The Third-Party Cases Fair Actions

Civil Code Section 2870 defines "third-party claimant" as each individual seeking recovery against an insured under a liability insurance policy or a self-funded liability protection program, fund, or plan, for bodily injury; wrongful death; or property damage resulting from an incident involving a motor vehicle; including, without limitation, damages resulting from loss of consortium or loss of care, comfort, society and the like resulting from wrongful death.

An "insurer" shall mean any insurer licensed pursuant to or subject to the regulations under the Insurance Code which provides liability insurance to an insured against whom a third-party claimant makes a claim for bodily injury, or for property damage resulting from an incident involving a motor vehicle.

"Liability insurance" means that portion of a personal or commercial insurance policy or a private self-funded liability protection program, fund or plan, which provides liability coverage for bodily injury, or for property damage resulting from an incident involving a motor vehicle.

"Bodily injury" means physical injury, sickness or disease sustained by a person, including death. "Bodily injury" does not mean emotional distress of any kind resulting from economic loss or emotional distress resulting from a cause other than economic loss unless accompanied by actual physical manifestations of such emotional distress.

Civil Code Section 2871 states that an insurer shall act in good faith toward and deal fairly with the third-party claimants. A third-party claimant may bring an action against an insurer doing business in the State of California to recover damages, including general, special, and exemplary damages, for commission of any unfair claims settlement practices specified in Paragraphs 1, 2, 3, 5, 8, 9, 10, 11, 12, 13, 14 or 15 of subsection (h) of Section 790.03 of the Insurance Code, as it relates to a third-party claimant.

An insurer shall not be considered to have violated its obligation to act in good faith and deal fairly with the third-party claimant because of the insurer’s honest mistake in judgment in connection with the settlement of the claim. The statute specifically states that: "The fact that an insurer did not settle a claim is not necessarily proof of bad faith."

The limitations on the third-party claimant are as follows: A third-party claimant shall not be entitled to assert the remedies set forth in subdivision (a) unless a third-party claimant (1) obtains in the underlying action a final judgment after trial, a judgment after default, or an arbitration award arising from a contractual pre-dispute by an arbitration clause or agreement, and (2) the third-party claimant makes a written demand by certified mail to settle the claim in the underlying action, and the claimant’s judgment or arbitration award in the prior proceedings exceeds the amount of the final written demand on all claims by the third-party claimant made before trial, entry of default, or arbitration listed above. The final written demand sent by certified mail may not exceed the applicable policy limits, and shall be deemed rejected if not responded to within thirty days after receipt of the final written demand.

The professional liability insurer for medical, health care, or legal malpractice is not liable under this title if both the following conditions apply: (1) the consent of the policyholder to settlement is a prerequisite to settlement; and (2) the policyholder withholds consent to settlement.

A person injured in an accident arising out of the operation and use of a motor vehicle, who at the time of the accident was operating a vehicle in violation of Sections 22152 and 22153 of the Vehicle Code, and was convicted of that offense, may not assert a cause of action under this section.

Any applicable statute of limitations do not begin until the underlying claim has been resolved through a final judgment. In the event of an appeal by either party, resolution of the appeal shall be a prerequisite to a claim under this Title.

Nothing in this Title shall abrogate or limit any theory of liability or remedy otherwise available at law, including, but not limited to, tort remedies for breach of the implied covenant of good faith and fair dealing, or any liability or remedy based on Com v. Traders General Insurance Company or Crisci.

These remedies are prospective and apply to accidents, events, or occurrences or losses that occur on or after January 1, 2000, or conduct by the insurer that occurs after January 1, 2000.

Points of Interest

An insured cannot sue under Fair action.

A third-party claimant also includes persons seeking damages for loss of consortium or loss of care, comfort, society and the like, resulting from wrongful death.

Only natural persons may maintain a Fair action.

The action can be maintained only where the injured party’s claim against the insured is for bodily injury, wrongful death or vehicular property damage (property damage resulting from a motor vehicle accident).

A Fair action can be based on property damage resulting from an incident involving a motor vehicle. This is not necessarily limited to automobile accidents.

No cause of action under Fair be asserted by a person convicted of drunk driving. It is unclear whether Fair allows a person convicted of drunk driving to sue for vehicle property damage.

Objective or Subjective Standard

By requesting arbitration where the settlement demand or policy limits do not exceed $50,000, the insurer is conclusively presumed to have acted in good faith toward the third-party claimant. Code of Civil Procedure Section 1788.

The sections of 790.03 that are included within this provision are: "Misrepresenting to claimants pertinent facts or insurance policy provisions relating to any coverages at issue. Section 790.03(h)(1).

Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies. (Section 790.03(h)(2))

Failing to adopt or implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies. (Section 790.03(h)(3))

Not attempting in good faith to effectuate prompt, fair and equitable settlement of claims in which liability has become reasonably clear. (Section 790.03(h)(5))

Threatening claimants with an appeal from an arbitration award for the purpose of compelling them to accept less than the amount awarded (Section 790.03(h)(10))

Delaying payment by requiring the claimant or physician to submit a preliminary claim report and then a formal proof of loss, both of which contains substantially the same information. (Section 790.03(h)(11)

Refusing to settle claims on which liability is apparent on coverage in order to influence settlement under other coverages. (Section 790.03(h)(12))

Not providing a reasonable explanation of the basis relied upon in the insurance policy for denying the claim or refusing to settle. (Section 790.03(h)(13))

Directly advising the claimant not to obtain the services of an attorney. (Section 790.03(h)(14))

Misleading a claimant as to the applicable statute of limitations. (Section 790.03(h)(15)

The act applies to any single unfair practice done by an insured. No general business practice has to be demonstrated.

Subdivision (h)(3) requires the insurer to adopt and implement reasonable standards for the prompt investigation and processing of claims. If the insurer has done so, the fact that the employees fail to comply with these standards does not by itself show a violation of this section by the insurer.

A good faith attempt to effectuate settlement when liability is reasonably clear may require the insurer to initiate settlement discussions in appropriate cases.

If liability is reasonably clear, the insurer must attempt to a fair and equitable settlement.

Section 790.03(h)(5) applies only to pre-judgment conduct. Coleman v. Gulf Insurance Company, 41 Cal.3d 782.

Presumably, therefore, a third-party claimant can recover under Fair for emotional distress as general damages resulting from the insurer’s unfair settlement practices, where the underlying claim is covered under Fair. On the other hand, no Fair action lies where the underlying claim was for emotional distress alone (unaccompanied by physical manifestations), because such claims are not bodily injury within the meaning of Fair.

Code of Civil Procedure Section 1778 provides that where a claimant’s settlement demand or the policy limits are $50,000 or less, the insurer may avoid Fair liability all together by a timely request for arbitration of the underlying claim.

The third-party claimant must be represented by counsel.

The insurer’s request for arbitration must be made within 150 days after service of the complaint, or within 90 days after the third-party claimant makes a settlement demand not exceeding $50,000.

The request for arbitration must be in writing and sent by certified mail to the third-party claimants. The response must be in writing and served by the insurer by certified mail, return receipt requested. If not responded to within 30 days, the request for arbitration is deemed rejected.

Either the claimant or the insurer may request that the claim be removed from arbitration upon showing of good cause. The conclusive presumption no longer applies.