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Overview

Insurance bad faith occurs when your insurance company unreasonably refuses to pay a valid claim, delays payment, or offers far less than your claim is worth. In California, insurers owe their policyholders a duty of good faith and fair dealing - and when they breach that duty, you can recover far more than just your policy benefits.

Why Bad Faith Claims Are Powerful: Unlike a simple breach of contract claim (where you only recover policy benefits), a bad faith claim allows you to recover consequential damages, emotional distress, attorney's fees (Brandt fees), and potentially punitive damages that can multiply your recovery 2-3x or more.

First-Party vs. Third-Party Bad Faith:

  • First-Party Bad Faith (This Page): Claims against YOUR OWN insurance company - UM/UIM claims, comprehensive/collision claims, MedPay, PIP. You are the policyholder making a claim under your own policy.
  • Third-Party Bad Faith: Claims by an injured person against the at-fault driver's insurance. More limited remedies - generally cannot sue the other party's insurer directly (Moradi-Shalal).

Common Auto Insurance Bad Faith Tactics:

  • Lowball Offers: Offering far less than the claim is worth, hoping you'll accept out of desperation
  • Unreasonable Delays: Taking months to process simple claims, missing statutory deadlines
  • Denial Without Investigation: Rejecting claims without reviewing the evidence or conducting a proper investigation
  • Misrepresenting Policy Terms: Claiming coverage doesn't exist when it does, or misquoting policy language
  • Requiring Excessive Documentation: Demanding unnecessary paperwork to delay or discourage the claim
  • Failing to Explain Denials: Denying without providing specific policy reasons
Moradi-Shalal Limitation: Under Moradi-Shalal v. Fireman's Fund (1988), you generally cannot sue another person's insurance company directly for bad faith in California. However, you CAN sue your own insurer, and you may be able to obtain an assignment of the insured's bad faith rights in certain situations.
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Legal Basis

California has robust legal protections against insurance bad faith.

Insurance Code Section 790.03 - Unfair Practices ▾

California Insurance Code 790.03(h) defines unfair claims practices:

  • (1) Misrepresenting pertinent facts or policy provisions relating to coverages at issue
  • (2) Failing to acknowledge and act reasonably promptly upon communications regarding claims
  • (3) Failing to adopt and implement reasonable standards for prompt investigation and processing of claims
  • (4) Failing to affirm or deny coverage within a reasonable time after proof of loss completed
  • (5) Not attempting in good faith to effectuate prompt, fair, and equitable settlements when liability is reasonably clear
  • (6) Compelling insureds to litigate to recover amounts due by offering substantially less than amounts ultimately recovered
  • (7) Attempting to settle claims on the basis of an application altered without knowledge or consent
  • (13) Failing to provide a reasonable explanation of the basis for denial
  • (14) Delaying investigation or payment of claims by requiring duplicative information

Note: While 790.03 defines unfair practices, Moradi-Shalal held there is no private right of action directly under this statute. However, violations support a common law bad faith claim.

Common Law Bad Faith - Implied Covenant ▾

Every insurance contract in California includes an implied covenant of good faith and fair dealing:

  • Gruenberg v. Aetna (1973): California Supreme Court recognized that breach of the implied covenant gives rise to tort damages, not just contract damages.
  • Elements to Prove:
    1. Benefits were due under the policy
    2. The insurer unreasonably withheld benefits
    3. The insurer knew or recklessly disregarded the unreasonableness of its conduct
  • "Genuine Dispute" Defense: If there's a genuine dispute about coverage, the insurer isn't acting in bad faith by denying - but the dispute must be reasonable and based on actual evidence.
Brandt Fees - Attorney's Fee Recovery ▾

Under Brandt v. Superior Court (1985), you can recover attorney's fees as damages in bad faith cases:

  • What Are Brandt Fees: Attorney's fees incurred to obtain the policy benefits that should have been paid without litigation.
  • Recoverable As Damages: These fees are treated as economic damages, not as "attorney's fees" under contract provisions.
  • Separate From Tort Fees: You can recover Brandt fees for the contract portion PLUS reasonable attorney's fees for pursuing the bad faith tort claim.
  • Strategic Value: This makes it economically viable to pursue bad faith claims even for moderate policy amounts, since attorney's fees become part of the recovery.
California Fair Claims Settlement Practices Regulations ▾

California Code of Regulations, Title 10, Chapter 5, Subchapter 7.5 sets specific requirements:

  • Section 2695.5(e): Insurer must accept or deny claim within 40 days of receiving proof of claim
  • Section 2695.7(b): Must acknowledge receipt of claim within 15 days
  • Section 2695.7(c): If more time needed, must notify claimant every 30 days of status
  • Section 2695.7(d): Must begin investigation within 15 days
  • Section 2695.7(h): Payment must be made within 30 days of settlement

Violations of these regulations are strong evidence of bad faith.

Moradi-Shalal and Its Limits ▾

Understanding when you can and cannot sue for bad faith:

  • The Rule: Third parties (injured persons) generally cannot sue the at-fault party's insurer directly for bad faith under Insurance Code 790.03.
  • First-Party Exception: You CAN sue your own insurer for bad faith - UM/UIM, collision, comprehensive, MedPay claims.
  • Assignment Exception: If the insured (at-fault driver) assigns their bad faith claim to you, you may be able to pursue it.
  • Excess Judgment: If an insurer's bad faith results in a judgment exceeding policy limits, the insured can sue their own insurer for the excess.
Key Precedents: Gruenberg v. Aetna (1973), Brandt v. Superior Court (1985), Moradi-Shalal v. Fireman's Fund (1988), Egan v. Mutual of Omaha (1979), Neal v. Farmers Ins. (1978).
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Evidence Checklist

Document the insurer's bad faith conduct carefully:

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Complete Claim File

Request your complete claim file under California Insurance Code 2071. The insurer must provide copies of all documents in your file.

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Timeline of Communications

Create a detailed timeline: date claim filed, date acknowledged, requests for information, responses, offers made, deadlines missed.

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Written Correspondence

Save all letters, emails, and written communications. Document phone calls with date, time, representative name, and summary of conversation.

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Denial Letters

Keep all denial letters. Note whether they cite specific policy provisions and provide adequate explanation.

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Settlement Offers

Document all settlement offers with dates. Compare to actual damages to show how unreasonably low the offers were.

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Proof of Damages

Medical records, repair estimates, property damage photos, lost wage documentation - everything proving your actual damages.

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Your Policy

Complete copy of your insurance policy, including declarations page, all endorsements, and the full policy booklet.

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Evidence of Emotional Distress

Medical records showing anxiety, depression, or stress from the claims process. Testimony from family about impact on your life.

Document Everything: Bad faith cases are won with documentation. Every unanswered call, every missed deadline, every unreasonable request becomes evidence. Keep a detailed log of all interactions.
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Calculate Damages

Bad faith damages can far exceed your original policy claim:

Policy Benefits Owed $45,000
Consequential Damages (Interest, Late Fees) $3,500
Emotional Distress $25,000
Brandt Fees (Attorney's Fees for Contract Claim) $15,000
Compensatory Damages Subtotal $88,500
Punitive Damages (if egregious - 1-3x compensatory) $88,500+
Total Potential Recovery $177,000+
Policy Benefits (Contract Damages) ▾

The base amount your insurer owes:

  • UM/UIM Benefits: Your uninsured/underinsured motorist coverage limits
  • Collision Coverage: Vehicle repair or replacement value (minus deductible)
  • Comprehensive Coverage: Theft, vandalism, weather damage
  • Medical Payments (MedPay): Medical expenses up to policy limits
  • Rental Car Coverage: Rental expenses during repair period
Consequential Damages ▾

Losses caused by the insurer's failure to pay:

  • Interest on Unpaid Benefits: From when payment was due
  • Credit Damage: If delayed payment led to collections, missed payments
  • Additional Expenses: Out-of-pocket costs you wouldn't have incurred if paid timely
  • Lost Wages: Time spent dealing with the claims process
  • Medical Bill Collections: If bills went to collections due to delayed payment
Emotional Distress Damages ▾

Compensation for mental suffering caused by bad faith:

  • Anxiety and Stress: Worrying about finances, fighting with insurer
  • Depression: Resulting from financial strain and feeling helpless
  • Sleep Disturbance: Insomnia, nightmares related to claims fight
  • Physical Manifestations: Headaches, stomach problems, weight changes due to stress
  • Relationship Impact: Strain on family relationships from financial stress

No physical injury required for emotional distress in bad faith cases.

Punitive Damages ▾

Additional damages to punish egregious conduct:

  • When Available: Must show "malice, oppression, or fraud" - conduct so egregious it warrants punishment
  • Examples: Systematic denial practices, destroying evidence, lying to policyholders, ignoring clear coverage
  • Amount: Generally proportional to compensatory damages, often 1-3x but can be higher for extreme conduct
  • Constitutional Limits: BMW v. Gore and State Farm v. Campbell set outer limits, but significant awards are still possible
Insurance Company Wealth: In punitive damage cases, the jury considers the defendant's financial condition. Insurance companies have deep pockets, which can support substantial punitive awards for egregious conduct.
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Sample Language

Use these templates for your bad faith demand letter:

Bad Faith Demand - Lowball Offer
[Your Name] [Your Address] [City, State ZIP] [Email Address] [Date] VIA CERTIFIED MAIL - RETURN RECEIPT REQUESTED [Insurance Company Name] Claims Department [Address] [City, State ZIP] Re: BAD FAITH CLAIM - DEMAND FOR FAIR SETTLEMENT Policy Number: [Number] Claim Number: [Number] Date of Loss: [Date] Insured: [Your Name] Dear Claims Manager: I am writing regarding your company's handling of my [UM/UIM / collision / comprehensive] claim arising from the [accident/incident] on [Date]. Your handling of this claim constitutes bad faith in violation of California law. SUMMARY OF CLAIM On [Date], I was [describe incident]. I promptly reported this claim on [Date]. My damages are as follows: [List damages - e.g.:] - Vehicle damage (total loss): $28,500 (fair market value per KBB, NADA) - Medical expenses: $15,000 - Lost wages: $4,200 - TOTAL DAMAGES: $47,700 My policy provides [coverage type] coverage with limits of $[Amount]. YOUR BAD FAITH CONDUCT Despite clear liability and documented damages of $47,700, you have offered only $18,000 to settle this claim. This offer is unreasonable and constitutes bad faith under California law for the following reasons: 1. LOWBALL OFFER: Your offer of $18,000 represents only 38% of my documented damages. This violates Insurance Code Section 790.03(h)(5), which prohibits failing to effectuate prompt, fair settlements when liability is clear. 2. FAILURE TO INVESTIGATE: Your adjuster has not [reviewed my medical records / obtained an independent appraisal / interviewed witnesses / etc.]. This violates Insurance Code Section 790.03(h)(3). 3. MISREPRESENTATION OF COVERAGE: Your letters have mischaracterized my policy coverage by [describe misrepresentation]. This violates Insurance Code Section 790.03(h)(1). 4. UNREASONABLE DELAY: Despite filing this claim on [Date], over [X] days ago, you have failed to make a fair offer. This violates the Fair Claims Settlement Practices Regulations requiring claims be resolved within 40 days. LEGAL AUTHORITY Your conduct violates the implied covenant of good faith and fair dealing recognized in Gruenberg v. Aetna Insurance Co. (1973) 9 Cal.3d 566. As your insured, I am entitled to have my claims handled fairly, promptly, and in good faith. DAMAGES FOR BAD FAITH Because of your bad faith, I am entitled to recover: 1. Policy benefits: $47,700 (or policy limits if less) 2. Consequential damages: [Amount] - interest, additional expenses caused by your delay 3. Emotional distress: I have suffered significant anxiety, sleeplessness, and stress as a result of your unreasonable conduct 4. Brandt fees: Attorney's fees incurred to recover benefits you should have paid 5. Punitive damages: If your conduct is found to constitute malice, oppression, or fraud DEMAND I demand that within twenty-one (21) days of this letter, you: 1. Pay the full value of my claim: $[Amount] OR 2. Provide a detailed, written explanation of why you believe my claim is worth less, including: - Specific policy provisions you contend limit coverage - Specific factual basis for any disputes about damages - Copies of any documents you relied upon If you fail to respond with a reasonable settlement offer or adequate explanation, I will: 1. File a complaint with the California Department of Insurance 2. Commence litigation for breach of contract and bad faith 3. Seek all available damages including punitive damages and Brandt fees 4. Request my complete claim file under Insurance Code Section 2071 This letter is not a release of any claims and I reserve all rights. Very truly yours, [Your Signature] [Your Printed Name] cc: California Department of Insurance [optional]
Bad Faith Demand - Unreasonable Delay
[Your Name] [Address] [Date] [Insurance Company] [Address] Re: BAD FAITH - UNREASONABLE DELAY Claim No.: [Number] Policy No.: [Number] Dear Claims Department: DEMAND FOR IMMEDIATE PAYMENT - UNREASONABLE DELAY I filed a claim under my [policy type] policy on [Date] - now [X] days ago. Despite providing all requested documentation, you have failed to pay or reasonably deny my claim. TIMELINE OF YOUR DELAY [Date]: Claim filed and reported [Date]: Proof of loss submitted with [list documents] [Date]: Your request for additional documentation [Date]: Additional documentation provided [Date]: Follow-up inquiry - no response [Date]: Second follow-up - told claim "under review" [Date]: Third follow-up - still "under review" TODAY: [X] days since filing, no resolution VIOLATIONS OF CALIFORNIA LAW Your delay violates: 1. Cal. Code Regs. tit. 10, Section 2695.7(b): You failed to acknowledge my claim within 15 days. 2. Cal. Code Regs. tit. 10, Section 2695.5(e): You failed to accept or deny my claim within 40 days. 3. Insurance Code Section 790.03(h)(2): You failed to act reasonably promptly on communications. 4. Insurance Code Section 790.03(h)(3): You failed to adopt reasonable standards for prompt investigation. CONSEQUENTIAL DAMAGES FROM DELAY Your unreasonable delay has caused me: - [Medical bills sent to collections] - [Credit score damage] - [Interest on unpaid bills] - [Additional rental car expenses] - [Significant emotional distress] DEMAND I demand payment of $[Amount] within ten (10) days. This amount represents: - Policy benefits due: $[Amount] - Consequential damages: $[Amount] - TOTAL: $[Amount] If I do not receive payment, I will pursue bad faith litigation seeking all available damages, including emotional distress, punitive damages, and Brandt fees. Sincerely, [Your Name]
Bad Faith Demand - Denial Without Investigation
[Your Name] [Address] [Date] [Insurance Company] [Address] Re: BAD FAITH - WRONGFUL DENIAL Claim No.: [Number] Dear Claims Manager: DEMAND FOR REVERSAL OF WRONGFUL DENIAL On [Date], you denied my claim for [describe claim]. Your denial letter cited [quote denial reason]. This denial was made in bad faith because you failed to conduct a reasonable investigation before denying coverage. WHY YOUR DENIAL IS WRONGFUL 1. YOU FAILED TO INVESTIGATE: Before denying my claim, you did not: - [Review the police report] - [Inspect my vehicle] - [Interview witnesses] - [Review my medical records] - [Obtain an independent appraisal] 2. YOUR STATED REASON IS INCORRECT: You denied coverage claiming [their reason]. However: - [Explain why their reason is wrong] - [Cite policy language that supports coverage] - [Reference facts they ignored] 3. COVERAGE CLEARLY EXISTS: Under my policy, Section [X] provides coverage for [describe]. The policy states: "[quote relevant policy language]". My claim falls squarely within this coverage. EVIDENCE YOU IGNORED I provided the following evidence which you apparently did not review: - [List evidence provided] Had you conducted a reasonable investigation, you would have discovered that my claim is valid and covered. LEGAL VIOLATION Your denial without adequate investigation violates: - Insurance Code Section 790.03(h)(3) - failure to adopt reasonable investigation standards - Insurance Code Section 790.03(h)(4) - failure to affirm or deny coverage within reasonable time after adequate investigation - Insurance Code Section 790.03(h)(13) - failure to provide reasonable explanation for denial DEMAND I demand that you: 1. REVERSE your denial and pay my claim of $[Amount] within 21 days 2. Provide written confirmation of coverage 3. Pay interest from the date payment was originally due If you maintain your denial, provide within 21 days: - Complete explanation of your investigation - All documents reviewed - Specific policy provisions you contend exclude coverage Failure to reverse this wrongful denial will result in bad faith litigation seeking policy benefits, consequential damages, emotional distress, Brandt fees, and punitive damages. Sincerely, [Your Name]
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Next Steps

After sending your bad faith demand letter:

1. Request Your Complete Claim File ▾
  • Under Insurance Code Section 2071, you're entitled to copies of all documents in your claim file
  • Send a written request via certified mail
  • The claim file often reveals internal communications showing bad faith
  • Look for: adjuster notes, reserve amounts, denial memos, supervisor communications
2. File a Department of Insurance Complaint ▾
  • File online at insurance.ca.gov
  • CDI will investigate and may take action against the insurer
  • CDI complaints create a paper trail supporting your bad faith claim
  • The insurer must respond to CDI, creating additional documentation
  • While CDI can't award you damages, their investigation supports your case
3. If You Received a Bad Faith Demand ▾

If you're an insurance company or self-insured entity that received a bad faith demand:

  • Take It Seriously: Bad faith claims can result in damages far exceeding the underlying claim
  • Review Your Handling: Audit the claim file for any delays, miscommunications, or documentation failures
  • Consider the Genuine Dispute: Is there a legitimate basis for your position, or could a jury view your conduct as unreasonable?
  • Evaluate Settlement: Paying the claim now is often cheaper than defending a bad faith lawsuit
  • Consult Coverage Counsel: Bad faith claims require specialized defense
4. Consider Legal Representation ▾
  • Bad Faith Cases Are Complex: These cases require specialized knowledge of insurance law and claims handling practices
  • Contingency Representation: Most bad faith attorneys work on contingency (33-40%) since damages can be substantial
  • Brandt Fees Make It Viable: Because attorney's fees are recoverable as damages, you can afford quality representation
  • I personally handle California insurance bad faith cases. Demand letter drafting at $575 flat fee, with contingency representation available for litigation.
5. Prepare for Litigation ▾
  • Venue: File in the county where you reside, where the policy was issued, or where the insurer has its principal place of business
  • Claims: Breach of contract, breach of implied covenant of good faith, and potentially fraud
  • Discovery: Bad faith cases involve extensive discovery into the insurer's claims handling practices, training, and similar claims
  • Expert Witnesses: Insurance industry experts can testify about how claims should have been handled
  • Statute of Limitations: 4 years for breach of written contract, 2 years for bad faith tort claim
Document the Impact: Keep a journal of how the insurance company's bad faith has affected your life - stress, lost sleep, financial hardship, relationship strain. This evidence supports your emotional distress damages.

Insurance Company Acting in Bad Faith?

I personally handle California insurance bad faith cases. $575 flat fee for demand letter drafting, contingency representation available for litigation.

Schedule a Consultation Email: owner@terms.law