Your Legal Recourse When an Insurer Acts in Bad Faith in California

Your legal recourse against an insurer that handles a claim unfairly depends largely on whose insurance company it is. Anyone can file a complaint with the California Department of Insurance. A lawsuit for bad faith, however, generally belongs to the insurer's own policyholder, not to a person injured by that policyholder.

Jessie Nudelman, an attorney at Habbas Law, spent nearly a decade as a trial attorney for Farmers Insurance before serving as a Senior Trial Attorney for The Hartford. She later became a partner at a defense firm. That experience inside the insurance defense system shapes how Habbas Law evaluates claim handling. This guide explains what California requires of insurers, who can bring a bad faith claim, and practical steps to take if a claim is being mishandled.

Common Tactics Insurers Use to Minimize California Injury Claims

Insurers use several common tactics to reduce what they pay on California injury claims. Not every delay or low offer is improper, but these patterns are worth recognizing:

• Quick, early offers: A settlement offered before treatment is complete may not account for future medical needs.
• Disputing liability: An adjuster may argue that the injured person shares fault, which can reduce the claim's value under California's comparative fault rules.
• Questioning causation: Insurers sometimes argue that an injury was pre-existing or unrelated to the accident.
• Slow responses: Long gaps between communications can pressure claimants to accept less.

California's Fair Claims Settlement Practices Regulations: What Insurers Are Legally Required to Do

California's Fair Claims Settlement Practices Regulations set minimum standards for how insurers must handle claims. They implement Insurance Code § 790.03(h), which lists unfair claims practices. According to the California Department of Insurance, those practices include failing to promptly pay claims where liability is reasonably clear and forcing claimants to sue to receive full payment.

Key requirements under the regulations include:

• Acknowledging a claim within 15 calendar days of notice (10 CCR § 2695.5(e))
• Responding to claimant communications within 15 calendar days (10 CCR § 2695.5(b))
• Accepting or denying a claim within 40 calendar days of receiving proof of claim, or giving written notice that more time is needed, with updates every 30 days (10 CCR § 2695.7(b) and (c))
• Not attempting to settle a claim with an unreasonably low offer (10 CCR § 2695.7(g))

Enforcement can be significant. The Insurance Code allows fines of up to $5,000 per unfair act, or up to $10,000 per act if the violation is willful.

In one case, the Commissioner found that PacifiCare committed more than 908,000 violations and imposed penalties of about $173.6 million. In 2018, a California Court of Appeals upheld the regulations underlying those penalties.

Who Can Bring a Bad Faith Claim in California?

In California, a bad-faith lawsuit is typically available only to an insurer's own policyholder. An injured third party usually cannot file such a lawsuit. This distinction arises from the relationship established by the insurance contract. An insurer has a duty of good faith and fair dealing to its policyholder, but it does not have the same contractual duty to someone filing a claim against that policyholder.

The California Supreme Court's 1988 decision in Moradi-Shalal v. Fireman's Fund Insurance Companies held that private parties cannot sue insurers for violating the Unfair Insurance Practices Act. In practice, this means:

• If another driver hurt you, you usually can't sue that driver's insurer for bad faith. You can still file a regulatory complaint and pursue your injury claim against the at-fault driver.
• If your own insurer mishandles your claim, such as an uninsured or underinsured motorist claim, you may have a bad faith claim as the policyholder.
• If the at-fault driver's insurer unreasonably refuses a reasonable offer to settle within policy limits, California law, beginning with Comunale v. Traders & General Insurance Co. (1958), may expose that insurer to liability for a judgment above those limits. In some cases, the policyholder's claim against the insurer can be assigned to the injured person.

What Do If You Suspect Bad-Faith Claim Handling

If you suspect bad-faith claim handling, focus first on documentation and deadlines. The following steps can help protect your position:

• Keep a written record. Save every letter and email, and write down the date, time, and substance of each phone call.
• Put important requests in writing. Written requests create a clear timeline if response deadlines are missed.
• Track the regulatory timeframes. Compare the insurer's responses against the 15-day and 40-day requirements described above.
• File a complaint if warranted. The California Department of Insurance accepts consumer complaints online and through its Consumer Hotline at 800-927-4357.
• Watch the statute of limitations. Insurers must give written notice of the time limits they may rely on, but your filing deadline can still run while negotiations continue.
• Talk to an attorney before signing a release. A release usually ends the claim permanently.

How Habbas Law Handles Disputes With Insurers

Disputes with insurers often turn on details that are easy to miss without litigation experience. Angela Storey, Habbas Law's Supervising Litigation Attorney, is a past President of the Santa Clara County Trial Lawyers Association. She oversees case strategy for the firm's San Jose litigation team, including when a claim should move from negotiation to a lawsuit.

Habbas Law reviews claim histories, correspondence, and policy documents to identify whether an insurer's conduct may support additional remedies, and explains the options candidly. Consultations are free. Call (800) 336-7878 any time, day or night, to discuss your situation.

Disclaimer: This article is for informational purposes only and is not legal advice. Insurance and bad faith law are extremely nuanced, and every case should be evaluated individually based on its specific facts. Past results do not guarantee future outcomes.

Sources

• California Department of Insurance, Fair Claims Settlement Practices Regulations: https://www.insurance.ca.gov/01-consumers/130-laws-regs-hearings/05-CCR/fair-claims-regs.cfm
• California Department of Insurance, press release, September 21, 2018: https://www.insurance.ca.gov/0400-news/0100-press-releases/2018/release116-18.cfm
• Cal. Code Regs., tit. 10, § 2695.7 (Cornell Legal Information Institute): https://www.law.cornell.edu/regulations/california/10-CCR-2695.7
• California Department of Insurance, Consumer Help: https://www.insurance.ca.gov/01-consumers/101-help/