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

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 [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

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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.).

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 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. 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 aspectsubjective 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 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)