A Video Explaining why There is No Tort Remedy for Non-Insurance Bad Faith

Third Party Claimant has no Right to Tort Damages for Bad Faith by Other Party's Insurer

The Supreme Court of California was faced with the question of “whether an insurance company’s breach of the covenant sounds in tort when it retroactively overcharges a premium it knows is not owed.”

In Jonathan Neil & Associates v. Jones, a dispute between Jones Trucking and Jonathan Neil & Associates arose after an audit of the Joneses’ operations found the trucking company was subcontracting business to other trucking companies. A rule governing the state’s assigned risk plan called for Jones Trucking to pay for the subcontractors’ insurance. Cal-Eagle, the insurer, sought to retroactively collect increased premiums from the Joneses, and brought in Jonathan Neil & Associates, a collection agency.

A breach of this duty of reasonable settlement gives rise to tort damages. However, the Supreme Court of California has, in the past, refused to extend the tort remedy to breaches of contracts other than insurance contracts. The question raised was whether bad faith conduct not involving a claim entitled an insured to tort damages. The court rejected the expansion of tort damages.

“Imposing a duty of good faith and fair dealing running from the Insurer to the [plaintiffs] would ‘create a serious conflict of interest for the [I]nsurer’ by obligating it to safeguard both the [plaintiffs’] and Gonzalez’s interests.” Plaintiffs, as third party claimants, have no contractual relationship with the insurer and cannot sue the insurer for breach of the implied covenant of good faith and fair dealing. In so arguing, the court applied the law as stated by the California Supreme Court in Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287 (Moradi-Shalal).

The Supreme Court held that a third party claimant—an individual who is injured by the alleged negligence of an insured party—does not have a private right of action against the insurer for unfair settlement practices.

© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost

equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and Read last two issues of ZIFL here.