📋 Overview

When an insurance company denies your claim, it may be acting in bad faith - especially if the denial is based on an unreasonable interpretation of your policy. California law provides strong protections against wrongful claim denials, allowing policyholders to recover not just the denied benefits but also consequential damages, emotional distress, and potentially punitive damages.

When Does This Guide Apply?

I use this guide when an insurer has:

❌ Denied a Valid Claim

Refused to pay benefits for a loss that is clearly covered under your policy terms

📜 Misread the Policy

Applied an unreasonable interpretation of policy language to avoid paying

🔍 Failed to Investigate

Denied without conducting a thorough, objective investigation of the claim

⚠ Cited False Grounds

Invented exclusions or misrepresented policy provisions to justify denial

Two-Sided Coverage

This guide serves both sides of insurance denial disputes:

👤 For Policyholders

  • How to challenge a wrongful denial
  • Evidence to gather for your claim
  • Calculating full damages available
  • When to escalate to litigation
  • CDI complaint process

🏢 For Insurers Receiving Demands

  • Evaluating denial decision validity
  • Assessing bad faith exposure
  • Documentation requirements
  • When to reconsider and settle
  • Protecting against punitive damages

⚠ Policy Interpretation Matters

California courts interpret ambiguous policy language against the insurer and in favor of coverage. If your insurer denied your claim based on a debatable reading of the policy, that denial may constitute bad faith - even if the insurer's interpretation is not entirely unreasonable. I review the specific policy language in every case.

🔍 Elements of Wrongful Denial

To establish a wrongful denial claim, I evaluate the following elements:

1. Existence of a Valid Insurance Policy

The policyholder must have a valid, in-force insurance policy with the insurer. I verify:

  • Policy was in effect at the time of the loss
  • Premiums were current (or within grace period)
  • Policy covers the type of loss claimed
  • Policyholder complied with policy conditions

2. Covered Loss or Event

The loss must fall within the policy's coverage grant. Key considerations:

  • Does the loss meet the policy's definition of a covered peril?
  • Was the loss caused by an excluded event?
  • Do multiple causes apply? (concurrent causation analysis)
  • Is the policy's coverage grant ambiguous?

3. Timely Notice and Cooperation

The policyholder must have complied with policy requirements:

  • Provided prompt notice of the claim
  • Cooperated with investigation
  • Submitted required documentation
  • Complied with examination under oath if requested

4. Unreasonable or Improper Denial

The insurer's denial must lack reasonable basis:

⚠ Misapplied Exclusion

Exclusion cited does not actually apply to the facts of the loss

⚠ Unreasonable Interpretation

Policy language interpreted against the insured when ambiguous

⚠ Inadequate Investigation

Denied without fully investigating the facts supporting coverage

⚠ Ignored Evidence

Failed to consider evidence supporting the claim

5. Damages Resulting from Denial

The policyholder must suffer actual harm:

  • Unpaid policy benefits
  • Consequential economic losses
  • Emotional distress
  • Attorney fees incurred to obtain benefits

💰 Damages and Penalties

California law provides substantial remedies for wrongful claim denials, going far beyond the original policy benefits.

Damage Type Description
Contract Damages The full value of the denied insurance benefits that should have been paid under the policy.
Prejudgment Interest 10% per year on amounts wrongfully withheld from the date benefits should have been paid (Cal. Civ. Code 3289).
Consequential Damages Economic losses resulting from the denial - inability to repair property, lost business income, credit damage, etc.
Emotional Distress Mental anguish, anxiety, and suffering caused by the wrongful denial. No physical injury required in first-party bad faith cases.
Brandt Fees Attorney fees incurred to obtain the policy benefits are recoverable as contract damages under Brandt v. Superior Court (1985) 37 Cal.3d 813.
Punitive Damages Available when insurer acts with malice, oppression, or fraud (Cal. Civ. Code 3294). Requires evidence of corporate ratification or managing agent involvement.

📖 Punitive Damages Under Egan

Under Egan v. Mutual of Omaha, punitive damages are available when the insurer's conduct rises to the level of malice, fraud, or oppression. This includes denials made with knowledge that the claim was valid, or with reckless disregard for the policyholder's rights. Corporate policy of wrongful denials can support punitive awards.

💡 The Power of Brandt Fees

I always include Brandt fee recovery in my demand letters. Because attorney fees incurred to obtain policy benefits are recoverable as damages, policyholders can afford to hire counsel even for moderate claims. The insurer ultimately pays these fees if we prevail, making the economics work even for smaller denials.

⚠ Statute of Limitations

Do not delay pursuing your claim:

  • Contract claims: 4 years (CCP 337)
  • Bad faith tort claims: 2 years (CCP 339)

The limitations period typically begins when the claim is denied. Some policies have shorter contractual limitations periods - I always check the policy language.

✅ Evidence Checklist

I gather the following evidence to build a strong wrongful denial case. Click to check off items as you collect them.

📄 Policy Documents

  • ✓ Complete insurance policy with all endorsements
  • ✓ Declarations page showing coverage limits
  • ✓ Premium payment records
  • ✓ Any policy amendments or riders

📝 Denial Documentation

  • ✓ Written denial letter with stated reasons
  • ✓ All correspondence with insurer about denial
  • ✓ Claim file (request under California law)
  • ✓ Internal adjuster notes and reports

🔍 Loss Documentation

  • ✓ Photos/videos of damage or loss
  • ✓ Police reports, fire reports, or incident reports
  • ✓ Expert reports (contractors, appraisers, engineers)
  • ✓ Receipts, invoices, or proof of value

💰 Damages Evidence

  • ✓ Out-of-pocket expenses from denial
  • ✓ Lost income or business records
  • ✓ Medical records for emotional distress
  • ✓ Attorney fee invoices (for Brandt fees)

💡 Request Your Claim File

Under California law, you are entitled to a copy of your claim file. I always request this because it often contains internal communications showing the adjuster knew the claim should be paid, or instructions from management to deny. This is powerful evidence of bad faith.

📝 Sample Language

I use and customize these paragraphs for California wrongful denial demand letters. Copy and adapt for your situation.

Opening - Wrongful Denial
I represent [CLIENT NAME] regarding the wrongful denial of their insurance claim under Policy No. [POLICY NUMBER]. On [DENIAL DATE], your company denied Claim No. [CLAIM NUMBER], citing [STATED REASON FOR DENIAL]. This denial is contrary to the clear terms of the policy and violates California Insurance Code Section 790.03 and the Fair Claims Settlement Practices Regulations (Cal. Code Regs., tit. 10, 2695 et seq.).
Policy Interpretation Argument
Your denial relies on an unreasonable interpretation of the policy language. The policy's insuring agreement at [PAGE/SECTION] provides coverage for [QUOTE RELEVANT LANGUAGE]. My client's loss falls squarely within this coverage grant. The exclusion your company cited at [PAGE/SECTION] does not apply because [EXPLAIN WHY EXCLUSION DOESN'T APPLY].

Under California law, ambiguous policy language must be construed against the insurer and in favor of coverage. AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 822. Even if your interpretation were reasonable - which it is not - the existence of two reasonable interpretations requires the court to adopt the interpretation favoring coverage.
Bad Faith Allegations
Your company's denial constitutes bad faith in violation of California law:

Failure to Investigate: Your company denied this claim without conducting the thorough, objective investigation required by CCR 2695.7(b). [DESCRIBE INVESTIGATION FAILURES]

Misrepresentation of Policy Terms: The denial letter misrepresents the policy provisions by [DESCRIBE MISREPRESENTATION], violating Insurance Code 790.03(h)(1).

Unreasonable Interpretation: Your interpretation of the policy ignores established California law and serves only to avoid your contractual obligations.
Damages Demand
We hereby demand that [INSURANCE COMPANY] reverse its denial and pay the full policy benefits within [30] days:

Policy benefits owed: $[AMOUNT]
Prejudgment interest (10%/year): $[AMOUNT]
Consequential damages: $[AMOUNT]

If payment is not received by [DEADLINE DATE], we will file suit for breach of contract and bad faith. In addition to the above amounts, we will seek emotional distress damages, Brandt attorney fees under Brandt v. Superior Court, and punitive damages under Civil Code Section 3294 based on your company's malicious and oppressive conduct.
Punitive Damages Warning
Under Egan v. Mutual of Omaha, punitive damages are available when an insurer denies a claim with knowledge that it is valid or with reckless disregard for the policyholder's rights. The facts here - [DESCRIBE EGREGIOUS CONDUCT] - support a finding of malice, oppression, or fraud under Civil Code Section 3294.

We encourage your company to reconsider this denial before this matter proceeds to litigation, where the full extent of your claims handling practices will be subject to discovery.
CDI Complaint Notice
Please be advised that we are filing a complaint with the California Department of Insurance regarding your company's unfair claims settlement practices. The Department has authority to investigate violations of Insurance Code Section 790.03 and the Fair Claims Settlement Practices Regulations, and to impose sanctions including fines and license revocation.

All future communications regarding this matter should be directed to my office at [ADDRESS/EMAIL].

🚀 Next Steps

What to do after sending your wrongful denial demand letter.

Expected Timeline

Days 1-15

Insurer reviews demand and reassesses denial; may request additional information

Days 15-30

Expect response: reversal of denial, settlement offer, or continued dispute

Days 30+

If no satisfactory response, proceed with CDI complaint and/or litigation

If They Don't Reverse the Denial

  1. File a CDI Complaint

    Submit a complaint to the California Department of Insurance at insurance.ca.gov. The CDI investigates unfair practices and may pressure the insurer to reconsider.

  2. Request Internal Appeal

    Many policies provide for internal appeal of claim denials. Exhaust this process while preserving your litigation rights.

  3. Consult an Insurance Bad Faith Attorney

    I offer consultations at $240/hr or can draft demand letters for a $450 flat fee. Many cases are taken on contingency given Brandt fee recovery.

  4. File Suit for Bad Faith

    If negotiations fail, file suit for breach of contract and bad faith in California Superior Court. Discovery often reveals additional evidence of bad faith.

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