By Alice Wolfson & David Lilienstein


The following are some issues which frequently arise when litigation insurance bad faith cases. This includes claims denials, coverage issues, duty to defend, duty to indemnify, and ERISA preemption law. This primer focuses on insurer conduct that may qualify as bad faith claims handling.

Because statutes change and decisional law on any topic evolves, and because decisions are often subject to multiple interpretations, the reader is cautioned not to rely on the principles set forth without undertaking additional research.

The authors gratefully acknowledge the assistance of Jill Schlichtmann, Esq., and Amy Bach, Esq.

[D] Damages

  1. Q: What is the scope of damages recoverable for breach of the covenant of good faith and fair dealing?
    A: The insured may recover all damages proximately caused by the breach. This includes consequential loss, loss of use of the insurance proceeds, general damages, attorney's fees and in appropriate cases, exemplary damages. (Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, 432-434, 58 Cal.Rptr. 13; Brandt v. Superior Court (1985) 37 Cal.3d 813, 210 Cal.Rptr. 211; Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d 809.)

  2. Q: What is the standard for recovering emotional distress damages in a bad faith case?
    A: The damage must have naturally ensued from the insurer’s conduct. (Gruenberg v. Aetna Insurance Co., supra, 9 Cal.3d 566; Sprague v. Equifax, Inc., supra, 166 Cal.App.3d 1012.)

  3. Q: Can an insurer limit its exposure for damages by terminating coverage while the peril insured against is still active?
    A: Not usually. This would defeat the very purpose of the protection for which the premiums were paid. (Ibid.)

  4. Q: Under what circumstances can an insured recover prejudgment interest in an insurance bad faith case?
    A: Rarely. Prejudgment interest under Civil Code section 3291 is generally recoverable in personal injury cases where the defendant fails to accept a C.C.P. section 998 offer and the judgment exceeds that rejected offer. It is not recoverable in bad faith actions. (Gourley v. State Farm Mutual Auto Ins. Co. (1991) 53 Cal.3d 121, 279 Cal.Rptr. 307.)

  5. Q: Are plaintiffs’ attorney’s fees recoverable in successful bad faith actions?
    A: Yes, fees incurred in obtaining wrongfully denied policy benefits are recoverable. (Brandt v. Superior Court, supra, 37 Cal.3d 813.)