California Civil Jury Instructions (CACI)
2333. Bad Faith (First Party)—Breach of Duty to Inform Insured of Rights—Essential Factual Elements
[Name of plaintiff] claims that [name of defendant] breached the obligation of good faith and fair dealing by failing to reasonably inform [him/her/it] of [his/her/its] rights and obligations under an insurance policy. To succeed, [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] [denied coverage for/refused to pay] [name of plaintiff]’s loss;
3. That under the policy [name of plaintiff] had the [right/obligation] to [describe right or obligation at issue; e.g., “to request arbitration within 180 days”];
4. That [name of defendant] did not reasonably inform [name of plaintiff] of [his/her/its] [right/obligation] to [describe right or obligation];
5. That [name of plaintiff] was harmed; and
6. That [name of defendant]’s failure to reasonably inform [name of plaintiff] was a substantial factor in causing [his/ her/its] harm.
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.
This instruction is intended for use in appropriate cases if the insured alleges that the insurer breached the implied covenant of good faith and fair dealing by failing to reasonably inform the insured of his or her remedial rights and obligations under an insurance policy.
For instructions regarding general breach of contract issues, refer to the Contracts series (CACI No. 300 et seq.).
Sources and Authority
- The insurer’s implied duty of good faith and fair dealing includes “the duty reasonably to inform an insured of the insured’s rights and obligations under the insurance policy. In particular, in situations in which an insured’s lack of knowledge may potentially result in a loss of benefits or a forfeiture of rights, an insurer [is] required to bring to the insured’s attention relevant information so as to enable the insured to take action to secure rights afforded by the policy.” (Davis v. Blue Cross of Northern California (1979) 25 Cal.3d 418, 428 [158 Cal.Rptr. 828, 600 P.2d 1060].)
- The trial court in the instant case found that [the insurer] knew that in many instances its insureds would not be aware of the arbitration clause and that, despite this knowledge, [it] deliberately decided not to inform its insureds of the arbitration procedure. In this context, the practical effect of the insurer’s practice was to transform its arbitration clause into a unilateral provision, establishing a procedure to which the insurer could require its insureds to resort when [it] deemed it advisable, but one that would not generally provide a speedy, economic or readily accessible remedy for the bulk of [its] uninformed insureds. [¶] We think the trial court was fully justified in finding that [the insurer] had breached its duty of good faith and fair dealing in adopting such a course of conduct. (Davis, supra, 25 Cal.3d at pp. 430—431.)
- “When a court is reviewing claims under an insurance policy, it must hold the insured bound by clear and conspicuous provisions in the policy even if evidence suggests that the insured did not read or understand them. Once it becomes clear to the insurer that its insured disputes its denial of coverage, however, the duty of good faith does not permit the insurer passively to assume that its insured is aware of his rights under the policy. The insurer must instead take affirmative steps to make sure that the insured is informed of his remedial rights.” (Sarchett v. Blue Shield of California (1987) 43 Cal.3d 1, 14—15 [233 Cal.Rptr. 76, 729 P.2d 267], plurality opinion.)
- But see Chase v. Blue Cross of California (1996) 42 Cal.App.4th 1142, 1155 [50 Cal.Rptr.2d 178] [while insurer may not misrepresent facts or fail to clarify an insured’s obvious misunderstanding of the policy coverage, it does not have an ongoing duty to keep the insured informed of his or her rights once those rights have been clearly set forth in the policy].)
- “In order to find a forfeiture by the insurer of the right to arbitration, we understand Davis and Sarchett to require conduct designed to mislead policyholders.” (Chase, supra, 42 Cal.App.4th at p. 1157, original italics.)
- An insurer owes a duty to an additional insured under an automobile policy to disclose within a reasonable time the existence and amount of any underinsured motorist coverage. (Ramirez v. USAA Casualty Insurance Co. (1991) 234 Cal.App.3d 391, 397—402 [285 Cal.Rptr. 757].)
- “California courts have imposed a duty on the insurer to advise its insureds of the availability of and procedure for initiating arbitration; to notify him of a 31-day option period in which to convert his group insurance policy into individual coverage after termination; and to notify an assignee of a life insurance policy taken as security for a loan to the insured of previous assignments of the policy known to the insurer.” (Westrick v. State Farm Insurance (1982) 137 Cal.App.3d 685, 692 [187 Cal.Rptr. 214], internal citations omitted.)
Croskey et al., California Practice Guide: Insurance Litigation (The Rutter Group) ¶¶ 11:46—11:47, 12:956—12:961
2 California Insurance Law & Practice, Ch. 13, Claims Handling and the Duty of Good Faith, § 13.05 (Matthew Bender)
2 California Uninsured Motorist Law, Ch. 24, Bad Faith in Uninsured Motorist Law, § 24.22 (Matthew Bender)
12 California Points and Authorities, Ch. 120, Insurance, §§ 120.383— 120.384, 120.390 (Matthew Bender)