California Fair Claims Settlement Practices Regulations

Overview: California's Regulatory Framework

California has one of the most comprehensive insurance regulatory frameworks in the nation. Two key legal authorities govern how insurers must handle claims:

Insurance Code Section 790.03 (The Unfair Practices Act)

This statute prohibits insurers from engaging in "unfair claims settlement practices." It serves as the statutory foundation for California's Fair Claims Settlement Practices Regulations and provides the legal basis for regulatory enforcement actions.

CCR Title 10, Chapter 5 (Fair Claims Settlement Practices Regulations)

These regulations implement the Unfair Practices Act by establishing specific, detailed requirements for how insurers must investigate, communicate about, and resolve claims. They apply to all insurance policies delivered or issued in California.

Insurance Code Section 790.03: Prohibited Unfair Practices

Section 790.03 identifies specific practices that constitute unfair claims settlement when committed:

Key Prohibited Conduct Under 790.03(h)

1. Misrepresenting policy provisions: Making false statements about coverage, benefits, or policy terms
2. Failing to acknowledge communications: Not responding reasonably promptly to communications about claims
3. Failing to adopt reasonable investigation standards: Not implementing and following fair investigation procedures
4. Refusing to pay claims without reasonable investigation: Denying coverage without conducting a proper investigation
5. Failing to affirm or deny coverage: Not communicating coverage decisions within a reasonable time after investigation is complete
6. Not attempting good faith settlement: Failing to try to settle claims fairly when liability is reasonably clear
7. Compelling litigation through lowball offers: Making offers so low that policyholders are forced to sue to recover fair amounts
8. Delaying investigation or payment: Attempting to settle for less than a reasonable person would believe they are owed by using delay tactics
9. Not providing a reasonable explanation: Failing to explain the factual or legal basis for denying a claim
10. Advising against consulting an attorney: Telling claimants not to seek legal advice

CCR Title 10, Chapter 5: Specific Requirements

The Fair Claims Settlement Practices Regulations (beginning at Section 2695.1) establish detailed rules that insurers must follow. Here are the most important provisions:

Section 2695.4 - Representation of Policy Provisions

Insurers must not misrepresent policy terms or deceive policyholders about coverage. All communications must be clear and accurate.

Section 2695.5 - Standards for Prompt Investigation

Key requirements include:

• Immediately begin investigating each claim upon notice
• Complete the investigation within a reasonable time
• Document the investigation in the claim file
• Maintain all claim files for the required retention period

Section 2695.7 - Standards for Prompt, Fair, and Equitable Settlements

This is arguably the most important regulation for policyholders. It requires:

Acknowledgment of Claims (Section 2695.5(e))

Acceptance or Denial of Claims (Section 2695.7(b))

Denial Requirements (Section 2695.7(b)(1))

When denying a claim, insurers must:

• Provide written denial with specific reasons
• Reference all policy provisions on which the denial is based
• Include the factual basis for the denial
• Inform the claimant that they can file a complaint with the California Department of Insurance

Section 2695.7(g) - Third-Party Claims Against Your Insured

When someone makes a liability claim against your insured (the person covered by your policy), Section 2695.7(g) imposes additional requirements:

• The insurer must provide written notice when accepting a tender of defense
• The insurer must explain if it is accepting under a reservation of rights
• Reservation of rights letters must be clear and specific about what rights are reserved

Section 2695.7(h) - Excess Liability Exposure

When a claim may exceed policy limits, insurers have heightened duties:

• Must immediately notify the insured of potential excess exposure
• Must provide copies of demands and settlement offers
• Must keep the insured informed of settlement negotiations

Section 2695.9 - Additional Standards for First-Party Property Claims

For homeowners and other property insurance claims, additional requirements apply:

Proof of Loss Requirements

• Insurers cannot require a formal proof of loss unless the policy requires it
• If required, the insurer must provide the proof of loss form
• Must allow reasonable time to complete the proof of loss

Advance Payments

• When the claim clearly involves a covered loss, the insurer should provide advance payment for undisputed amounts
• Cannot require full documentation before paying clearly owed amounts

Repair Estimates and Replacements

• If using a preferred contractor, must disclose any financial relationship
• Cannot require use of a specific contractor
• Must pay the cost to repair or replace with like kind and quality

Section 2695.10 - Additional Standards for Auto Claims

California has specific requirements for automobile insurance claims:

Total Loss Valuations

• Must provide a written itemized valuation of the total loss
• Must use fair market value comparable vehicles
• Must include all applicable taxes, license fees, and transfer fees the claimant will incur
• Cannot require arbitration as a condition of obtaining these protections

Repair Claims

• Must provide written notice of the right to choose your own repair shop
• Cannot require use of non-OEM parts without disclosure and consent
• If repairs take longer due to insurer delays, must pay for extended rental car coverage

Using These Regulations in Your Claim

Documenting Violations

To build a strong case for regulatory violations:

1. Keep a detailed log of all communications, including dates, times, and who you spoke with
2. Save all written correspondence from the insurer, including emails and text messages
3. Note all deadlines and whether the insurer met them
4. Request your complete claim file under California Civil Code Section 2071
5. Document economic harm caused by delays or improper handling

Filing a CDI Complaint

The California Department of Insurance (CDI) investigates complaints about unfair claims practices. While CDI cannot award you damages, a CDI complaint:

• Creates an official record of the insurer's conduct
• May prompt the insurer to resolve your claim
• Contributes to regulatory patterns that may trigger enforcement
• Provides evidence for private litigation

Private Litigation

Although you cannot sue directly under Section 790.03, violations of these regulations are powerful evidence in:

• Breach of contract claims: The insurer failed to perform as promised
• Breach of the implied covenant of good faith and fair dealing: The common law bad faith claim
• Claims for punitive damages: Regulatory violations show the conduct was knowing and intentional