California fair Claims Settlement Practices Regulations

The Reasons Why the California Department of Insurance Imposed the California Fair Claims Settlement Practices Regulations on All Insurers Doing Business in California

In 1993, after waiting five years after receiving direction from the California Supreme Court, the state of California determined that the insurance industry needed to be regulated to stop insurers from treating the people insured badly and without good faith. It created a set of Regulations called the “California Fair Claims Settlement Practices Regulations” (the “Regulations) that were designed to enforce the mandate created by the California Fair Claims Settlement Practices statute, California Insurance Code Section 790.03 (h). in response to the direction of the California Supreme Court in its decision, Moradi-Shalal v. Fireman’s Fund Ins. Companies, 46 Cal. 3d 287 (1988).

In so doing the California Department of Insurance (CDOI) issued rules that were designed to micro manage the business of insurance claims and create a method to punish those insurers who failed to comply with the Regulations. Some of the Regulations recited what had always been recognized by the insurance industry as good faith and proper claims handling. Others imposed draconian mandates on what and when to do everything in the claims process.

The Regulations also provided a guide to insureds, public insurance adjusters and policyholders’ lawyers to assert any violation of the Regulations to be evidence of an insurer’s breach of the implied covenant of good faith and fair dealing.