CACI 2330 Implied Obligation of Good Faith and Fair Dealing Explained
California Civil Jury Instructions CACI
2330 Implied Obligation of Good Faith and Fair Dealing Explained
In every insurance policy there is an implied obligation of good faith and fair dealing that neither the insurance company nor the insured will do anything to injure the right of the other party to receive the benefits of the agreement.
To fulfill its implied obligation of good faith and fair dealing, an insurance company must give at least as much consideration to the interests of the insured as it gives to its own interests.
To breach the implied obligation of good faith and fair dealing, an insurance company must unreasonably act or fail to act in a manner that deprives the insured of the benefits of the policy. To act unreasonably is not a mere failure to exercise reasonable care. It means that the insurer must act or fail to act without proper cause. However, it is not necessary for the insurer to intend to deprive the insured of the benefits of the policy.
New September 2003; Revised December 2007, December 2015
Directions for Use
This instruction may be used to introduce a “bad-faith” claim arising from an alleged breach of the implied covenant of good faith and fair dealing.
Sources and Authority
•“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.” (Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 658 [328 P.2d 198].)
•“It is important to recognize the reason for the possibility of tort, and perhaps even punitive damages on top of regular tort damages, for an insurance company’s unreasonable breach of an insurance contract. Insurance contracts are unique in that, if the insurance company breaches them, the policyholder suffers a loss (often a catastrophic loss) that cannot, by definition, be compensated by obtaining another contract. [Citations.] [¶] Thus, without the possibility of tort damages hanging over its head when it makes a claims decision, an insurance company may choose not to deal in good faith when a policyholder makes a claim. The insurance company could arbitrarily deny a claim, thus gambling with the policyholder’s ‘benefits of the agreement.’ [Citation.] If the insurance company gambled wrong, it would be no worse off than it would have been if it had honored the claim in the first place. In effect, if the law confined the exposure of the insurance company under such circumstances to only contract damages, it would be pardoned and still retain the fruits of its offense.” (Pulte Home Corp. v. American Safety Indemnity Co. (2017) 14 Cal.App.5th 1086, 1125 [223 Cal.Rptr.3d 47].)
•“For the insurer to fulfill its obligation not to impair the right of the insured to receive the benefits of the agreement, it again must give at least as much consideration to the latter’s interests as it does to its own.” (Egan v. Mutual of Omaha Insurance Co. (1979) 24 Cal.3d 809, 818–819 [169 Cal.Rptr. 691, 620 P.2d 141].)
•“[T]o establish the insurer’s ‘bad faith’ liability, the insured must show that the insurer has (1) withheld benefits due under the policy, and (2) that such withholding was ‘unreasonable’ or ‘without proper cause.’ The actionable withholding of benefits may consist of the denial of benefits due; paying less than due; and/or unreasonably delaying payments due.” (Major v. Western Home Ins. Co. (2009) 169 Cal.App.4th 1197, 1209 [87 Cal.Rptr.3d 556], internal citations omitted.)
•“ ‘[T]he covenant of good faith can be breached for objectively unreasonable conduct, regardless of the actor’s motive.’ … [A]n insured plaintiff need only show, for example, that the insurer unreasonably refused to pay benefits or failed to accept a reasonable settlement offer; there is no requirement to establish subjective bad faith.” (Bosetti v. United States Life Ins. Co. in the City of New York (2009) 175 Cal.App.4th 1208, 1236 [96 Cal.Rptr.3d 744], original italics, internal citations omitted.)
•“To establish bad faith, a policy holder must demonstrate misconduct by the insurer more egregious than an incorrect denial of policy benefits.” (Case v. State Farm Mutual Automobile Ins. Co., Inc. (2018) 30 Cal.App.5th 397, 402 [241 Cal.Rptr.3d 458].)
•“Bad faith may involve negligence, or negligence may be indicative of bad faith, but negligence alone is insufficient to render the insurer liable.” (Brown v. Guarantee Ins. Co. (1957) 155 Cal.App.2d 679, 689 [319 P.2d 69].)
•“Thus, a breach of the implied covenant of good faith and fair dealing involves something more than a breach of the contract or mistaken judgment. There must be proof the insurer failed or refused to discharge its contractual duties not because of an honest mistake, bad judgment, or negligence, ‘but rather by a conscious and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations of the other party thereby depriving that party of the benefits of the agreement.’ ” (Century Surety Co. v. Polisso (2006) 139 Cal.App.4th 922, 949 [43 Cal.Rptr.3d 468], internal citations omitted.)
•“[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].)
•“Subterfuges and evasions violate the obligation of good faith in performance even though the actor believes his conduct to be justified. But the obligation goes further: bad faith may be overt or may consist of inaction, and fair dealing may require more than honesty. A complete catalogue of types of bad faith is impossible, but the following types are among those which have been recognized in judicial decisions: evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party’s performance.” (R. J. Kuhl Corp. v. Sullivan (1993) 13 Cal.App.4th 1589, 1602 [17 Cal.Rptr.2d 425].)
•“[A]n insurer is not required to pay every claim presented to it. Besides the duty to deal fairly with the insured, the insurer also has a duty to its other policyholders and to the stockholders (if it is such a company) not to dissipate its reserves through the payment of meritless claims. Such a practice inevitably would prejudice the insurance seeking public because of the necessity to increase rates, and would finally drive the insurer out of business.” (Austero v. National Cas. Co. (1978) 84 Cal.App.3d 1, 30 [148 Cal.Rptr. 653], overruled on other grounds in Egan, supra, 24 Cal.3d at p. 824 fn. 7.)
•“Unique obligations are imposed upon true fiduciaries which are not found in the insurance relationship. For example, a true fiduciary must first consider and always act in the best interests of its trust and not allow self-interest to overpower its duty to act in the trust’s best interests. An insurer, however, may give its own interests consideration equal to that it gives the interests of its insured; it is not required to disregard the interests of its shareholders and other policyholders when evaluating claims; and it is not required to pay noncovered claims, even though payment would be in the best interests of its insured.” (Love v. Fire Ins. Exchange (1990) 221 Cal.App.3d 1136, 1148–1149 [271 Cal.Rptr. 246], internal citations omitted.)
•“[I]n California, an insurer has the same duty to act in good faith in the uninsured motorist context as it does in any other insurance context.” (Maslo v. Ameriprise Auto & Home Ins. (2014) 227 Cal.App.4th 626, 636 [173 Cal.Rptr.3d 854].)
•“ ‘[P]erformance of an act specifically authorized by the policy cannot, as a matter of law, constitute bad faith.’ [¶] [I]n the insurance context, … ‘ “courts are not at liberty to imply a covenant directly at odds with a contract’s express grant of discretionary power.” ’ The possible exception would be ‘ “those relatively rare instances when reading the provision literally would, contrary to the parties’ clear intention, result in an unenforceable, illusory agreement.” ’ ” (Baldwin v. AAA Northern California, Nevada & Utah Ins. Exchange (2016) 1 Cal.App.5th 545, 557–558 [204 Cal.Rptr.3d 433], internal citations omitted.)