Tag Archives: Unfair Trade Practices Act

Insurance Bad Faith: Different Standards for Different States – Part 2 (California)

In this series of posts, we are outlining what constitutes insurer bad faith from state to state. Our previous post outlined first-party insurance bad faith law in Arizona, and today we look at the California laws that apply when a disability insurance company wrongly denies a claim.

In California, the Unfair Trade Practices Act of the Insurance Code statute dealing with unfair claims settlement practices is merely a codification of its bad faith law.  A policyholder can bring a suit in California against its disability insurance company under the tort law, but not under the statute itself.

The Statute: Cal. Ins. Code § 790.03(h)

The Rules:

An insurance company’s duties include the following:

  • To investigate disability claims thoroughly.
  • To not deny coverage based on unduly restrictive policy interpretations.
  • To use standards it knows are improper to deny disability claims.
  • To not unreasonably delay processing or paying claims.
  • To give as much consideration to the insured’s interests as it does to its own.

An insurance company is not allowed to:

  • Misrepresent pertinent facts or policy provisions.
  • Fail to acknowledge or act reasonably promptly on communications about a disability insurance claim.
  • Fail  to adopt and implement reasonable standards for prompt claims investigation.
  • Fail to make a decision on coverage within a reasonable time after a policyholder has submitted complete proof of loss.
  • Tell claimants the company always appeals arbitration awards in favor of claimants to get them to accept lowball settlement offers.
  • Not attempt to make prompt, fair, and equitable settlements in which it has become reasonably clear that the disability insurance company must pay a claim.
  • Force an insured to litigate to recover under the policy by offering an unreasonable settlement.
  • Delay investigation or payment of claims by requiring an insured to submit multiple forms containing the same data.
  • Withhold a reasonable explanation of the basis relied on in the insurance policy for the denial of a disability claim or for the offer of a compromise settlement.
  • Directly advise a disability claimant not to obtain the services of a lawyer.
  • Deceive a claimant as to the statute of limitations that applies.

The Tort Law Standard:  A disability insurer can be found to have acted in bad faith if it withholds benefits unreasonably and without proper cause, whether or not the insurance company had a conscious awareness of wrongdoing or intent to harm the policyholder.