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)
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.