Stokes O'Brien

California Insurance Company’s Duty to Defend Lawsuits

Posted in Insurance Bad Faith on January 13, 2016

In California, when you have a liability policy with an insurance company, it often has a duty to defend a lawsuit against you.  The duty to defend exists whether or not the liability claim is actually covered under the policy.  The test for a California insurance company’s duty to defend lawsuits is only whether the claim is potentially covered under the policy.

If an insurance company does not defend you for a covered (or potentially covered) claim, the insurance company may be liable to you for insurance bad faith.   To establish an insurance bad faith lawsuit, you must show:

  1. Duty to Defend: you must show the claim is potentially covered by the policy and you are the insured party;
  2. Notice and Request to Defend: you must inform the insurance company of the lawsuit and request a defense;
  3. Refusal to Defend: the insurance company must refuse to provide you with a defense lawyer in the lawsuit.

To qualify as insurance bad faith (and not a mere breach of contract), the insurance company’s refusal to defend must be “unreasonable” or “without proper cause.”   This means the insurer must consciously and deliberately refuse to defend in light of the obligations under the policy — not make an honest mistake, act negligently, etc.

As you can imagine, the issue often becomes whether there is a deliberate refusal to defend v. negligence, etc., but whether there is the potential for coverage in the first place.  Insurance companies know, however, that reading the coverage too narrow exposes them to a wide of array of consequences, including an inability to control the outcome of the underlying case, a breach of contract lawsuit, and an insurance bad faith lawsuit.

In a breach of contract lawsuit for failure to defend, you can recover your attorney fees and costs (in defending the lawsuit the insurance company should have), plus any other expenses that foreseeably occurred as a consequence.  If you can establish bad faith, you can recover all expenses and damages caused, whether foreseeable or not, plus emotional distress damages and punitive damages.

If you have questions about a California insurance company’s duty to defend lawsuits, do not hesitate to contact our San Diego insurance bad faith lawyers for a free consultation.  We can be reached via the contact us page, or at 619-535-5151.