22nd Dec 2014
Insurance Code § 2071 requires appraisal for resolution of contested claims. The appraisal term creates an arbitration agreement subject to the statutory arbitration law. [Community Assisting Recovery Inc. v. Aegis Security Ins. (2001) 92 Cal. App.4th 886] Appraisal hearings are a form of arbitration and are generally subject to the rules governing arbitration. [Sy First Family v. Cheung (1999) 70 Cal. App. 4th 1334, 1345] See § A79 APPRAISAL [§ A79:2 Insurance Code § 2071 appraisal provision created an arbitration agreement]. Uninsured motorist coverage contained in an automobile liability policy is first party coverage. [Daun v. USAA (2005) 125 Cal. App. 4th 599, 609] See § F30 FIRST PARTY C OVERAGE [§ F30:1 In general].
An insurer’s delay in payment of first party post-fire benefits could be found to have been made unreasonably, thereby “forcing” the insured to go through an appraisal procedure. If such a finding was made, there would be a breach of the implied covenant of good faith and fair dealing. See § A79 APPRAISAL [§ A79:3.4 “Forcing” appraisal].
An UNJUSTIFIED refusal made regarding under-insured motorist benefits “forcing” the insured to demand arbitration is bad faith. [Wilson v. 21st Century Ins. (2007) 42 Cal. 4th 713, 721-722]
Ways an insurer can force arbitration
There are at least three factual scenarios where an insurance company can force an insured to demand arbitration. The fact patterns can include one of the followings:
1. The insurance company denies benefits where no factual basis to support its denial exists, due to its failure to thoroughly investigate the evidence. [Wilson v. 21st Century Ins. (2007) 42 Cal. 4th 713, 721-722]
2. The insurance company makes a “lowball” payment. See § L63 LOWBALL [§ L63:1 Insurance commissioner regulations pertaining to settlement for unreasonably low amount]
3. An insurance company failing to respond in good faith to appellant’s settlement offer. [Maslo v. Ameriprise Auto (2014) 227 Cal. App. 4th 626, 636-637] An insurer is not authorized to “stonewall” a claim made by an insured. An insurer performing such conduct may be liable for bad faith liability. [Hightower v. Farmers (1995) 38 Cal. App. 4th 853, 863] See § S90 STONEWALL [§ S90:3 Forcing arbitration; bad faith].
Insurance Code § 11580.26 does not apply when insurer acts in bad faith
Insurance Code § 11580.26 states: “No cause of action shall exist in either an insured or insurer from exercising their right to request arbitration of a claim under this section or § 11580.2.” Insurers have argued that this statute gives it immunity for its [insurer] position to arbitrate under-insured motorist claims. Courts have rejected this argument. [Hightower v. Farmers (1995) 38 Cal. App. 4th 853, 863] See § S90 STONEWALL [§ S90:3 Forcing arbitration; bad faith]. The adoption by the legislature of this statutory provision did not abrogate the insurer’s duty of good faith in handling under-insured motorist claims. [Maslo v. Ameriprise Auto (2014) 227 Cal. App.4th 626, 638]
“Genuine issue doctrine”
The genuine issue doctrine does not relieve an insurer from its obligation to thoroughly and fairly investigation, process and evaluate the insured’s claim. A genuine dispute exists only where the insurer’s position is maintained in good faith and on reasonable grounds. [Maslo v. Ameriprise Auto (2014) 227 Cal. App.4th 626, 636-637 (under-insured motorist claim; insurer demanded arbitration even though it performed no investigation, performed no evaluation, made no offer even though the insured incurred $64,120 in medical expenses)] See § G11 GENUINE ISSUE DOCTRINE [§ G11:1].
Insurer’s bad faith conduct making arbitration inevitable; damages
Where the insurer’s bad faith conduct makes arbitration inevitable such conduct can be the direct and proximate cause of damages to the insured which include unnecessary costs and fees incurred in arbitration. [Maslo v. Ameriprise Auto (2014) 227 Cal. App.4th 626, 639] If “bad faith” is found by a trier of fact regarding the insurance company’s forcing the insured into arbitration, the insured will be entitled to:
1. witness fees, litigation expenses, attorney’s fees as an element of damages. [White v. Western Title (1985) 40 Cal. 3d 870, 890]
2. costs incurred in arbitration proceedings. [Neal v. Farmers (1978) 21 Cal. 3d 910 (cost of arbitration permitted to go to jury)]
3. loss profits. [Gruenberg v. Aetna Ins. (1973) 9 Cal. 3d 566, 580
4. economic losses, inability to pay creditors. [Waters v. USAA (1996) 41 Cal. App. 4th 1063]
5. emotional distress, if financial loss is established. [Waters v. USAA (1996) 41 Cal. App. 4th 1063] See § A79 APPRAISAL [§ A79:3.4 “Forcing” appraisal].
References in bold are to Mr. Cornblum’s legal text CALIFORNIA INSURANCE LAW DICTIONARY AND DESK REFERENCE (2014), published by ThomsonReuters (1-800-344-5008). Those with WestLaw can search using the database CAINLAWDDR.