting time spent in pursuing bad faith from time spent in pursuing coverage.

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