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insurance bad faith???

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M

mustang

Guest
hello.....was just wondering what insurance bad faith is, how can you tell if it is happening to you, and what can be done for it? i have noticed it is mentioned in a few responses.....thank you.
 


I

I AM ALWAYS LIABLE

Guest
<BLOCKQUOTE><font size="1" face="Arial, Helvetica, Verdana">quote:</font><HR>Originally posted by mustang:
hello.....was just wondering what insurance bad faith is, how can you tell if it is happening to you, and what can be done for it? i have noticed it is mentioned in a few responses.....thank you.<HR></BLOCKQUOTE>


My response:


CAPSULE HISTORY OF INSURANCE "BAD FAITH" CASES - - CALIFORNIA (or, "I know it when I see it. I just can't tell if it's happening to me.")

Implied Covenant as Theory of Liability: "Bad faith" liability originated in a series of landmark decisions in which California courts developed the concept that insurers are bound by an implied covenant of good faith and fair dealing with the insured, breach of which may constitute a tort.

"Bad faith" signifies a breach of the covenant of good faith and fair dealing that is implied by law in every contract. Breach of this implied covenant involves something beyond breach of the specific contractual duties. It implies unfair dealing rather than just mistaken judgment. [Congleton v. National Union Fire Ins. Co. (1987) 189 Cal.App.3d 51, 59, 234 Cal.Rptr. 218, 222]

Refusal to settle liability claims against insured as breach of implied covenant ("excess liability" cases): The first cases involved wrongful refusal by a liability insurer to settle within policy limits claims by third parties against the insured (e.g., auto accident victim suing insured driver).

Under the traditional contract measure of damages, the insurer could not be held liable for more than the policy limits. Thus, some insurers felt they had everything to gain, and nothing to lose, by refusing to settle third party claims . . . even if their refusal exposed the insured to the risk of a judgment exceeding the policy limits (an "excess judgment").

It was in this type of case that the California Supreme Court first focused on the insurer's implied covenant of good faith and fair dealing as the source of tort duties.

In Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 328 P.2d 198, the Court stated that there is "an implied covenant of good faith and fair dealing in every contract that neither party will do anything which will injure the right of the other to receive the benefits of the agreement." The implied covenant obligates the insurer to consider the insured's interests as well as its own in settling liability claims against the insured: "(T)he implied obligation of good faith and fair dealing requires the insurer to settle in an appropriate case although the express terms of the policy do not impose such a duty." Liability was upheld under a breach of contract theory, but the court stated in dictum that such wrongful refusal to settle "has generally been treated as a tort." [Comunale v. Traders & General Ins. Co., supra, 50 Cal.2d at 658, 659, 663, 328 P.2d at 200, 201, 203]

In Crisci v. Security Ins. Co. (1967) 66 Cal.3d 425, 58 Cal.Rptr. 13, the Court relied on the dictum in Comunale, above, to impose tort liability for financial losses and emotional distress resulting from wrongful refusal to settle a liability claim against the insured within the policy limits. The insurer's breach of its implied covenant of good faith and fair dealing was thus recognized as a source of tort liability. [Crisci v. Security Ins. Co., supra, 66 Cal.3d at 429-430, 58 Cal.Rptr. at 16-17]

Withholding of policy benefits due directly to insured as breach of implied covenant (first party cases): A few years later, California courts applied the same tort theory in "first party" cases where the insured was suing the insurance company for policy benefits due directly to the insured (e.g., disability benefits, fire insurance losses, etc.).

In Fletcher v. Western Nat'l Life Ins. Co (1970) 10 Cal.App.3d 376, 89 Cal.Rptr. 78, the court affirmed a judgment against a disability insurer on a theory of intentional infliction of emotional distress, but also stated the insurer's conduct was independently tortious as a breach of the implied covenant of good faith and fair dealing. [Fletcher v. Western Nat'l Life Ins. Co., supra, 10 Cal.App.3d at 400, 89 Cal.Rptr. at 93]

In Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 108 Cal.Rptr. 480, the insurer wrongfully accused the insured of arson to avoid paying his fire insurance loss claim. Refusing to pay the benefits due under the policy unreasonably, "without proper cause," breached the insurer's implied covenant of good faith and fair dealing. This was an obligation imposed by law, so the breach gave rise to a tort measure of damages, rather than merely damages based on what was owed under the terms of the contract. [Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d at 574, 108 Cal.Rptr. at 485; Silberg v. California Life Ins. Co. (1974) 11 Cal.3d 452, 460-461, 113 Cal.Rptr. 711, 714]

Punitive damages in action for breach of implied covenant: Earlier cases involving an insurer's breach of the implied covenant declined to allow punitive damages on the theory that such claims were obligations "arising from contract." [Ca Civil § 3294(a)--authorizing punitives only for breach of obligations "not arising from contract"]

However, once it was established that breach of the implied covenant sounds both in contract and in tort (Crisci, above), courts soon held that a tortious breach of the implied covenant could support an award of punitive damages against the insurer if the other requirements for a punitive damage award (i.e., "oppression, fraud or malice") were met. [Silberg v. California Life Ins. Co. (1974) 11 Cal.3d 452, 462, 113 Cal.Rptr. 711, 714; Neal v. Farmers Ins. Exch. (1978) 21 Cal.3d 910, 922-923, 148 Cal.Rptr. 389, 395-396]

In Silberg, the Court was careful to point out that an insurer's breach of the implied covenant of good faith, although justifying tort remedies, did not automatically justify an award of punitive damages. A separate showing of "oppression, fraud or malice" within the meaning of Ca Civil § 3294(a) was required. [Silberg v. California Life Ins. Co., supra, 11 Cal.3d at 462-463, 113 Cal.Rptr. at 714, 718]

In Neal v. Farmers Ins. Exch., in which the Court awarded punitive damages in an action based on breach of the implied covenant, some of the same evidence showing breach of the implied covenant (insurer's attempt to coerce insured into settling an uninsured motorist claim) was held to have also supplied proof of the separate "malice" required for punitive damages. [Neal v. Farmers Ins. Exch., supra, 21 Cal.3d at 922-923, 148 Cal.Rptr. at 395-396]

Statutory Violations as Basis for Liability: For a number of years, California courts recognized a separate basis for extracontractual recovery based on insurer violations of the Unfair Practices Act (Ca Ins § 790 et seq., and particularly § 790.03(h) dealing with "unfair claims settlement practices").

In Royal Globe Ins. Co. v. Sup.Ct. (Keoppel) (1979) 23 Cal.3d 880, 153 Cal.Rptr. 842, the California Supreme Court held that the Act impliedly authorized a direct action against insurers by victims of unfair claims settlement practices. Thus, after conclusion of the liability action against the insured, third party claimants could sue the insurer directly for unreasonable delay in settling or certain other unfair practices. [Royal Globe Ins. Co. v. Sup.Ct. (Keoppel), supra, 23 Cal.3d at 888, 153 Cal.Rptr. at 847]

Nine years later, the California Supreme Court reversed itself in Moradi-Shalal v. Fireman's Fund Ins. Cos. (1988) 46 Cal.3d 287, 250 Cal.Rptr. 116. The Court held Royal Globe was "incorrectly decided" and overruled it prospectively as to actions filed after October 17, 1988.

The Legislature has now reinstated a limited right for third party claimants to sue liability insurers for unfair claims settlement practices.

IAAL


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