Insurance companies must treat policyholders fairly when reviewing claims. If they don’t, courts can hold them accountable for acting in bad faith. But how do judges and juries figure out whether an insurer acted in “good faith” during the claim process?
Understanding the duty of good faith
California law requires insurers to act honestly and fairly when handling claims. That means they can’t unreasonably delay, deny, or underpay a claim. Courts look at whether the insurance company made a reasonable effort to investigate the facts and apply the policy terms correctly. If an insurer uses poor excuses, skips steps in the process, or only looks for ways to deny a claim, a court may find bad faith.
Reviewing the insurer’s actions
Judges examine the timeline of the claim, the thoroughness of the investigation, and the insurer’s communication. Did the company explain the reason for the denial? Did they request more information from you, or just reject the claim outright? Courts compare what the insurer did with what a reasonable insurer should do. If the insurer didn’t try to fairly settle the claim or ignored evidence, it may not meet the standard of good faith.
Considering expert opinions and documentation
Courts also review expert opinions, internal memos, and claim notes. These records show how the insurer made decisions. If they reveal bias, unfair pressure on adjusters, or disregard for medical or repair estimates, the court may rule that the insurer failed to act in good faith. Testimony from claim adjusters, supervisors, or third-party experts helps the court understand whether the insurer acted fairly.
The result of a bad faith finding
When courts decide that an insurer acted in bad faith, the company may owe more than just the value of the claim. They could be forced to pay additional damages, including emotional distress or even punitive damages. Courts use these penalties to discourage unfair treatment of policyholders.
