6th Jan 2014
Recommendations to CACI 2331 of definitions that should be added to CACI insurance jury instruction to make it understandable for the jury are discussed in this newsletter.
CACI 2331, Continuing breach of the implied obligation of good faith and fair dealing – Failure or delay in payment (first party) – Essential factual elements
CACI 2331 states:
[Name of plaintiff] claims that [name of defendant] breached the obligation of good faith and fair dealing by [failing to pay/delaying payment of] benefits due under the insurance policy. To establish this claim, [name of plaintiff] must prove all of the following:
1. That [name of plaintiff] suffered a loss covered under an insurance policy with [name of defendant];
2. That [name of defendant] was notified of the loss;
3. That [name of defendant], unreasonably or without proper cause, [failed to pay/delayed payment of] policy benefits;
4. That [name of plaintiff] was harmed; and
5. That [name of defendant]’s [failure to pay/delay in payment of] policy benefits was a substantial factor in causing [name of plaintiff]’s harm.
In determining whether [name of defendant] acted unreasonably or without proper cause, you should consider only the information that [name of defendant] knew or reasonably should have known at the time when it [failed to pay/delayed payment of] policy benefits.
CACI 2331 omissions; recommendations of definitions that should be added to CACI 2331 so as to make the instruction understandable for the jury
Paragraph 3 in CACI 2331 states: “The [name of defendant], unreasonably or without proper cause, [failed to pay/delayed payment of] policy benefits”. The instruction does not set forth any guidance as to the meaning of:
b. or without proper cause,
c. delayed payment of.
CACI 2331 should reflect the definitions of “unreasonably” and “without proper cause”. Illustration of these definitions to be added to the CACI insurance instruction are the following:
An “unreasonable act or failure to act” exists when an insurance company’s communicating to, demanding of, and paying its insured differs from what the insurance company knows it owes or would owe under the claim being made for benefits.
Reasonableness implies honesty, fair dealing and full revelation.
Unreasonableness implies dishonesty, fraud and concealment.
In each claim, an insurance company is required to give serious and careful consideration to the true position and interest of its insured.
“Without proper cause” to act or fail to act means that when the insurance company denies the insured’s claim it does so even though the insured is fully cooperating with the company’s investigation, is complying with the policy terms relating to the giving of notice, is providing the required proof of loss, and required notices.
[In this case the insurer claims it was relying upon existing California law to deny the insured’s claim. To succeed [insurer] must prove that the denial was in fact made for this reason and no other.]
[See discussion of “proper cause” below]; [consideration of subjects relating to (1) unfounded basis for denial, (2) subjective intent of insurer discussed below should be given as additional subjects to be added to CACI 2331] For legal discussion of the above definitions see NEWSLETTER for November 2013. For a discussion of the meaning of “proper cause” see infra.
Delayed payment defined
When an insurer refuses unreasonably to make a payment or benefit due under the terms of the policy this deprives the insured of essential benefits of the agreement. Delayed payment based on inadequate or tardy investigations may breach the implied covenant because it frustrates the insured’s primary right to receive the benefits of its contract – i.e. prompt compensation for losses. [McMillin Scripps v. Royal Ins. (1993) 19 Cal.App.4th 1215, 1222] Delayed payment is equated to “prompt” payment. [Waller v. Truck Ins. (1995) 11 Cal.4th 1, 36] “Prompt” is equated with “as soon as practicable”. See § P104 PROMPT [§ P104:1.2]. Where this issue exists, this paragraph should be added to CACI 2331 so as to give legal meaning to the term “delayed payment”. Additionally, consideration should be given to adding a paragraph regarding “prompt payment”, infra this section.
“Prompt payment” will be excused where “proper cause” exists. See § P104 PROMPT [§ P104:1.3 Duty of prompt payment relieved where “proper cause” exists].
“Proper cause” is not defined for the jury in CACI 2331. ‘Proper cause’ is defined in the text at § P106.02 PROPER CAUSE. “Proper cause” exists to deny an insured’s claim when the insurance company relies upon existing Court of Appeal or Supreme Court opinions. [Bosetti v. U.S. Life Ins. Co. in City of New York (2009) 175 Cal.App.4th 1208, 1239] “Proper cause” includes the consideration of the insured’s duties described in the policy to (1) give the insurer timely notice of the loss, (2) cooperate with regards to the insurer’s investigation, (3) providing a proof of loss in a first party claim. See § P106.02 PROPER CAUSE [§ P106.02:5 Duties of insured [first party loss]; “proper cause” to deny benefits]. In a third party claim where the insured is requesting a defense and/or indemnity, an insured has a duty to cooperate with the insurer. And the duty includes a requirement to disclose all pertinent facts, assist in giving evidence. The liability policy’s claims provisions must be complied with. See § P106.02:6 Duties of insured]. The jury should be further instructed as to the meaning of “proper cause” if there exist a factual issue regarding the insurer acting with proper cause, or if the insured is contending that the insurance company was not “prejudiced” [CACI 2320] [CACI 2321] discussed in § J 13.03:4.8 and § J13.03:4.9. If no facts exist proving a failure of the insured to give notice or a failure to cooperate, the court should not include the phrase “proper cause” in the instruction. If the insurer’s alleged reliance is based upon existing case law but the evidence proves that such reliance never existed or occurred, the insured should be able to have the jury so instructed thereby permitting the jury to find that “proper cause” did not exist to deny coverage. See Lance Cooper v. Republic Indem. (2001) 90 Cal.App.4th 1151, 1159-1160, discussed at § J13.03:4.11.
Dishonesty not required
Regarding “bad faith” [first party], the jury should be told that: “It is not necessary that the insurer’s conduct be dishonest. Dishonesty presupposes subjective immorality; the covenant of good faith can be breached for objectively unreasonable conduct, regardless of the actor’s motive. But if dishonesty exists or the insurer denies a claim with a conscious disregard of the insured’s rights under the policy, tort damages may be claimed against the insurer.” [Amerigraphics Inc. v. Mercury Cas. (2010) 182 Cal.App.4th 1538, 1559-1560] In defining “good faith” the jury should be told that: “The covenant of good faith and fair dealing is implied in law to insure that a contracting party “refrains” from doing anything to injure the right of another to receive the benefits of the agreement.” See § B2 BAD FAITH LAWSUIT – FIRST PARTY [§ B2:3.2.1 Implied covenant is a SUPPLEMENT to the express contractual covenants], discussing Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 818] A catalog of “types” of bad faith is set forth at § B2:3.5.3 Illustrations of conduct and tactics for which first-party insurers have been held liable].
Unfounded basis for denial
An insurer cannot deny benefits based upon “unfounded” basis for denial of the claim. [§ B2:3.5.4 Unfounded basis for denial of claim]. An insurer cannot ignore facts as such conduct is inconsistent with the implied covenant of good faith and fair dealing. [§ B2:3.5.6 Ignoring facts].
Subjective intent of insurer
The jury should be made aware of the fact that “… an insurer cannot eliminate the insurer’s ‘bad faith’ from consideration unless the insurer establishes both (1) objectively reasonable conduct and (2) good faith subjective intent. [§ B2:4.4 Subjective “bad faith” of an insurer]. Evidence of motive, intent and state of mind is relevant to a bad faith analysis. [Bosetti v. US Life (2009) 175 Cal.App.4th 1208, 1239, fn. 25]
“Factors in determining good faith” involves an inquiry into (1) motive, (2) intent, and (3) state of mind. Conclusions concerning such matters, in most cases, are founded upon inferences. [Shade Foods Inc. v. Innovative Products Sales & Marketing Inc. (2000) 78 Cal.App.4th 847, 888] See § B2 BAD FAITH LAWSUIT – FIRST PARTY [§ B2:5 Defined].
An insurance company has a duty to pay a claim when it has acquired, through one means or another, sufficient evidence to establish the validity of that claim. An insurer has no right to fabricate an exacting procedure to acquire such evidence. [§ B2:5.1 Duty to pay claim; methods of insurer acquiring knowledge of valid claims]
“Unreasonable” in concept is a self-conscious disconnect (a large, unabridged gap) between, on the one hand, what the insurer is communicating to, demanding of, and paying its insured and, on the other hand, what the insurer actually thought it owed and would owe under the claim. [§ B2:6.2]; § J13.03:4.11 (CACI 2320).
Genuine issue doctrine relied upon by insurer
When an insurer defends against a “bad faith” allegation by urging the genuine issue defense, the insured must offer evidence to prove that the insurer’s reliance on either a policy provision, or expert opinion was in fact “genuine”. Whether a denial of coverage is “genuine” is a question of fact for the jury. An insurer cannot eliminate the “bad faith” issue from consideration unless the insurer establishes both (1) objectively reasonable conduct and (2) good faith subjective intent. [Brehm v. 21st Century (2008) 166 Cal.App.4th 1225, 1238] See § G11 GENUINE ISSUE DOCTRINE [§ G11:1.2 “Subjective bad faith of an insurer”]. The genuine issue doctrine is covered by CACI 2331 and 2332. [McCoy v. Progressive West Ins. (2009) 171 Cal.App.4th 785, 793 (refusing a separate instruction offered by the insurer to define GENUINE DISPUTE in a separate instruction)]
BOLDS references are to sections in Volumes 1, 2 and 3 of CALIFORNIA INSURANCE LAW DICTIONARY AND DESK REFERENCE, 2013 Edition. This 3-volume text by Mr. Cornblum is available through Thomson Reuters at 1-800-344-5008.
WESTLAW RESEARCH – Subscribers to WestLaw can research all volumes of California Insurance Law Dictionary and Desk Reference by referencing CAINLAWDDR.