California's Strong Policyholder Protections
California law recognizes that insurance policies are contracts requiring good faith and fair dealing. When insurers breach this duty, California courts have developed robust remedies that go far beyond simply paying the claim.
The California Insurance Code, Fair Claims Settlement Practices Regulations, and extensive case law create a framework that holds insurers accountable for bad faith conduct. Here's what every California policyholder needs to know.
- Insurance Code Section 790.03(h): Unfair Claims Settlement Practices Act
- Cal. Code Regs. tit. 10, Section 2695.1 et seq.: Fair Claims Settlement Practices Regulations
- Civil Code Section 3294: Punitive damages for fraud, oppression, or malice
- Code of Civil Procedure Section 335.1: 2-year statute of limitations for bad faith
Brandt Fees: Recovering Your Attorney's Fees
One of California's most important policyholder protections is the ability to recover attorney's fees incurred in obtaining insurance benefits. Unlike most litigation where each side pays their own attorneys, California's Brandt rule levels the playing field.
Brandt v. Superior Court
The California Supreme Court held that attorney's fees incurred to obtain policy benefits that were wrongfully withheld are recoverable as damages in a bad faith action.
What Brandt Fees Cover
- Attorney's fees for work to obtain policy benefits
- Expert witness fees related to coverage issues
- Costs of litigation necessary to obtain what was owed
What Brandt Fees Don't Cover
- Fees for pursuing extra-contractual damages (emotional distress, punitive damages)
- Fees if you only prove breach of contract, not bad faith
- Fees for work not directly related to obtaining benefits
If you're pursuing a bad faith case, ask your attorney to maintain separate billing for work on contract damages (recoverable under Brandt) versus tort damages (not recoverable). This protects your fee recovery.
Moradi-Shalal and Private Rights of Action
Understanding Moradi-Shalal is crucial for any California bad faith claim. This case both limited and defined how policyholders can sue insurers.
Moradi-Shalal v. Fireman's Fund Insurance Companies
The California Supreme Court held that Insurance Code Section 790.03 does NOT create a private right of action. Policyholders cannot sue directly under the Unfair Claims Settlement Practices Act.
What This Means for Your Case
While you cannot sue directly under Section 790.03, this doesn't leave you without remedies. Here's how California bad faith claims actually work after Moradi-Shalal:
Common Law Bad Faith Survives
You can still sue for breach of the implied covenant of good faith and fair dealing - the common law bad faith claim that existed before Section 790.03.
Section 790.03 as Evidence
While you can't sue under Section 790.03, violations can be used as evidence of bad faith in your common law claim.
Regulatory Standards Apply
The Fair Claims Settlement Practices Regulations help define what constitutes reasonable insurer conduct.
Full Tort Damages Available
Emotional distress, Brandt fees, and punitive damages remain available in common law bad faith actions.
Moradi-Shalal only affects first-party claims (your own insurer). Third-party claims (against another person's insurer) have different rules and Royal Globe claims were separately abolished.
Punitive Damages Under Civil Code Section 3294
California allows punitive damages in insurance bad faith cases when the insurer's conduct rises to the level of fraud, oppression, or malice. These damages are designed to punish and deter particularly egregious conduct.
⚖ California Civil Code Section 3294(a)
Definitions That Matter
- Malice: Conduct intended to cause injury or despicable conduct with willful and conscious disregard of others' rights
- Oppression: Despicable conduct subjecting a person to cruel and unjust hardship with conscious disregard of rights
- Fraud: Intentional misrepresentation, deceit, or concealment of material fact with intent to deprive another of property or rights
What Triggers Punitive Damages in Bad Faith Cases
Courts have found punitive damages appropriate when insurers engage in:
- Systematic denial practices designed to force policyholders to give up
- Deliberate destruction or concealment of evidence
- Training adjusters to use dishonest practices
- Knowing use of biased experts to manufacture denials
- Intentional misrepresentation of policy terms
- Egregious delays causing severe hardship despite clear coverage
Under Civil Code Section 3294(b), to hold a corporate insurer liable for punitive damages, you must show the conduct was committed, authorized, or ratified by an officer, director, or managing agent - not just a claims adjuster. This can be proven through company policies, training materials, or approval by supervisors.
Damages Available in California Bad Faith Cases
| Type of Damages | Description | Requirements |
|---|---|---|
| Policy Benefits | The amount owed under your policy | Prove coverage and amount |
| Consequential Damages | Financial losses caused by the breach (lost income, credit damage, additional expenses) | Show foreseeability and causation |
| Brandt Fees | Attorney's fees to obtain benefits | Prove bad faith and necessity of legal action |
| Emotional Distress | Mental suffering from the bad faith conduct | Testimony about impact; medical evidence helps |
| Punitive Damages | Punishment for egregious conduct | Clear and convincing evidence of fraud, malice, or oppression |
California Fair Claims Settlement Practices
The Fair Claims Settlement Practices Regulations (Cal. Code Regs. tit. 10, Section 2695.1 et seq.) provide detailed standards for how insurers must handle claims. While violations don't create a private lawsuit (per Moradi-Shalal), they're powerful evidence of bad faith.
Key Requirements
- 15 Days: Acknowledge claim receipt in writing
- 15 Days: Provide necessary forms and instructions
- 40 Days: Accept or deny claim after receiving proof of claim
- 30 Days: Pay accepted claims
- Every 30 Days: Written status update if more time needed
- Cannot require unreasonable documentation
- Must conduct reasonable investigation before denial
- Must explain basis for denial in writing
- Cannot misrepresent policy provisions
If your insurer violates these regulations, file a complaint with the California Department of Insurance at www.insurance.ca.gov. While the DOI can't award you damages, their investigation creates an official record and may prompt the insurer to act properly.
Statute of Limitations
In California, you generally have two years to file a bad faith lawsuit. However, determining when the clock starts can be complex:
- Contract claim (policy benefits): 4 years from breach
- Bad faith tort claim: 2 years from wrongful conduct
- Discovery rule: Clock may start when you discover the bad faith
- Continuing violation: May extend deadline for ongoing conduct
Determining the exact limitations period requires legal analysis of your specific facts. If you believe your insurer acted in bad faith, consult an attorney promptly. Missing the deadline means losing your right to sue forever.
Building a Strong California Bad Faith Case
Essential Documentation
- Complete copy of your insurance policy and all endorsements
- All correspondence with the insurer (letters, emails, claim notes)
- Detailed timeline of all communications and events
- Written notes from phone conversations
- All documents submitted to the insurer
- The insurer's denial or offer letters
- Evidence of your damages and their cause
- Documentation of financial hardship caused by the delay/denial
Common Mistakes to Avoid
- Accepting the first offer without understanding your policy
- Not getting denials in writing
- Missing your own policy deadlines (like proof of loss)
- Destroying evidence of your damages
- Making recorded statements without preparation
- Waiting too long to seek legal help
Related Guides
California Policyholder? I Can Help.
As a California-licensed attorney, I help policyholders fight back against insurers using the full power of California law, including Brandt fees and punitive damages where appropriate.