A podcast About the Birth & Growth of the Tort of Bad Faith
Fletcher v. Western Life In Fletcher v. Western Life Ins. Co., 10 Cal. App. 3d 376, 89 Cal. Rptr. 78 (1970), the plaintiff, Fletcher was, at the time of trial, a 41-year-old father of 8 children, seven of whom were still in school. Defendants’ conduct was premeditated, continuous and persistent (citation) and defendant Amason, who was still employed as Western National’s claims manager at the time of trial, indicated that he would conduct himself similarly if a similar situation should again arise. The primary function of punitive damages is to deter the defendant and those similarly situated from engaging in similar tortuous conduct in the future.
Gruenberg v. Aetna It is manifest that a common legal principal underlies all of the foregoing decisions; namely, that in every insurance contract there is an implied covenant of good faith and fair dealing. The duty to so act is imminent in the contract whether the company is attending to the claims of third persons against the insured or the claims of the insured itself. Accordingly, when the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort. "We conclude, therefore, that the duty of good faith and fair dealing on the part of defendant insurance companies is an absolute one. At the same time, we do not say that the parties cannot define, by the terms of the contract, their respective obligations and duties. We say merely that no matter how those duties are stated, the 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of the duty of good faith and fair dealing by the other party while the contract between them is in effect and not rescinded."
Silberg v. California Life under these circumstances defendant’s failure to afford relief to its insured against the very eventuality insured against by the policy amounts to a violation as a matter of law of its duty of good faith and fair dealing implied in every policy. 11 Cal. 3d at 462. (Emphasis added.) ZALMA OPINION An insurer should never leave the insured without benefits while it is involved in a dispute with another insurer or provider of benefits. It should, rather, protect its right to dispute coverage and get its money back by means of a reservation of rights letter or a non-waiver agreement. The reservation of rights letter keeps the insurer, while it is taking care of an insured whose coverage is in question, from being bound to the insured forever. It allows the insurer, unilaterally, to give itself the opportunity to complete a thorough investigation, determine whether coverage applies, and then—if it does not apply—withdraw its benefits and even seek return of what it has paid. The non-waiver agreement is a contract where both the insured and the insurer agree that while the insurer is investigating neither party waives the rights available under the contract.
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