A bad faith insurance claim is a lawsuit against an insurer for handling a claim unreasonably — denying, delaying, underpaying, or failing to investigate properly. In California it is a tort, not just a breach of contract, which is why the damages can exceed the policy benefits. But there is a limit most explanations get wrong: in California, an injured person generally cannot sue the at-fault driver’s insurance company for bad faith. The claim belongs to the policyholder, against their own insurer.
Scope of this page: it covers bad faith arising out of an injury claim — most often a dispute with your own insurer over uninsured or underinsured motorist benefits or medical payments coverage. It is not a guide to property, health, life, or disability claims, which follow the same doctrine but different practical ground.
Key Points
- Every California insurance policy carries an implied covenant of good faith and fair dealing. Breaching it in claim handling is a tort.
- The claim belongs to the insured. An injured claimant is not the at-fault driver’s policyholder and generally has no bad faith claim against that insurer.
- California’s unfair claims practices statute does not give private individuals a right to sue. The Supreme Court settled that in 1988.
- Being wrong is not bad faith. Where there was a genuine dispute and the insurer investigated reasonably, a denial is generally not actionable.
- Where bad faith is established, the attorney’s fees incurred to obtain the withheld benefits can be recoverable as damages.
- Punitive damages require clear and convincing evidence of oppression, fraud, or malice — a higher bar than the bad faith claim itself.
First-Party and Third-Party Bad Faith: The Distinction That Decides Everything
This is where most published summaries — including AI-generated ones — mislead California readers.
First-party bad faith
You have a policy. You make a claim under it. Your insurer handles it unreasonably. Because you are the policyholder, the implied covenant runs to you and you can sue. In an injury context this usually means a dispute with your own carrier over uninsured or underinsured motorist benefits, medical payments coverage, or collision.
Third-party bad faith
The at-fault driver’s insurer refuses a reasonable settlement within policy limits, the case goes to trial, and a judgment lands above the limits. The person harmed by that conduct is the at-fault driver — their own insurer exposed them to personal liability. The claim belongs to them, and it typically reaches an injured claimant only by assignment after judgment.
Why the injured claimant cannot simply sue the other insurer
For a period, California did allow a third-party claimant to sue an insurer directly for unfair claims settlement practices. The California Supreme Court reversed that position in Moradi-Shalal v. Fireman’s Fund Insurance Companies (1988) 46 Cal.3d 287, holding that the unfair practices statute creates no private right of action.
The facts of that case are worth knowing, because they are the facts of an ordinary car accident claim: the plaintiff was injured by a negligent driver, her lawyers twice wrote to the driver’s insurer with evidence of damages requesting settlement, and the insurer did not respond. She sued the insurer. The Supreme Court held she had no such action.
So when the other driver’s adjuster ignores a demand, lowballs, or drags out an investigation, the remedy is generally to pursue the claim — and if necessary the lawsuit — against the driver, not a bad faith action against the insurer. That is frustrating, and it is the law.
What Bad Faith Actually Requires
Not every wrong denial is bad faith. The standard is unreasonableness, and California courts recognise what is usually called the genuine dispute doctrine: where there was a real dispute about coverage or the value of a claim, and the insurer investigated reasonably and had a considered basis for its position, the insurer is generally not liable in tort even if it turns out to have been wrong.
That is why these claims turn less on the outcome than on the process. The questions that matter:
- Did the insurer actually investigate, or reach a conclusion and stop?
- Did it look for evidence supporting the claim, or only evidence against it?
- Did it explain its position, in writing, by reference to the policy?
- Did it respond within a reasonable time, or go silent?
- Did it apply the policy language as written, or construe it to reach a result?
An insurer that got the answer wrong after a careful process is in a very different position from one that got it wrong after no process at all.
Where This Comes Up in Injury Claims
The most common route is a claim on your own uninsured or underinsured motorist coverage. That claim is a contract claim against your own carrier — the same carrier that has been collecting your premiums — and the relationship becomes adversarial the moment you make it.
Uninsured motorist disputes in California are generally resolved by arbitration rather than in court, which is a separate track from a bad faith action. An insurer that handles a UM claim unreasonably can face both: the arbitration determines what is owed under the policy, and a bad faith action addresses the handling.
Medical payments coverage disputes and disagreements about the value of a first-party claim raise the same issues on a smaller scale.
What Can Be Recovered
| Category | What it covers |
| Policy benefits | What should have been paid under the contract in the first place |
| Consequential economic loss | Financial harm caused by the withholding — the knock-on costs of not being paid when you should have been |
| Emotional distress | Available in a bad faith tort action in a way it is not in an ordinary contract claim |
| Attorney’s fees to obtain the benefits | Under Brandt v. Superior Court (1985) 37 Cal.3d 813, the fees reasonably incurred to compel payment of wrongfully withheld benefits are recoverable as damages |
| Punitive damages | Only on clear and convincing evidence of oppression, fraud, or malice under Civil Code section 3294 — a materially higher standard |
Brandt fees deserve a note, because they are the reason these cases are viable at all. When an insurer’s own conduct forces you to hire a lawyer to get benefits you were already owed, the court treats that expense as part of the harm. They are available to the insured — another reason the first-party distinction matters.
No page can tell you what a bad faith claim is worth. It depends on the benefits withheld, the consequences of the withholding, and the conduct itself.
What the Department of Insurance Can and Cannot Do
California regulates claim handling, and the Department of Insurance accepts complaints from consumers about how a claim was handled. That is a genuine option and it costs nothing.
What it is not is a substitute for a claim. The regulatory route can prompt an insurer to reconsider and creates a record, but the Department does not award you damages, and a complaint does not pause any deadline that applies to your claim. Filing one and waiting is a common and costly mistake.
The Evidence These Cases Turn On
- The claim file. The insurer’s internal notes, evaluations, and reserve entries are the heart of a bad faith case, and they are obtained in litigation rather than beforehand.
- Written communications. Everything the insurer put in writing, and everything it declined to put in writing.
- The timeline. Dates of contact, silence, and requests — reconstructed from your own records as well as theirs.
- What you submitted. Proof that the information the insurer says it lacked was in fact provided.
The practical implication is to keep everything and to put things in writing during a claim, before there is any dispute. A phone call in which an adjuster says something useful is worth much less than an email.
Insurance Disputes on the Peninsula
Our office at 15 North Ellsworth Avenue, Suite 105, San Mateo, CA 94401 handles injury claims across San Mateo County, and civil matters for this area are generally heard in the San Mateo County Superior Court. Where an injury claim turns into a dispute with your own insurer, the two run together — our California personal injury and California civil litigation practices both come into it. More about the office is on our San Mateo page.
How Vaksman Khalfin Can Help
Where an injury claim involves your own coverage, we can evaluate whether the insurer’s handling was unreasonable or merely unfavourable, preserve the written record before positions harden, pursue the benefits owed under the policy, and assess whether the conduct supports a separate action. Where the dispute is with the other driver’s insurer, we can be direct with you about what the law does and does not allow, which is often the more useful conversation.
The firm’s personal injury practice is led by Alan D. Khalfin, admitted in California. We handle injury matters on a contingency-fee basis: there is no upfront attorney’s fee, and attorney’s fees are owed only if we recover compensation for you. Case costs are a separate category from attorney’s fees, and how both are handled is set out in the written fee agreement we go through with you before anything is signed. Initial consultations are free.
To speak with a California attorney about an insurance dispute arising from an injury claim, call 650-250-0705 or schedule a free consultation. Related reading: our pages on car accident settlements and car accident lawsuits, and our California personal injury guides.
Reviewed by Alan D. Khalfin, Partner and Managing Attorney, Vaksman Khalfin, PC (admitted in California). Last reviewed: 09/10/2026
Frequently Asked Questions
Generally no. In Moradi-Shalal v. Fireman's Fund Insurance Companies (1988) 46 Cal.3d 287, the California Supreme Court held that the unfair claims practices statute creates no private right of action. As an injured claimant you are not that insurer's policyholder, so the implied covenant does not run to you. A third-party bad faith claim belongs to the at-fault driver and typically reaches a claimant only by assignment after an excess judgment.
First-party bad faith is your own insurer mishandling your claim under your own policy — uninsured motorist benefits, medical payments, collision. Third-party bad faith is an insurer exposing its own insured to an excess judgment by refusing a reasonable within-limits settlement. The injured person is the claimant in the first and, at most, an assignee in the second.
Broadly: unreasonably denying a claim, unreasonably delaying payment or investigation, failing to investigate adequately, underpaying a claim it knows is worth more, misrepresenting policy terms, and — in the liability context — refusing a reasonable settlement within limits and exposing its insured to an excess judgment. What unifies them is unreasonableness in handling, not simply an unfavourable outcome.
It is harder than people expect, because being wrong is not enough. California courts recognise that where there was a genuine dispute and the insurer investigated reasonably, a denial is generally not actionable in tort. The case is built on the insurer's process — its file, its communications, and its timeline — rather than on the fact that it said no.
There is no reliable figure and no average worth quoting. Value depends on the benefits withheld, the consequential harm the withholding caused, whether emotional distress damages are established, whether the fees incurred to obtain the benefits are recoverable, and whether the conduct reaches the punitive damages standard.
Potentially. Under Brandt v. Superior Court (1985) 37 Cal.3d 813, an insured who establishes bad faith may recover as damages the attorney's fees reasonably incurred to compel payment of the wrongfully withheld benefits. This is an exception to the general rule that each side pays its own fees, and it is available to the policyholder rather than to a third-party claimant.
It is a reasonable step and it costs nothing. Understand what it does: the Department can review how a claim was handled and its involvement sometimes prompts reconsideration, but it does not award damages and a complaint does not extend any deadline that applies to your claim. It is a complement to pursuing the claim, not a replacement for it.
There is no meaningful average. It depends on whether the underlying benefits dispute resolves first, whether the insurer's file is produced without a fight, how contested the conduct is, and the court's calendar. Anyone quoting a duration without knowing those things is guessing.
