San Francisco Insurance Law
Every contract contains what is called an "implied covenant of good faith and fair dealing," where neither party will do anything to injure the right of the other to receive the benefits of the agreement. For public policy reasons, California has determined that an insurance company's failure to abide by this implied covenant should subject the insurance company to additional liability. There are similar laws in other states, but the law originally developed in California remains strong and viable and can be a very effective and powerful tool for an insured.
Insurance bad faith is often associated with punitive damage awards against insurance companies. If an insurance company acts in bad faith it may be subject to punitive damages. The law of insurance bad faith essentially requires an insurance company to act fairly and in good faith towards its policyholders and to consider the interests of its policyholders equal to its own interests. It also prohibits an insurance company from denying or delaying a claim unreasonably or without proper cause.
If an insurance company breaks this law, the policyholder can collect more than what is contractually owed under the policy. In addition to the insurance policy benefits, the policyholder can collect all damages caused by the
unreasonable denial of benefits or unreasonable
delay in processing the claim, including such damages as emotional distress, economic losses and attorney fees.
If the insurance company acts in an outrageous or malicious manner, then punitive damages can also be awarded by a jury.
It is important to realize that not every wrongful denial of benefits amounts to bad faith. A simple erroneous denial of benefits, without more, is merely a breach of the insurance contract and does not constitute insurance bad faith. It is only where the delay or denial of benefits is unreasonable, without proper cause, outrageous or malicious that damages beyond the policy benefits themselves can be recovered in court.
The basic principle is that the more reprehensible the insurers conduct, the greater damages can be awarded to an injured policyholder. The three basic levels of conduct and damages are described in the chart below:
|CONDUCT||DAMAGES THAT CAN BE AWARDED|
|BREACH OF CONTRACT ONLY
This is a wrongful or incorrect denial of a claim only.
|Usually only the amounts of a proper claim under the insurance policy.|
|INSURANCE BAD FAITH
This is the unreasonable denial or delay of a claim.
|(1) The amount of a proper claim under the policy;
(2) All damages caused by the improper denial (such as economic losses or emotional distress damages);
(3) Attorneys fees.
This requires the denial or delay of a claim with malice, fraud, or oppression.
|(1) All damages available above; and
(2) Punitive damages.