Dealing with an insurance company can be a frustrating and unpleasant experience under the best of circumstances, but attempting to recover damages for an auto accident can be especially maddening. California has laws that require insurers to use good faith in dealing with both their own policy holders and with persons who have a claim for damages against a policy holder.
The law with the broadest application is the insurer's implied obligation to act in good faith and deal fairly with a person making a claim. An insurer can be found to have acted in bad faith if it unreasonably fails to pay a claim or delays paying a claim where the liability of the policy holder to the claimant has been reasonably established. Insurance companies are not obligated to pay every claim they receive, but insurers must use reasonable efforts to investigate all of the circumstances of the case before it makes the decision to pay or not pay. If an insurer denies a claim, it must have a reasonable basis for doing so. Also, an insurer cannot put its interests ahead of the policy holder's interests; in other words, an insurer cannot refuse to pay a claim because it wants to save money.
The second law that governs claims practices by insurers is the California Insurance Code. This law identifies a number of acts that can be deemed "unfair claims settlement practices," including failing to effectuate the "prompt, fair and equitable settlements of claims in which liability has become reasonably clear.
The law allows a claimant who has been unfairly treated by an insurer to recover actual damages, which are usually in the amount of the claim, damages for mental suffering and attorney fees. Any person whose insurance claim has been denied may benefit from a consultation with an attorney who has dealt with such claims. Insurance bad faith is a complex area of the law that requires considerable professional expertise. The important message is this: just because an insurer denies a claim does not mean the claimant has no legal remedies.