The California Court of Appeal reversed the trial court's dismissal of a complaint alleging bad faith for the insurer's failure to adequately investigate the claim. Maslo v. Ameriprise Auto & Home Ins., 2014 Cal. App. LEXIS 564 (Cal. Ct. App. June 27, 2014).
The insured was injured in an auto accident caused by an uninsured motorist. The insured sought policy limits of $250,000 from the insurer. In response, the insurer demanded arbitration. The arbitrator awarded $164,120.91.
The insured sued, alleging the breach of the covenant of good faith and fair dealing. The First Amended Complaint (FAC) alleged the insured was not at fault. The police report found that the uninsured motorist was the sole cause of the accident. The insured provided the police report and medical records to the insurer. When the insured demanded the $250,000 policy limits, the insurer did not respond.
The insurer later invoked arbitration. The insurer did not request a medical examination of the insured nor did it notice the depositions of the insured's treating physicians or interview them. The parties stipulated that the medical expenses totaled $64,120.91. The arbitrator awarded the insured $100,000 in general damages for a total award of $164,120.91.
The FAC further alleged that the insurer breached its duty of good faith and fair dealing by failing to negotiate a fair settlement before the arbitration, when the insurer had access to the police report and the insured's medical records.
The trial court sustained the insurer's demurrer with leave to amend. The Second Amended Complaint (SAC) mirrored the FAC. This time, the court sustained the insurer's demurrer without leave to amend.
Reversing, the Court of Appeal determined the SAC alleged facts sufficient to state a cause of action for breach of the covenant of good faith and fair dealing. The insurer rejected the claim without an adequate investigation. The insurer failed, among other things, to request a medical examination or interview the insured's treating physicians. Despite clear evidence of liability, the insurer made no offer of settlement. The insurer agreed to pay the claim only after the arbitration, which was more than three years after the accident and more than two years after the insurer had all the appropriate medical documentation in its possession.
While the insurer argued there was a genuine dispute as to coverage, this did not relieve an insurer from its obligation to thoroughly and fairly investigate, process and evaluate the insured's claim. A genuine dispute existed only where the insurer's position was maintained in good faith and on reasonable grounds. Allegations in the SAC that the insurer failed to comply with its common law and statutory obligations to thoroughly and fairly investigate, process and evaluate the insured's claim were sufficient to survive the insurer's demurrer.