Overview
Insurance companies collect premiums and promise to pay when you need them. When they break that promise -- by unreasonably denying your claim, delaying for months, or offering a fraction of what your case is worth -- that is bad faith. In California, bad faith is not just frustrating. It is actionable. And the damages can far exceed the original policy limits.
This guide explains both first-party bad faith (your own insurer wronging you) and third-party bad faith (the other side's insurer failing its insured), along with the legal tools that make bad faith claims some of the most powerful weapons in California personal injury practice.
First-Party Bad Faith
First-party bad faith arises when your own insurer unreasonably handles your claim. Common scenarios include your UM/UIM insurer unreasonably denying or undervaluing your claim, your health insurer refusing to authorize necessary treatment, your homeowner's insurer denying a valid property damage claim, or your disability insurer terminating benefits without justification.
The elements, established in Gruenberg v. Aetna Insurance Co. (1973) 9 Cal.3d 566, are straightforward: (1) an insurance contract exists, (2) the insurer unreasonably withheld benefits due under the policy, and (3) you suffered damages as a result.
Third-Party Bad Faith
Third-party bad faith arises when an insurer breaches its duty to its insured in handling a claim made against the insured by an injured person. The most important obligation is the duty to settle within policy limits when there is a substantial likelihood of a verdict exceeding those limits.
The Implied Covenant of Good Faith and Fair Dealing
Every insurance contract in California contains an implied covenant of good faith and fair dealing. This covenant requires the insurer to thoroughly investigate claims before denying them, not unreasonably withhold policy benefits, deal fairly and honestly, give at least as much consideration to the insured's interests as to its own, settle claims within policy limits when reasonable, and defend the insured against covered claims.
The Genuine Dispute Doctrine
California recognizes that an insurer's denial is not bad faith if a genuine dispute exists as to liability under the policy. But this defense has limits. The insurer must have conducted a thorough, unbiased investigation. A genuine dispute manufactured through a biased expert does not count. The insurer cannot ignore evidence supporting the claim or rely on an unreasonable interpretation of policy provisions.
Their own internal reserve may prove they know your claim is worth more. We get that number.
The insurer's claims reserve -- the amount they set aside internally to pay your claim -- often far exceeds the amount they offered you. In bad faith litigation, that reserve is discoverable. It is the single most powerful piece of evidence.
Brandt Fees
Brandt v. Superior Court (1985) 37 Cal.3d 813 held that an insured who prevails on a first-party bad faith claim can recover the attorney fees incurred to obtain the policy benefits the insurer wrongfully withheld. These are compensatory damages, not a fee-shifting provision. They cover only fees incurred to obtain insurance benefits, not fees for prosecuting the bad faith claim itself. The fees must be segregated from work on non-covered issues.
The Duty to Settle
An insurer has a duty to accept a reasonable settlement demand within policy limits when there is a substantial likelihood of a verdict exceeding those limits. The test is whether a prudent insurer without policy limits would have accepted the demand. The insurer may not gamble with the insured's money.
| Factor | Analysis |
|---|---|
| Strength of plaintiff's case | Strong liability = greater duty to settle |
| Severity of injuries | Serious injuries exceeding limits = greater duty |
| Reasonableness of demand | Policy limits demand in clear liability = reasonable |
| Insured's exposure | Greater excess exposure = greater duty |
| Insurer's investigation | Inadequate investigation undermines refusal |
| Time constraints | Failure to respond to time-limited demands may be bad faith |
Consequences of Failure to Settle
If an insurer unreasonably refuses a settlement within policy limits and a verdict exceeding limits results, the insurer may be liable for the entire judgment (including amounts exceeding policy limits), the insured may sue for bad faith damages, the insured may assign their bad faith rights to the plaintiff, and punitive damages may be available.
Assignment of Bad Faith Rights
When an insurer refuses to settle within policy limits and a judgment exceeding limits results, the insured and the plaintiff can enter into an assignment agreement: the plaintiff agrees not to execute the excess judgment against the insured personally, and the insured assigns their bad faith claim against the insurer to the plaintiff. The plaintiff then prosecutes the bad faith claim against the insurer directly.
This transforms the plaintiff's case from a claim against an underinsured individual into a direct claim against a well-capitalized insurance company, with access to punitive damages for the insurer's bad faith.
Damages in Bad Faith Cases
| Category | What It Covers |
|---|---|
| Policy benefits wrongfully withheld | The unpaid claim amount |
| Brandt fees | Attorney fees to obtain policy benefits |
| Consequential damages | All foreseeable damages flowing from the bad faith |
| Emotional distress | Anxiety, depression, stress from the insurer's conduct |
| Economic losses | Lost wages, medical expenses, property losses from the denial |
| Excess judgment | Full judgment exceeding policy limits (third-party cases) |
| Punitive damages | Available when insurer acted with malice, oppression, or fraud |
Common Bad Faith Practices
Claims Handling Violations
California's Fair Claims Settlement Practices Regulations (Cal. Code Regs., title 10, section 2695.7) identify specific unfair practices including: failing to acknowledge and act promptly on claims, failing to investigate before denying, offering substantially less than the amount ultimately recovered, compelling the insured to litigate by offering unreasonably low settlements, and using software that systematically undervalues claims.
Delay Tactics
- Repeated requests for the same documentation
- Unnecessary referrals to multiple adjusters
- Failure to return calls or respond to correspondence
- Requesting independent medical examinations without reasonable basis
- Refusing to authorize treatment pending "review"
Punitive damages. Brandt fees. Emotional distress. The insurer's gamble becomes your leverage.
When an insurance company acts in bad faith, the damages available to you expand dramatically beyond the original policy benefits. We build bad faith cases from day one.
Cross-References
- Punitive Damages -- punitive damages in bad faith cases
- Economic Damages -- calculating compensatory damages
- Non-Economic Damages -- emotional distress in bad faith cases
- Statute of Limitations -- two-year and four-year deadlines
- Motor Vehicle Accidents -- UM/UIM bad faith context
- Duty of Care -- the implied covenant framework
Common Questions
What is insurance bad faith in California?
Insurance bad faith occurs when an insurance company unreasonably denies, delays, or underpays a valid claim, or fails to fulfill its duty to defend and settle claims against its insured. Every insurance contract in California contains an implied covenant of good faith and fair dealing under Comunale v. Traders & General Insurance Co. (1958) 50 Cal.2d 654. Violating this covenant is both a breach of contract and a tort, entitling the insured to compensatory damages, Brandt fees, emotional distress, and potentially punitive damages.
Can I sue the other driver's insurance company for bad faith?
Not directly. Under Moradi-Shalal v. Fireman's Fund (1988) 46 Cal.3d 287, an injured plaintiff cannot directly sue the defendant's liability insurer for bad faith. However, if the insurer refuses a reasonable settlement within policy limits and a verdict exceeding limits results, the insured defendant can assign their bad faith rights to you. You then prosecute the bad faith claim against the insurer directly, potentially recovering the full judgment plus punitive damages.
What are Brandt fees?
Brandt fees, established in Brandt v. Superior Court (1985) 37 Cal.3d 813, allow an insured who prevails on a first-party bad faith claim to recover the attorney fees they incurred to obtain the policy benefits the insurer wrongfully withheld. These are compensatory damages, not a fee-shifting provision. They cover only fees incurred to obtain the insurance benefits, not fees for prosecuting the bad faith claim itself.
How long do I have to file an insurance bad faith lawsuit?
Contract-based bad faith claims have a four-year statute of limitations under Code of Civil Procedure section 337. Tort-based bad faith claims have a two-year statute of limitations under CCP section 335.1. The limitations period generally begins when the insured knows or should know of the bad faith conduct. Always file under both theories to preserve the longer deadline.
Our offices
Local Resources
- CA Department of InsuranceFile a complaint against an insurance company with the California DOI.
- LA Superior Court · Stanley MoskCivil filings for LA County insurance bad faith cases.
- CA State Bar LookupVerify any attorney's license before hiring.
- National Association of Insurance CommissionersConsumer resources for insurance disputes and company complaint data.
- Cedars-Sinai EmergencyIf your insurer is denying treatment authorization, do not delay emergency care.
- Comunale v. Traders & General Insurance Co. (1958) 50 Cal.2d 654. Established the insurer's duty to settle and the implied covenant of good faith and fair dealing.
- Gruenberg v. Aetna Insurance Co. (1973) 9 Cal.3d 566. Established first-party bad faith as an actionable tort in California.
- Brandt v. Superior Court (1985) 37 Cal.3d 813. Attorney fees incurred to obtain wrongfully withheld policy benefits are recoverable as compensatory damages.
- Moradi-Shalal v. Fireman's Fund Insurance Cos. (1988) 46 Cal.3d 287. No direct third-party bad faith action; overruled Royal Globe.
- Chateau Chamberay v. Associated International Insurance (2001) 90 Cal.App.4th 335. Genuine dispute doctrine: denial is not bad faith if a genuine dispute exists.
- California Code of Regulations, title 10, § 2695.7. Fair Claims Settlement Practices Regulations identifying specific unfair claims practices.