CACI No. 2331. Breach of the Implied Obligation of Good Faith and Fair Dealing - Failure or Delay in Payment (First Party) - Essential Factual Elements

Judicial Council of California Civil Jury Instructions (2020 edition)

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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 [failing to pay/delaying payment of]
benefits due under the insurance policy. 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 [failure to pay/delay in payment of]
policy benefits was a substantial factor in causing [name of
plaintiff]’s harm.
To act or fail to act “unreasonably” means that the insurer had no
proper cause for its conduct. In determining whether [name of defendant]
acted unreasonably, you should consider only the information that [name
of defendant] knew or reasonably should have known at the time when it
[failed to pay/delayed payment of] policy benefits.
New September 2003; Revised December 2007, April 2008, December 2009,
December 2015
Directions for Use
The instructions in this series assume that 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.
If there is a genuine issue as to the insurer’s liability under the policy for the claim
asserted by the insured, there can be no bad-faith liability imposed on the insurer for
advancing its side of that dispute. This is known as the “genuine dispute” doctrine.
The genuine-dispute doctrine is subsumed within the test of reasonableness or
proper cause (element 3). No specific instruction on the doctrine need be given. (See
McCoy v. Progressive West Ins. Co. (2009) 171 Cal.App.4th 785, 792-794 [90
Cal.Rptr.3d 74].)
For instructions regarding general breach of contract issues, refer to the Contracts
series (CACI No. 300 et seq.).
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Sources and Authority
• If 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], original italics.)
• “An insurer’s obligations under the implied covenant of good faith and fair
dealing with respect to first party coverage include a duty not to unreasonably
withhold benefits due under the policy. An insurer that unreasonably delays, or
fails to pay, benefits due under the policy may be held liable in tort for breach of
the implied covenant. The withholding of benefits due under the policy may
constitute a breach of contract even if the conduct was reasonable, but liability
in tort arises only if the conduct was unreasonable, that is, without proper cause.
In a first party case, as we have here, the withholding of benefits due under the
policy is not unreasonable if there was a genuine dispute between the insurer
and the insured as to coverage or the amount of payment due.” (Rappaport-Scott
v. Interinsurance Exch. of the Auto. Club (2007) 146 Cal.App.4th 831, 837 [53
Cal.Rptr.3d 245], internal citations omitted.)
• “[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.)
• “The standard of good faith and fairness examines the reasonableness of the
insurer’s conduct, and mere errors by an insurer in discharging its obligations to
its insured ‘ “does not necessarily make the insurer liable in tort for violating the
covenant of good faith and fair dealing; to be liable in tort, the insurer’s conduct
must also have been unreasonable. [Citations.]” ’ ” (Graciano v. Mercury
General Corp. (2014) 231 Cal.App.4th 414, 425 [179 Cal.Rptr.3d 717], original
italics.)
• “ ‘Although an insurer’s bad faith is ordinarily a question of fact to be
determined by a jury by considering the evidence of motive, intent and state of
mind, “[t]he question becomes one of law . . . when, because there are no
conflicting inferences, reasonable minds could not differ.” ’ ” (Pulte Home Corp.
v. American Safety Indemnity Co. (2017) 14 Cal.App.5th 1086, 1119 [223
Cal.Rptr.3d 47].)
• “Generally, the reasonableness of an insurer’s conduct ‘must be evaluated in
light of the totality of the circumstances surrounding its actions.’ ” (Paslay v.
State Farm General Ins. Co. (2016) 248 Cal.App.4th 639, 654 [203 Cal.Rptr.3d
785].)
• “[T]he adequacy of the insurer’s claims handling is properly assessed in light of
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conduct by the insured delaying resolution of a claim.” (Case v. State Farm
Mutual Automobile Ins. Co., Inc. (2018) 30 Cal.App.5th 397, 413 [241
Cal.Rptr.3d 458].)
• “ ‘[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.’ That is because ‘whe[n]
there is a genuine issue as to the insurer’s liability under the policy for the claim
asserted by the insured, there can be no bad faith liability imposed on the insurer
for advancing its side of that dispute.’ ” (Case, supra, 30 Cal.App.5th at p. 402,
internal citation omitted.)
• “The genuine dispute rule does not relieve an insurer from its obligation to
thoroughly and fairly investigate, process and evaluate the insured’s claim. A
genuine dispute exists only where the insurer’s position is maintained in good
faith and on reasonable grounds. . . . ‘The genuine issue rule in the context of
bad faith claims allows a [trial] court to grant summary judgment when it is
undisputed or indisputable that the basis for the insurer’s denial of benefits was
reasonable - for example, where even under the plaintiff’s version of the facts
there is a genuine issue as to the insurer’s liability under California law. . . . On
the other hand, an insurer is not entitled to judgment as a matter of law where,
viewing the facts in the light most favorable to the plaintiff, a jury could
conclude that the insurer acted unreasonably.’ ” (Wilson v. 21st Century Ins. Co.
(2007) 42 Cal.4th 713, 724 [68 Cal.Rptr.3d 746, 171 P.3d 1082], original italics,
internal citations omitted.)
• “[T]he reasonableness of the insurer’s decisions and actions must be evaluated as
of the time that they were made; the evaluation cannot fairly be made in the
light of subsequent events that may provide evidence of the insurer’s errors.
[Citation.]” (Zubillaga v. Allstate Indemnity Co. (2017) 12 Cal.App.5th 1017,
1028 [219 Cal.Rptr.3d 620].)
• “[I]f the insurer denies benefits unreasonably (i.e., without any reasonable basis
for such denial), it may be exposed to the full array of tort remedies, including
possible punitive damages.” (Jordan v. Allstate Ins. Co. (2007) 148 Cal.App.4th
1062, 1073 [56 Cal.Rptr.3d 312].)
• “While many, if not most, of the cases finding a genuine dispute over an
insurer’s coverage liability have involved legal rather than factual disputes, we
see no reason why the genuine dispute doctrine should be limited to legal issues.
That does not mean, however, that the genuine dispute doctrine may properly be
applied in every case involving purely a factual dispute between an insurer and
its insured. This is an issue which should be decided on a case-by-case basis.”
(Chateau Chamberay Homeowners Assn., supra, 90 Cal.App.4th at p. 348,
original italics, footnote and internal citations omitted.)
• “[I]f the conduct of [the insurer] in defending this case was objectively
reasonable, its subjective intent is irrelevant.” (Bosetti v. United States Life Ins.
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Co. in the City of New York (2009) 175 Cal.App.4th 1208, 1236 [96 Cal.Rptr.3d
744]; cf. Carma Developers (Cal.), Inc. v. Marathon Development California,
Inc. (1992) 2 Cal.4th 342, 372 [6 Cal.Rptr.2d 467, 826 P.2d 710] [“[I]t has been
suggested the covenant has both a subjective and objective aspect - subjective
good faith and objective fair dealing. A party violates the covenant if it
subjectively lacks belief in the validity of its act or if its conduct is objectively
unreasonable.”].)
• “[W]hile an insurer’s subjective bad intentions are not a sufficient basis on
which to establish a bad faith cause of action, an insurer’s subjective mental
state may nonetheless be a circumstance to be considered in the evaluation of
the objective reasonableness of the insurer’s actions.” (Bosetti, supra, 175
Cal.App.4th at p. 1239, original italics.)
• “[A]n insured cannot maintain a claim for tortious breach of the implied
covenant of good faith and fair dealing absent a covered loss. If the insurer’s
investigation - adequate or not - results in a correct conclusion of no coverage,
no tort liability arises for breach of the implied convenant.” (Benavides v. State
Farm General Ins. Co. (2006) 136 Cal.App.4th 1241, 1250 [39 Cal.Rptr.3d 650],
internal citations omitted; cf. Brehm v. 21st Century Ins. Co. (2008) 166
Cal.App.4th 1225, 1236 [83 Cal.Rptr.3d 410] [“[B]reach of a specific provision
of the contract is not a necessary prerequisite to a claim for breach of the
implied covenant of good faith and fair dealing. . . . [E]ven an insurer that pays
the full limits of its policy may be liable for breach of the implied covenant, if
improper claims handling causes detriment to the insured”].)
• “ ‘[D]enial of a claim on a basis unfounded in the facts known to the insurer, or
contradicted by those facts, may be deemed unreasonable. “A trier of fact may
find that an insurer acted unreasonably if the insurer ignores evidence available
to it which supports the claim. The insurer may not just focus on those facts
which justify denial of the claim.” ’ ” (Maslo v. Ameriprise Auto & Home Ins.
(2014) 227 Cal.App.4th 626, 634 [173 Cal.Rptr.3d 854].)
• “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.)
• “Thus, an insurer may be liable for bad faith in failing to attempt to effectuate a
prompt and fair settlement (1) where it unreasonably demands arbitration, or (2)
where it commits other wrongful conduct, such as failing to investigate a claim.
An insurer’s statutory duty to attempt to effectuate a prompt and fair settlement
is not abrogated simply because the insured’s damages do not plainly exceed the
policy limits. Nor is the insurer’s duty to investigate a claim excused by the
arbitrator’s finding that the amount of damages was lower than the insured’s
initial demand. Even where the amount of damages is lower than the policy
limits, an insurer may act unreasonably by failing to pay damages that are
certain and demanding arbitration on those damages.” (Maslo, supra, 227
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Cal.App.4th at pp. 638-639 [uninsured motorist coverage case].)
• “[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].)
• “[I]n [a bad-faith action] ‘damages for emotional distress are compensable as
incidental damages flowing from the initial breach, not as a separate cause of
action.’ Such claims of emotional distress must be incidental to ‘a substantial
invasion of property interests.’ ” (Major v. Western Home Ins. Co. (2009) 169
Cal.App.4th 1197, 1214 [87 Cal.Rptr.3d 556], original italics, internal citations
omitted.)
Secondary Sources
2 Witkin, Summary of California Law (11th ed. 2017) Insurance, §§ 341-343
Croskey et al., California Practice Guide: Insurance Litigation. Ch. 12C-C, Bad
Faith - Requirements for First Party Bad Faith Action, ¶¶ 12:822-12:1016 (The
Rutter Group)
2 California Liability Insurance Practice: Claims & Litigation (Cont.Ed.Bar) General
Principles of Contract and Bad Faith Actions, §§ 24.25-24.45A
2 California Insurance Law & Practice, Ch. 13, Claims Handling and the Duty of
Good Faith, §§ 13.03[2][a]-[c], 13.06 (Matthew Bender)
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, § 308.24
(Matthew Bender)
11 California Legal Forms, Ch. 26A, Title Insurance, § 26A.17 (Matthew Bender)
12 California Points and Authorities, Ch. 120, Insurance, § 120.208 (Matthew
Bender)
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