California guide for policyholders whose valid insurance claims have been wrongfully denied
2 Years
Statute of Limitations
Brandt Fees
Recover Attorney Costs
Punitive
Damages Available
What is Insurance Bad Faith?
Insurance bad faith occurs when an insurance company unreasonably denies, delays, or underpays a valid claim. In California, insurers owe their policyholders a duty of good faith and fair dealing. When they breach this duty, you may be entitled to significant damages beyond just the policy benefits.
When to Use This Guide
Use this guide if your insurance company has:
Denied a valid claim - Refused to pay benefits you are entitled to under your policy
Unreasonably delayed payment - Failed to promptly investigate or pay your claim
Lowballed your claim - Offered far less than your claim is worth
Failed to investigate - Did not adequately investigate your claim before denying
Misrepresented policy terms - Lied about what your policy covers
Refused to defend - Failed to provide a defense in a liability claim
What You Can Recover in Bad Faith Cases
Policy benefits - The full amount owed under your policy
Consequential damages - Financial harm caused by the denial (lost business, credit damage, etc.)
Emotional distress - Mental anguish from the insurer's conduct
Brandt fees - Attorney fees incurred to obtain policy benefits
Punitive damages - Additional damages to punish egregious conduct
Common Bad Faith Tactics
Unreasonable Interpretation
Reading policy language in ways that defeat coverage when a reasonable interpretation would provide it.
Delay Tactics
Dragging out investigations, requesting unnecessary documents, or failing to respond to communications.
Lowball Offers
Making settlement offers far below the claim's actual value, hoping you'll accept out of desperation.
Claim Denial Without Investigation
Denying claims without conducting a proper, thorough investigation of the facts.
Misrepresenting Policy Terms
Telling policyholders their policy doesn't cover something when it actually does.
Failure to Communicate
Not returning calls, ignoring letters, or refusing to explain denial reasons.
Time is Critical
In California, you have 2 years from the date of the wrongful denial to file a bad faith lawsuit. However, you should act quickly because:
Evidence can become harder to obtain over time
Witnesses' memories fade
The sooner you act, the sooner you can recover what you're owed
Some policies have shorter contractual limitation periods
Legal Basis
California statutes and case law supporting your bad faith claim
Key California Statutes
California Insurance Code 790.03(h)
Defines unfair claims settlement practices. Insurers cannot misrepresent policy provisions, fail to acknowledge claims promptly, fail to adopt reasonable standards for investigation, refuse to pay claims without conducting a reasonable investigation, fail to affirm or deny coverage within a reasonable time, or attempt to settle claims for less than a reasonable person would believe they are entitled to.
California Civil Code 3294
Allows punitive damages when the insurer's conduct involves oppression, fraud, or malice. Punitive damages are designed to punish the insurer and deter similar conduct in the future.
Brandt v. Superior Court (1985) 37 Cal.3d 813
Landmark case establishing that policyholders can recover attorney fees incurred to obtain the benefits due under an insurance policy. These "Brandt fees" are recoverable as part of your damages in a bad faith action.
Egan v. Mutual of Omaha (1979) 24 Cal.3d 809
Established that insurers owe a duty of good faith and fair dealing to their insureds. Breach of this duty gives rise to tort liability, allowing recovery of damages beyond just the policy limits.
Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566
Foundational case recognizing the tort of insurance bad faith. Held that an insurer's breach of its implied covenant of good faith and fair dealing gives rise to an action in tort.
Elements of Bad Faith
To prove insurance bad faith in California, you must establish:
Valid insurance policy - You had an insurance policy in effect
Covered claim - Your claim was covered under the policy terms
Breach of duty - The insurer unreasonably denied, delayed, or underpaid the claim
Causation - The insurer's conduct caused you harm
Damages - You suffered actual damages as a result
The "Genuine Dispute" Defense
Insurers often argue there was a "genuine dispute" about coverage. However, this defense fails when:
The insurer failed to adequately investigate before denying
The denial was based on an unreasonable interpretation of the policy
The insurer ignored evidence supporting coverage
The claim was denied based on a pretext or pretextual reason
Insurance Code 790.03(h) - Unfair Practices
California Insurance Code 790.03(h) prohibits the following practices:
Misrepresenting pertinent facts or insurance policy provisions
Failing to acknowledge and act reasonably promptly upon communications
Failing to adopt and implement reasonable standards for prompt investigation
Refusing to pay claims without conducting a reasonable investigation
Failing to affirm or deny coverage within a reasonable time
Not attempting in good faith to effectuate prompt, fair settlements
Compelling litigation by offering substantially less than amounts recovered
Attempting to settle on the basis of an application altered without consent
Making claims payments without an accompanying statement of coverage
Unreasonably delaying investigation or payment of claims
Evidence Checklist
Documents to gather before sending your demand letter
Essential Policy Documents
✓
Complete insurance policy - All pages including declarations, endorsements, and exclusions
✓
Premium payment records - Proof your policy was in force at the time of loss
✓
Policy renewal notices - Any changes to coverage over time
Claim Documentation
✓
Initial claim submission - Your original claim form and any supporting documents
✓
Denial letter - The insurer's written denial with stated reasons
✓
All correspondence - Every letter, email, and written communication with the insurer
✓
Phone call log - Dates, times, names, and summaries of all phone conversations
✓
Claim number and adjuster info - All reference numbers and contact information
Evidence of Your Loss
✓
Proof of loss - Documentation of your actual loss (photos, receipts, appraisals, etc.)
✓
Repair estimates - Quotes for repairs or replacement costs
✓
Expert reports - Any professional assessments of your loss
✓
Medical records - If health or disability claim, all relevant medical documentation
Evidence of Consequential Damages
✓
Financial records - Bank statements, bills showing financial hardship from denial
✓
Lost income documentation - If you lost income due to the denial
✓
Out-of-pocket expenses - Costs you incurred because of the denial
✓
Credit reports - If the denial damaged your credit
✓
Medical/therapy records - If you suffered emotional distress requiring treatment
Preserve All Evidence
Keep originals of all documents. Make copies before submitting anything to the insurance company. Document everything in writing - if you have a phone call, follow up with an email summarizing what was discussed. This creates a paper trail that will be valuable in proving bad faith.
Calculating Your Damages
Understanding the full scope of what you can recover in a bad faith case
Categories of Damages
Category
Description
Contract Damages
The policy benefits you were wrongfully denied
Consequential Damages
Financial losses caused by the denial (foreclosure, repossession, bankruptcy, etc.)
Emotional Distress
Mental anguish, anxiety, depression caused by the insurer's conduct
Brandt Fees
Attorney fees to recover policy benefits (unique to California)
Punitive Damages
Additional damages to punish egregious conduct (can be substantial)
Brandt Fees - A California Advantage
Recover Your Attorney Fees
Under Brandt v. Superior Court, California policyholders can recover the attorney fees they incur to obtain the benefits due under their policy. This is a significant advantage because:
Most contract disputes don't allow recovery of attorney fees
These fees are recoverable as damages, not just costs
This makes it financially viable to fight back against bad faith
Punitive Damages
In cases of egregious conduct, you may be entitled to punitive damages. California courts consider:
Reprehensibility - How bad was the insurer's conduct?
Pattern of conduct - Has the insurer done this to others?
Financial condition - The insurer's wealth (to ensure the punishment is meaningful)
Ratio to compensatory damages - Generally limited to 9:1 or 10:1 ratio
When Punitive Damages Apply
Punitive damages require proof of "oppression, fraud, or malice" (Civil Code 3294). Examples include:
Knowingly denying a valid claim to save money
Having a corporate policy of denying claims without investigation
Destroying evidence of coverage
Lying about policy terms or investigation findings
Sample Damages Calculation
Example: Denied Homeowner's Claim
Policy benefits wrongfully denied$150,000.00
Rental costs during delay$24,000.00
Lost wages dealing with claim$8,000.00
Emotional distress$50,000.00
Brandt fees (attorney fees)$75,000.00
Punitive damages (3x compensatory)$921,000.00
POTENTIAL TOTAL RECOVERY$1,228,000.00
Every Case is Different
The example above shows the potential in a strong case. Your actual recovery depends on the facts of your case, the strength of your evidence, and the egregiousness of the insurer's conduct. Consult with an attorney to evaluate your specific situation.
Sample Language
Copy and customize these paragraphs for your demand letter
Opening Paragraph
I am writing to formally demand payment of my insurance claim and to notify you that your handling of this claim constitutes bad faith under California law. Your denial of my claim, dated [DENIAL DATE], under policy number [POLICY NUMBER], was unreasonable and without merit.
Claim Background
I hold a valid insurance policy with [INSURANCE COMPANY], policy number [POLICY NUMBER], which has been in continuous effect since [POLICY START DATE]. On [DATE OF LOSS], I suffered a covered loss when [DESCRIPTION OF LOSS]. I promptly reported this claim on [CLAIM DATE] and have fully cooperated with your investigation.
Bad Faith Allegations
Your handling of my claim violates California Insurance Code Section 790.03(h) and constitutes bad faith. Specifically, you have: (1) failed to conduct a reasonable investigation before denying my claim; (2) misrepresented the terms of my policy to justify denial; (3) failed to affirm or deny coverage within a reasonable time; and (4) offered to settle my claim for far less than what a reasonable person would believe they are entitled to under the policy.
Legal Basis
Under California law, insurers owe their policyholders an implied covenant of good faith and fair dealing. See Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566. Your breach of this duty exposes you to liability for all damages I have suffered, including the policy benefits, consequential damages, emotional distress, and attorney fees incurred to obtain these benefits under Brandt v. Superior Court (1985) 37 Cal.3d 813. Given the egregious nature of your conduct, I also reserve my right to seek punitive damages under Civil Code Section 3294.
Demand and Deadline
I hereby demand that you immediately pay the full value of my claim in the amount of $[POLICY BENEFITS AMOUNT], plus $[CONSEQUENTIAL DAMAGES] in consequential damages I have suffered as a result of your wrongful denial. Payment must be received within [30 DAYS] of the date of this letter. If I do not receive full payment by this deadline, I will file a lawsuit seeking the full amount owed plus emotional distress damages, Brandt attorney fees, and punitive damages.
Preservation of Evidence
I hereby demand that you preserve all documents and communications related to my claim, including but not limited to: the complete claims file, all internal communications about my claim, any claims manuals or guidelines used in evaluating my claim, training materials for claims adjusters, and any documents showing how similar claims have been handled. Destruction of evidence after receipt of this letter may result in adverse inference instructions and sanctions.
Next Steps
What to do after sending your demand letter
Expected Timeline
Day 1-5: Insurance company receives and logs your letter
Day 5-15: Letter is reviewed by claims department and/or legal
Day 15-30: Response with payment, counteroffer, or continued denial
If They Pay
If the insurance company pays your claim:
Make sure the payment includes all policy benefits owed
Review any release carefully before signing - don't release bad faith claims
Consider whether to pursue consequential damages separately
Keep all records in case issues arise later
If They Don't Pay or Dispute
Consult a Bad Faith Attorney
Insurance bad faith cases are complex. An experienced attorney can evaluate your case, handle litigation, and work on contingency (no fee unless you win). Many attorneys offer free consultations.
File a Complaint with the California Department of Insurance
While the CDI cannot award you damages, a complaint creates a regulatory record and may prompt the insurer to reconsider. File at insurance.ca.gov.
File a Lawsuit
Bad faith cases are filed in Superior Court. You can seek policy benefits, consequential damages, emotional distress, Brandt fees, and punitive damages. The threat of a bad faith verdict often motivates settlement.
Statute of Limitations
California has a 2-year statute of limitations for bad faith claims, running from the date of the wrongful denial. However, some policies contain shorter contractual limitation periods. Do not delay - consult an attorney promptly to preserve your rights.
Insurance Bad Faith Cases Often Require Legal Help
Insurance companies have teams of lawyers and adjusters trained to deny claims. A bad faith attorney levels the playing field and typically works on contingency - meaning you pay nothing unless you win. Under Brandt v. Superior Court, your attorney fees may be recoverable as damages.