California Court of Appeal, Fox Paine & Company, LLC v. Twin City Fire Insurance Company, A168803

Good Faith

 

Good Faith and Fair Dealing

 

Insurance Contracts

 

California Law

 

 

 

 

Plaintiffs have, as noted above, not alleged exhaustion under the excess policies, and thus no coverage, a failure fatal to their claim for bad faith. As our Supreme Court succinctly put it in Kransco v. American Empire Surplus Lines Ins. Co. (2000) 23 Cal.4th 390, 408, citing Waller: “Of course, without coverage there can be no liability for bad faith . . .. [Citation.]” Or as Waller itself put it, citing to, and quoting from, a leading Court of Appeal case: “It is clear that if there is no potential for coverage and, hence, no duty to defend under the terms of the policy, there can be no action for breach of the implied covenant of good faith and fair dealing because the covenant is based on the contractual relationship between the insured and the insurer.

 

(Love v. Fire Ins. Exchange [(1990)] 221 Cal.App.3d 1136, 1151−1153 [(Love)].)” (Waller, supra, 11 Cal.4th at p. 36.) Addressing claims by insureds similar to those plaintiffs make here, this is how the Court of Appeal distilled the law in Brown v. Mid-Century Ins. Co. (2013) 215 Cal.App.4th 841, 858: “The Browns allege that Mid-Century breached the implied covenant of good faith and fair dealing by failing to investigate their claim properly, engaging in unlawful and deceptive claims practices, and refusing to indemnify the Browns under the policy. Because the policy did not cover the Browns’ claims, however, the Browns do not have a claim for breach of the implied covenant of good faith and fair dealing. (See Kransco v. American Empire Surplus Lines Ins. Co. [,supra,] 23 Cal.4th [at p.] 408 [‘without coverage there can be no liability for bad faith on the part of the insurer’]; Cardio Diagnostic Imaging, Inc. v. Farmers Ins. Exchange [(2012)] 212 Cal.App.4th [69,] 76 [‘because no policy benefits were due under the policy, [the insured’s] claim for breach of the implied covenant of good faith and fair dealing cannot be maintained’].)” This is how Justice Croskey’s commentary puts it: “[12:45] No ‘Bad Faith’ Liability Where No Breach of Contract: The insurer’s obligations under the implied covenant do not extend beyond the purposes and objectives of the existing insurance contract: ‘The covenant of good faith is read into contracts in order to protect the express covenants or promises of the contract, not to protect some general public policy interest not directly tied to the contract’s purposes.’ [Citations.] “In short, if the insurer did not breach the policy, it did not breach the implied covenant. (See Waller [, supra,] 11 Cal.4th [at p.] 36 [‘the conclusion that a bad faith claim cannot be maintained unless policy benefits are due is in accord with the policy in which the duty of good faith is [firmly] rooted].’) [Citations.]” (Croskey, et al., Cal. Practice Guide: Insurance Litigation, supra, ¶ 12:45.)

 

Love held that “a bad faith claim cannot be maintained unless policy benefits are due.” (Love, supra, 221 Cal.App.3d at p.1153.) Or as that case put it at an earlier point, “there are at least two separate requirements to establish breach of the implied covenant: (1) benefits due under the policy must have been withheld; and (2) the reason for withholding benefits must have been unreasonable or without proper cause.” (Love, supra, 221 Cal.App.3d at p. 1151.)

 

 

 

 

California Court of Appeal, Sept. 5, 2024, Fox Paine & Company, LLC v. Twin City Fire Insurance Company, A168803, Certified for Publication)