Like other states, California has a specific law which require insurance companies to handle claims in a certain way that at least put their customer’s interests on a level playing field with their own.
The law is detailed, but insurance companies which sell their products in California will be expected to follow all the provisions of this law. If they don’t, they may face regulatory penalties.
The insurance company’s violations may also give a customer grounds to pursue what is called a statutory bad faith claim.
A bad faith claim gives the customer the option to pursue additional compensation from the insurer including non-economic losses like emotional distress and, in certain cases, punitive damages. These damages are available despite the policy’s limits of coverage.
Insurance companies may not deny claims as a matter of course
Basically, the statute prevents insurers from underpaying, denying and prolonging claims as part of a plan to use their superior bargaining position to get an edge on the customer who needs the insurance company to pay a valid claim.
This does not mean that insurers are expected to pay everyone who files a claim. However, insurance companies may not, for example, have a practice of always denying claims.
Instead, they have a legal obligation to do a reasonable investigation and then give concrete reasons, including applicable laws and policy language, for the denial.
When it comes to environmental claims, for instance, the insurance company will need to refer to language in the policy that serves as the basis for denying compensation for the cost of an environmental cleanup. It may also have to produce scientific or other factual evidence that the company is not responsible for the cleanup.
Coverage disputes are likely in environmental claims in part because they tend to be expensive. A person who feels his or her carrier wrongfully denied a claim may have legal options available to him or her.