Let’s be honest – any situation that results in the need for filing an insurance claim is potentially stressful on its own. You’ve been faithfully paying your insurance premiums month after month, and trust that your policy will provide the coverage you need to alleviate a bad situation, such as a car accident or personal injury case. That is when you find out your headaches are just beginning. Unfortunately, countless insurance clients come to our office with a similar problem and have questions about what can be done. When your trust is broken by an insurer acting in bad faith, there are some legal remedies and options that may allow you to hold them accountable and make them pay for your claim – here is a quick outline of some of those options.

What Are Some of the Duties Owed by California Insurance Companies to Their Policyholders?

In California, insurance companies have a few important duties towards their liability policyholders. The two most important ones are (a) a duty to indemnify legitimate claims and (b) a duty to defend policyholders against third-party lawsuits. Let’s examine these further.

The duty to indemnify is the obligation of an insurance company to provide financial compensation for items covered under an insurance client’s policy. If a policyholder has provided all the necessary documents in a timely manner and the claim is covered, insurers are expected to provide a response to a claim within a reasonable time period and to issue a payout if the claim is legitimate. More often than not, insurers will come up with several reasons why a claim is not covered under the insured person’s policy.
The duty to defend is perhaps even more encompassing than the duty to indemnify. Insurance companies are expected to provide legal defense against third-party claims based on covered risks, even if the insured’s claim is only potentially covered by the policy. If, for example, a policyholder is being sued after a car accident in which the other driver is saying that the policyholder is at fault, it is the insurer’s duty to defend the policyholder against these allegations, and there are potentially serious consequences for companies that fail to do so.

Does California Have Any Laws Protecting Policyholders From Unfair Insurance Practices?

Policyholders in California are protected from unfair insurance company practices by section 790.03 of the California Insurance Code. The code includes a long list of business practices that are considered unfair and deceptive, including several unfair claim settlement practices, such as “not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear” and ‘failing to provide promptly a reasonable explanation of the basis relied on in the insurance policy, in relation to the facts or applicable law, for the denial of a claim or for the offer of a compromise settlement.’

Section 790.035 (a) goes on to establish a fine for insurance companies that engage in such practices, prescribing a civil penalty of up to five thousand dollars for each act. If the unfair act is determined to have been willful (done on purpose), the civil penalty is raised to a maximum of ten thousand dollars. Insurers may be eligible for an appeal in both cases.

What Is Insurance Bad Faith and What Are Some Signs to Watch Out For?

In practical terms, the questionable business practices defined by Section 790.03 are also referred to as insurance bad faith. When someone agrees to become a policyholder, there is a level of trust and duty of care that is expected to be maintained by the insurer. Unfortunately, this does not always happen.

There are a few telltale signs that typically indicate your insurance carrier may be acting in bad faith. A good insurance company is willing to maintain clear and effective communication with their policyholder during the process of a claim. If your insurer is excessively slow to respond or hard to reach, it may be best to be alert. Additionally, if you are dealing with an unreasonable list of required documentation, such as documents with the same information or unrelated to your case, it may also be a sign your insurer may be acting in bad faith. Other common indicators are when your insurance unfairly denies your claim or delays your payment without any explanations.

Can I Sue My Insurance Company for Acting in Bad Faith?

If you are having problems with your insurance company and have reasons to believe your claim is covered and that you deserve a settlement, you may submit a formal complaint to the California Department of Insurance by filing an online complaint through the CDI’s website or by printing out a complaint form and mailing it to them directly, although it is best to file online for a faster response. If filing a complaint does not yield any results, you may want to initiate a civil lawsuit against your insurer. In this case, it is in your best interest to work with an insurance bad faith attorney who has the skills and knowledge to help prove your case and to fight for the compensation you deserve. There is no need to deal with a bad faith insurance company by yourself – contact the legal team at Thon, Beck, Vanni, Callahan & Powell to see how we can help you.