What Insurer Conduct Is Prohibited and Considered Unfair Under California Law? A Quick Guide to Holding an Insurer Accountable

The California Fair Claims Settlement Practices Act outlines specific insurer conduct prohibited and considered unfair to insureds. Identifying prohibited insurer conduct and effectively communicating to a carrier it committed prohibited acts will lead to better claim results.

This a better practice than just merely accusing an insurer of bad faith. This often will not get a carrier’s attention because it may think you are arguing bad faith instead of presenting information supporting coverage. The careful identification of prohibited conduct, however, projects an understanding of the insurer’s claim duties and puts the carrier on notice that its acts are evidence of poor conduct and may be evidence of bad faith.

An effective way to communicate an insurer’s prohibited conduct is state that the insurer has violated the California Insurance Code and treated its insured unfairly. An efficient way to state this is to identify the specific conduct and identify the California Insurance Code provision that prohibits such conduct. Specific prohibited acts are identified and summarized below.

• An insurer has a duty to disclose all policy benefits, coverage, time limits and all other policy provision applicable to a claim. Cal. Ins. Code § 2695.4(a). Always ask an insurer in writing to disclose all this required information.
• If an insurer is unable to accept or deny a claim, it should provide a written explanation of why it cannot come to a claim decision and describe what additional information it needs. Cal. Ins. Code § 2695.7(b). Demanding an insurer explain what information it needs or why it cannot determine coverage will help you to better understand what is needed to resolve the claim.
• Aninsurer must state in writing all legal and factual bases for denying a first party claim. Cal. Ins. Code § 2695.7. A mere statement that a claim is not covered is not acceptable and a more thorough statement should always be demanded.
• Any adjustment for betterment or depreciation shall reflect a measurable difference in market value attributable to the condition and age of the property and apply only to property normally subject to repair and replacement during the useful life of the property. The basis for any adjustment shall be fully explained to the claimant in writing. Cal. Ins. Code § 2695.9(f).
• When a loss requires replacement of items and the replaced items do not match in quality, color or size, the insurer shall replace all items in the damaged area so as to conform to a reasonably uniform appearance. Cal. Ins. Code § 2695.9(a)(2).
• Aninsurer cannot require a first-party claimant to give notification of claim or proof of claim within a specified time. Cal. Ins. Code § 2695.4(d).
• An insurer cannot require an insured to have property repaired by a specific vendor. Cal. Ins. Code § 2695.9(b).
• An insurer cannot recommend a repair vendor unless: (1) the insured expressly requests the referral or (2) the insured is informed in writing that the insured has the right to select a vendor of its choice. If an insured selects the insurer’s preferred vendor, the carrier must insure the damaged property is repaired to its pre-loss condition. Cal. Ins. Code § 2695.9(c).
• An insurer can only request information that is material to a claim. Cal. Ins. Code § 2695.7(d).
• An insurer must provide notice of the deadline to a file a lawsuit at least 60 days before the deadline. Cal. Ins. Code § 2695.7(f).
• A claim settlement cannot be conditioned on an insured not submitting a claim to the California Department of Insurance. Cal. Ins. Code § 2695.7(0).

Established in 1985, Merlin Law Group is a insurance litigation law firm committed to assisting policyholders receive fair and just outcomes from their insurance companies.