20th Jun 2016

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CACI 2330 was revised December 2015.  The revision deletes the last paragraph of CACI 2330.  The last paragraph stated:

“To breach the implied obligation of good faith and fair dealing an insurance company must, unreasonably OR without proper cause, act or fail to act in a manner that deprives the insured of the benefits of the policy .  It is not the mere failure to exercise reasonable care.  However, it is not necessary for the insurer to intend to deprive the insured of the benefits of the policy.”  (emphasis added)

In its place, CACI 2330 added a 2015 revision which states:

“To act unreasonably it is not the mere failure to exercise reasonable care.  It means that the insurer must act or fail to act without proper cause.  However, it is not necessary for the insurer to intend to deprive the insured of the benefits of the policy”  (emphasis added)

◆  COMMENT and OBSERVATIONS regarding CACI 2330 December 2015 revision

CACI 2330 pre-December 2015 revision was confusing and near unintelligible due to the absence of the court advising a jury as to the meaning of “unreasonable” or a meaning of the phrase “without proper cause”.  Otherwise, the deleted last paragraph was correct.

All the December 2015 revision does is equate and make synonymous the terms “unreasonable” with “without proper cause”.  The equation of these terms without definitions is incorrect, erroneous.

Without proper cause

With-proper-cause has reference to an insurance company denying, in its entirety, the payment of benefits due to facts EXTERNAL to the insurance company.  Case law has defined these EXTERNAL FACTS.  See § P106.02 PROPER CAUSE discussed in J13.03 JURY INSTRUCTIONS [§ J13.03:4.11.  Case law illustrates that an insurance company can withhold benefits or refuse to pay benefits based upon facts external to the insurer:

(1)    if refusal is based upon an existing Court of Appeal or Supreme Court decision.  See § P106.02 PROPER CAUSE [§ P106.02:2];
(2)    if the insured fails to cooperate with the insurer as required by the terms of the policy,  [§ P106.02:5 – § {106.02:6];

(3)    where grounds exist for the insurer to deny coverage such as the insured’s failure to pay the premium.  See § D25 DENIAL OF COVERAGE [§ D25:1].

The “proper cause” acts are extrinsic to the insurer, allowing the insurer to deny benefits.

Unreasonable

If there exists no external facts allowing the insurance company to refuse to pay benefits, i.e. no “proper cause facts”, as discussed above, then the question is:  How can an insurer act reasonably when refusing to pay benefits, in the absence of external facts?  There are circumstances where this is possible.  Illustrations are:

(1)    In first party claims where there exists a genuine issue as to the insurer’s liability under the first party policy.  This circumstance assumes the insurer’s position is maintained in good faith and upon reasonable cause.  See § G11 GENUINE ISSUE DOCTRINE [§ G11:1 Nature of doctrine: Defense to “bad faith”].  The Genuine Issue Doctrine does not apply in third party claims regarding denial of a defense.  A defense must be granted to the insured when there is a “potential for coverage”.  See § G11:9 Third party policy.  

(2)    In the absence of the existence of the Genuine Issue Doctrine in first party claims, the insurer acts in violation of the duty of good faith and fair dealing when it fails to pay some or all of the benefits it otherwise knows or should know is owing.   See  J13.03 JURY INSTRUCTIONS [§ J13.03:4.11.

(3)    In the absence of external facts when an insured denies benefits by low-balling the offer to the insured, such offer is in breach of the covenant of good faith and fair dealing.  See § L63 LOWBALL.

(4)    In third party claims, where the denial of defense is “unreasonable”, the insurer can be found to have acted tortiously, i.e. in bad faith.  See discussion § D85 DUTY TO DEFEND [§ D85:18 Duty to defend: Unreasonable denial of defense as bad faith].

(5)    In third party claims, an insurer’s refusal to settle a third party claim may be in violation of the duty of good faith and fair dealing.  See § B3 BAD FAITH LAWSUIT – THIRD PARTY [§ B3:4 Factors: Refusal of insurer to settle with third party].

 Knowledge of insurer

The above denial of benefits “unreasonably” is based upon the insurer knowing all the facts, or reasonably should have known all the facts.  See § I.02 IGNORANCE; § I80 INVESTIGATION: DUTY OF INSURER – DUTY TO DEFEND; § I81 INVESTIGATE: DUTY OF INSURER – FIRST PARTY POLICY.

From the above an insurer can act “unreasonably” in the absence of extrinsic facts supporting a “proper-cause” when refusing  to pay benefits.  “Proper cause” is applicable when the insurer is relying upon extrinsic facts to support its refusal to pay any amount of money.  “Unreasonable” applies when an insurer low-balls the insured by offering less than the amount due, in addition to cases where the entirety of the benefits are denied.

“Without proper cause” should not be referred to in a jury instruction given by the court in the absence of the insured failing to comply with the policy terms or in the absence of an insurer relying upon case law to deny payment.

Additionally, as explained in this text written before the revision to CACI 2330 in December 2015, the jury should be told by the court the legal definitions of “unreasonable” and/or “without proper cause”.

An insurer can act “reasonably” in the absence of proper cause (as defined above) such as in first party disputes where, for example, the alleged “low-balling” is based upon a good faith genuine dispute.

The terms “unreasonably” and “without-proper-cause” are unique different terms under court decisions even though the terms may in ordinary language be synonymous as defined in a dictionary which reflects popular meanings among laypersons.  See § D40 DICTIONARY, USE OF [§ D40:3 – § D40:3.1].  The result of the distinction of these terms in insurance law became prompted when the courts distinguished the terms “unreasonableness” under negligence law from “unreasonableness” as that terms is used in insurance-bad-faith law.  See § U24 UNREASONABLE [§ U24:5 Unreasonable insurer conduct defined].  Decisional law of the courts has given special meaning to the terms “unreasonable” and “proper-cause”.  CACI 2330, December 2015 revision, last paragraph, is erroneous.  For discussion of the definition of “unreasonable” see § U24 UNREASONABLE [§ U24:5]; § J13.03:4.11.  For the definition of “without-proper-cause” as defined by the courts, see discussion § J13.03 JURY INSTRUCTIONS [J13.03:4.11]; § P106.02 PROPER CAUSE.

References in bold are to Mr. Cornblum’s legal text CALIFORNIA INSURANCE LAW DICTIONARY AND DESK REFERENCE (2015, 2016), published by ThomsonReuters (1-800-344-5008 to order 3-Volume text).    2016 Edition available June 2016).

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