When a reckless driver strikes your vehicle, causing serious injuries and significant property damage, you likely promptly filed a claim with your auto insurer. The claim was likely reasonable and valid, per your understanding of the terms of the policy.
Nevertheless, the insurer may have denied your claim. If this has happened to you, you may have wondered: was this a valid denial? Or did the insurer act in bad faith?
What is insurer bad faith?
An auto insurance policy is a contract between a policyholder and their insurer. The policyholder pays insurance premiums and in exchange, the insurer pays the policyholder for legitimate claims filed per the terms of the policy.
Sometimes, though, an insurer refuses to pay a valid claim. They might cite arbitrary reasons for the denial. Or, they might drag their feet on settling the claim.
Even prior to purchasing the insurance, an insurer can try to take actions that would limit what they would eventually have to pay in claims. For example, they might neglect to tell a person about all exclusions in the policy prior to purchase.
These types of acts can be considered acts of bad faith, and in California, they are illegal.
The California Fair Claims Practice Act
California has enacted its own Fair Claims Practice Act to address insurer bad faith. It can be found in California Insurance Code Section 790.03.
This section of the Code lists acts that, when committed either knowingly or so frequently that they become a general business practice, are deemed unfair practices and acts of bad faith. Some examples of unfair practices include:
- Misrepresenting or failing to disclose applicable facts or policy terms
- Failing to be prompt, fair and equitable when settling a claim
- Forcing policyholders into litigation
- Failing to give policyholders a reasonable explanation per facts or law regarding why a claim was denied or why a particular settlement offer was made
These are only some examples of insurer bad faith under the California Fair Claims Practice Act.
Insurers cannot act in bad faith
Mere mistakes or differences of opinion do not rise to the level of bad faith, except in situations in which the insurance adjuster is not buttressing their conclusions with reasonable evidence.
But purposely denying a valid claim is an act of bad faith. If an auto insurer acts in bad faith and refuses to pay a valid claim, the insured might be able to pursue damages.