California Civil Jury Instructions (CACI)

2331. Breach of the Implied Obligation of Good Faith and Fair Dealing—Failure or Delay in Payment (First Party)—Essential Factual Elements

[Name of plaintiff] claims that [name of defendant] breached the obligation of good faith and fair dealing by unreasonably [failing to pay/delaying payment of] insurance benefits. To establish this claim, [name of plaintiff] must prove all of the following:

1. That [name of plaintiff] suffered a loss covered under an insurance policy with [name of defendant];

2. That [name of defendant] was notified of the loss;

3. That [name of defendant] unreasonably [failed to pay/ delayed payment of] policy benefits;

4. That [name of plaintiff] was harmed; and

5. That [name of defendant]'s unreasonable [failure to pay/ delay in payment of] policy benefits was a substantial factor in causing [name of plaintiff]'s harm.

Directions for Use

The instructions in this series assume the plaintiff is the insured and the defendant is the insurer. The party designations may be changed if appropriate to the facts of the case.

For instructions regarding general breach of contract issues, refer to the Contracts series (CACI No. 300 et seq.).

Sources and Authority

Where an insurer "fails to deal fairly and in good faith with its insured by refusing, without proper cause, to compensate its insured for a loss covered by the policy, such conduct may give rise to a cause of action in tort for breach of an implied covenant of good faith and fair dealing. . . . [¶] . . . [W]hen the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort." (Gruenberg v. Aetna Insurance Co. (1973) 9 Cal.3d 566, 574- 575 [108 Cal.Rptr. 480, 510 P.2d 1032], italics in original.)

"[T]here are at least two separate requirements to establish breach of the implied covenant: (1) benefits due under the policy must have been withheld; and (2) the reason for withholding benefits must have been unreasonable or without proper cause." (Love v. Fire Insurance Exchange (1990) 221 Cal.App.3d 1136, 1151 [271 Cal.Rptr. 246], internal citations omitted.)

"[T]he elements of the tort cannot be defined by the terms of the policy; for there to be a breach of the implied covenant, the failure to bestow benefits must have been under circumstances or for reasons which the law defines as tortious. . . . '[T]he mere denial of benefits, however, does not demonstrate bad faith.' " (California Shoppers, Inc. v. Royal Globe Insurance Co. (1985) 175 Cal.App.3d 1, 15 [221 Cal.Rptr. 171], internal citation omitted.)

"[A]n insurer's erroneous failure to pay benefits under a policy does not necessarily constitute bad faith entitling the insured to recover tort damages. '[T]he ultimate test of [bad faith] liability in the first party cases is whether the refusal to pay policy benefits was unreasonable.' . . . In other words, 'before an [insurer] can be found to have acted tortiously, i.e., in bad faith, in refusing to bestow policy benefits, it must have done so "without proper cause." ' " (Opsal v. United Services Automobile Assn. (1991) 2 Cal.App.4th 1197, 1205 [10 Cal.Rptr.2d 352], citations omitted.)

"[A]n insurer denying or delaying the payment of policy benefits due to the existence of a genuine dispute with its insured as to the existence of coverage liability or the amount of the insured's coverage claim is not liable in bad faith even though it might be liable for breach of contract." (Chateau Chamberay Homeowners Assn. v. Associated International Insurance Co. (2001) 90 Cal.App.4th 335, 347 [108 Cal.Rptr.2d 776].)

"An insurance company may not ignore evidence which supports coverage. If it does so, it acts unreasonably towards its insured and breaches the covenant of good faith and fair dealing." (Mariscal v. Old Republic Life Insurance Co. (1996) 42 Cal.App.4th 1617, 1624 [50 Cal.Rptr.2d 224].)

"We conclude . . . that the duty of good faith and fair dealing on the part of defendant insurance companies is an absolute one. . . . [T]he nonperformance by one party of its contractual duties cannot excuse a breach of the duty of good faith and fair dealing by the other party while the contract between them is in effect and not rescinded." (Gruenberg, supra, 9 Cal.3d at p. 578.)

"[T]he insurer's duty to process claims fairly and in good faith [is] a nondelegable duty." (Hughes v. Blue Cross of Northern California (1989) 215 Cal.App.3d 832, 848 [263 Cal.Rptr. 850].)

Secondary Sources

2 California Insurance Law & Practice, Ch. 13, Claims Handling and the Duty of Good Faith, §§ 13.03[2][a]-[c], 13.06 (Matthew Bender)

2 California Liability Insurance Practice: Claims & Litigation (Cont.Ed.Bar 2001) General Principles of Contract and Bad Faith Actions, §§ 24.25- 24.30, 24.32, pp. 901-908

Croskey et al., California Practice Guide: Insurance Litigation (The Rutter Group 2002) 12:822-12:846.6, pp. 12C-7-12C-13

1 California Uninsured Motorist Law, Ch. 13, Rights, Duties, and Obligations of the Parties, § 13.23 (Matthew Bender)

2 California Uninsured Motorist Law, Ch. 24, Bad Faith in Uninsured Motorist Law, §§ 24.10, 24.20-24.21, 24.40 (Matthew Bender)

3 Levy et al., California Torts, Ch. 40, Fraud and Deceit and Other Business Torts, § 40.140 (Matthew Bender)

6 Levy et al., California Torts, Ch. 82, Claims and Disputes Under Insurance Policies, §§ 82.21, 82.50 (Matthew Bender)

26 California Forms of Pleading and Practice, Ch. 308, Insurance (Matthew Bender)

11 California Legal Forms, Ch. 26A, Title Insurance, § 26A.17 (Matthew Bender)

(New September 2003)