Unreasonable Conduct Is A Necessary Element Of A ‘Bad Faith Failure To Settle’ Claim

Over the past several years, the insurance industry in California has been plagued by waves of ‘bad faith failure to settle’ claims.

These claims arise out of a variety of circumstances and can take many forms, but at their core involve the following: an insured injures a third party; that third party then offers to settle his/her claim for the policy limits; but the insurer, for one reason or another, fails to accept that settlement demand.

Once that happens, the third party claimant then takes the position that the ‘cap is off’ the policy such that the insurer should be responsible for paying the full amount of any judgment the claimant obtains against the insured, even if it exceeds the policy limits.

The Judicial Council of California Civil Jury Instruction on ‘bad faith failure to settle’ claims — CACI 2334 — has been the subject of controversy over whether it accurately states the elements of such a claim.

California courts have consistently held that to establish ‘bad faith,’ a plaintiff must show that the insurer acted unreasonably.

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