Bad faith in California You can sue your insurer. Not theirs.

Bad faith is a claim that belongs to a policyholder against their own insurer. If you were hurt by somebody else and their carrier, meaning their insurance company, is slow, dismissive, or lowballing you, California generally does not let you sue that carrier for bad faith. It owes its duties to its insured, meaning its own policyholder, and not to you. The California Supreme Court settled that in 1988, and what exists for an injured claimant is different: it runs through the insured rather than around them.

Why it matters whose policy it is

What good faith requires of your insurer

The duty is implied, not written. In Comunale v. Traders & General Insurance Co. (1958) 50 Cal.2d 654, the California Supreme Court put it in one sentence: "There is an implied covenant of good faith and fair dealing in every contract that neither party will do anything which will injure the right of the other to receive the benefits of the agreement." Every California bad faith case since has been built on that line.

Insurance adds a second requirement on top of it. In Egan v. Mutual of Omaha Insurance Co. (1979) 24 Cal.3d 809, the court held that for the insurer to fulfill its obligation not to impair the insured's right to receive the benefits of the agreement, it must give at least as much consideration to the insured's interests as it does to its own. That standard is now in the jury instruction. Judicial Council of California Civil Jury Instruction 2330 tells jurors that an insurer must give at least as much consideration to the interests of the insured as it gives to its own, and that to breach the obligation the insurer must act or fail to act without proper cause in a way that deprives the insured of the benefits of the policy.

The words that repeat in that instruction are the insured, the insured's interests, and the benefits of the policy. The duty is defined by reference to a person who bought the coverage, which is the reason the rest of this page comes out the way it does.

Why you cannot sue the other insurer

For nine years California was the outlier. In Royal Globe Insurance Co. v. Superior Court (1979), a bare majority held that Insurance Code section 790.03(h) created a private cause of action against insurers for unfair claims settlement practices, and that either the insured or a third party claimant could bring it.

The Supreme Court reversed course in Moradi-Shalal v. Fireman's Fund Insurance Companies (1988) 46 Cal.3d 287. It concluded that the Royal Globe court had incorrectly evaluated the legislative intent behind section 790.03(h), reviewed the legislative history and the decisions of other states construing the same model act, and ended the opinion with one sentence: "Effective upon finality of this opinion, Royal Globe is overruled." A private action under section 790.03(h) has not existed since.

The jury instructions carry the same rule forward. The Sources and Authority to instruction 2360 quote Shaolian v. Safeco Insurance Co. (1999) 71 Cal.App.4th 268: "Because the insurer's duties flow to its insured alone, a third party claimant may not bring a direct action against an insurance company. As a general rule, a third party may directly sue an insurer only when there has been an assignment of rights by, or a final judgment against, the insured."

How the unfair claims law still helps

The statute did not disappear. Section 790.03 defines unfair methods of competition and unfair and deceptive acts in the business of insurance, and subdivision (h) covers "[k]nowingly committing or performing with such frequency as to indicate a general business practice" a list of unfair claims settlement practices. The list includes failing to acknowledge and act reasonably promptly on communications about claims, failing to adopt reasonable standards for prompt investigation, and not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.

The phrase that changes the answer is "general business practice". The statute is aimed at how a company handles claims, not at one adjuster on one file, and after Moradi-Shalal it is enforced by the Insurance Commissioner rather than by private lawsuit. The detailed handling deadlines live in the Fair Claims Settlement Practices Regulations, in title 10 of the California Code of Regulations, and we set the response cycle out in our post on what a demand package contains.

The route that stayed open to a claimant is a Request for Assistance filed with the California Department of Insurance, whose consumer hotline is 1-800-927-4357. It does not pay your claim and it does not create a lawsuit. What it does is put a documented complaint into the record of a regulator that licenses the company, which is the enforcement mechanism the Supreme Court said the Legislature intended.

How you still reach the other insurer

Comunale did more than state the covenant. It held that an insurer that wrongfully declines to defend and refuses a reasonable settlement within the policy limits, in violation of its duty to consider in good faith the interest of the insured, is liable for the entire judgment against the insured even if it exceeds the policy limits. And it answered the question that makes the rule useful to an injured person: "An action for damages in excess of the policy limits based on an insurer's wrongful failure to settle is assignable whether the action is considered as sounding in tort or in contract."

Instruction 2334 sets out what has to be proved in that kind of case: that the plaintiff was insured under a liability policy, that a claim covered by the policy was made against them, that the claimant made a reasonable demand to settle within policy limits, that the insurer failed to accept it, that the failure was the result of unreasonable conduct, and that a judgment was entered against the insured for more than the policy limits, or that the failure was a substantial factor in causing harm. The instruction defines a demand within limits as reasonable if the insurer knew or should have known that a potential judgment was likely to exceed the demand, based on the claimant's injuries and the insured's probable liability.

Every step in the sequence is uncertain until it happens.

1. 1
   A documented demand inside the policy limits

   The demand has to be reasonable when it is made, and the file behind it has to show the insurer why a judgment could exceed the limits. This is the step that is entirely within your control.

2. 2
   A refusal

   The insurer declines, or lets the demand expire, or answers with a figure unrelated to the record. That decision is the insurer's, made about its own insured's exposure.

3. 3
   A trial and a judgment above the limits

   There is no shortcut here. The claim against the insured has to be tried and won, and the judgment has to exceed what the insurer could have paid.

4. 4
   An assignment or a direct action

   The insured may assign their claim against their own carrier to the injured person. Separately, Insurance Code section 11580(b)(2) allows a judgment creditor, meaning the person who won the judgment, to sue the insurer directly on the policy once the judgment is final, up to policy limits.

That is a long road, and not a plan for most cases. It matters because it explains what a policy limits demand, a written offer to settle for the full amount of the coverage, is doing. It is the document that puts the insurer's own insured at risk, which is the only pressure in the system that runs toward a claimant.

When you count as a first party

• Your uninsured motorist claim is first party. The regulations define a first party claimant to include any person seeking recovery of uninsured motorist benefits. You are your insurer's insured on that claim, and the ordinary duties apply. Our guide to uninsured and underinsured motorist claims covers how those claims are handled.
• So are MedPay and collision. Any coverage on your own policy puts you inside the contract, which is where the implied covenant lives.
• Common law claims survived Moradi-Shalal. The court said that apart from administrative remedies, courts retain jurisdiction to impose civil damages against insurers in appropriate common law actions on traditional theories such as fraud and infliction of emotional distress, and, as to the insured, breach of contract or breach of the implied covenant.
• Punitive damages and interest. The same passage notes that punitive damages may be available in actions not arising from contract where fraud, oppression, or malice is proved under Civil Code section 3294, and that prejudgment interest may be awarded under Civil Code section 3291 where an insurer has attempted to avoid a prompt, fair settlement.
• A judgment changes your standing. Until there is a final judgment or an assignment, you are a stranger to the other side's policy. After one, Insurance Code section 11580(b)(2) gives a judgment creditor a direct action on the policy.

When you can sue an insurance company

When it is your policy. If your own insurer is refusing benefits you paid for, you have a contract claim and a bad faith claim. If the insurer on the other side is behaving badly, your remedy is the case itself, plus a complaint to the regulator that licenses them.

The thing to do about a stalling adjuster is not to threaten a lawsuit you cannot file, but to build the file so the demand is one no reasonable insurer refuses, and to be ready to file suit against the person who caused the harm. Our post on handling insurance companies after an injury covers the day to day, and our Los Angeles car accident lawyer page explains how we build a claim from the first call. There is no fee unless we recover.