Modified: November 5, 2022

Insurer’s Duty of Good Faith And Fair Dealing: First Party v. Third Party Claims

Understanding A California Insurer’s Duty of Good Faith And Fair Dealing: First Party v. Third Party Claims

Insurance companies are notorious for skimming on policy claims as they would rather avoid paying their policyholders and keep a more significant chunk of their profits.

If your insurance company is not acting in good faith, contact us at (213) 596-9642 and talk to a legal expert insurance lawyer in Los Angeles now!

Insurance Companies and the Disparity of Power

Many people don’t realize this, but insurance companies have much control or power over the policyholders. This can definitely affect policyholders when they turn to the insurance company for processing their claims.

Think about it this way. An insurance company has written your insurance policy, and they know the rules; they even have your insurance premium payments. If you were to sue them for bad faith, they have sufficient resources to shut you and your lawsuit down. There have been incidents where the insurance company’s bad faith results in wrongful death.

Insurance firms can easily reject all claims that come through their door. However, California and other state laws hold these corporations accountable.

Unreasonable Conduct by an Insurance Company

There are many different tactics insurance companies will pull out of their basket and use against their policyholders to ensure minimal claims.

The company can act in bad faith resulting in a bad faith breach, and some examples of these are:

  • Rebuke the submitted medical records and medical bills by using unqualified doctors
  • Fail to settle claims due to different insurance policy interpretation
  • Unfairly investigate claims
  • Have contrary conclusions on the case
  • Perform adequate investigation instead of a proper investigation
  • Undue delay due to physician review
  • Unable to fairly investigate the case.

There are many examples where the insurance company can neglect their good faith duty even with their direct relationship with their policyholders.

We have had several cases of insurance bad faith where clients or their families claimed loss because their insurance company acted unreasonably. Ehline Law helped a widow sue an insurance company for bad faith matter resulting in a $4.2 million settlement. Bad faith claims can put a dent in the brand image of an insurance company, and they detest it. These companies understand that tort claims where individuals can even sue for punitive damages for breach of the insurance policy are only possible in a few states.

The tort law is not applicable across all the states, and you must research before deciding to file for damages against your insurance firm, which has acted unreasonably. Being in California, you can take advantage of the laws pertaining to good faith and fair dealing. If you are facing denied insurance benefits, it is best to seek help from an experienced attorney.

The Insurance Company Must Act in Good Faith

In California, the law dictates that the insurance company must operate in good faith. With any insurance policy sold, the insurance company is liable to demonstrate fair dealing, which is an implied covenant. According to the state law, Californians can sue or file lawsuits against insurance companies that refuse to demonstrate fair dealing when processing claims.

Insurance companies may also deny legitimate claims, which are acting in bad faith according to the law. In such contexts, policyholders can pursue legal action against insurance companies for breaching the insurance contract for tort claims.

Due to tort law, the power disparity between an insurance company and the insured is minimal. The insured has the right to file for damages beyond what they are facing. For example, a car accident can make a person bedridden, and due to tort law, the injured can claim medical expenses, lost wages, punitive damages, and more.

However, tort law is applicable for first-party claims and not third-party claims.

WhatAres a First-Party Claim and Third-Party Claim?

A first-party insurance claim is when an insurance company directly deals with the insured the (person who purchases their insurance policy). When a person sues or asks for settlement from another insurance company, it is a third-party claim.

Under California law, the insured can take action against their insurance company for breach of duty. However, a third-party claimant can not sue the other insurance company for acting in bad faith. For example, if you’re in a car accident due to the other driver’s negligence, you become a third party. Once you make a claim against the negligent driver’s insurance company, it is a third-party claim, and you become a third-party claimant.

This is because you’re claiming the insurance policy of the negligent driver. In this case, the other insurance company does not have an implied obligation towards you, unlike your own insurance company,y and does not owe you the duty of good faith.

However, it is a bit more complex than this, and it is essential that the distinction between the two, first-party insurance claims and third-party claims, is apparent.

Distinction Between a First-Party Claim and Third-Party Insurance Claim

In the insurance context of an underinsured motorist claim, you can see the complexities between the two. A person in a car accident with an underinsured motorist can result in both types of claims. The injured can file for compensation from the negligent driver’s insurance company. Once they get the policy benefits, they can file for an underinsured motorist claim with their insurance company.

This example demonstrates the difference between the two types of claims. The other party’s insurance company is not responsible for acting in good faith towards you because there is no direct insured insurer relationship between the two. However, the injured’s insurance firm owes them the duty of good faith when they pursue underinsured motorist claims.

Understanding the difference between the two can help you determine where you stand, your claims, and how to move forward legally.

Contact Us Now and Get a Free Consultation

Ehline Law has been an active law firm working diligently to provide its clients with legal protection and legal advice and looking out for their best interests. You can find our law offices in more than 15 locations across California, so wherever you are, we are here to help you with your insurance claims.

Our law firm has recovered more than $150 million in compensation, and our attorneys are hungry when it comes to dealing with insurance firms refusing to act in good faith. Contact us at (213) 596-9642 or send us an email to get a free consultation on your legal case with an attorney today!

Top Notch American Injury Lawyer, Michael Ehline

Michael Ehline

Michael is a managing partner at the nationwide Ehline Law Firm, Personal Injury Attorneys, APLC. He’s an inactive Marine and became a lawyer in the California State Bar Law Office Study Program, later receiving his J.D. from UWLA School of Law. Michael has won some of the world’s largest motorcycle accident settlements.

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