Insurance Law
Bad Faith Claim
Breach of the Implied Covenant of Good Faith and Fair Dealing
Range of Possible Damages
Availability of Tort Remedies
Recovery of Attorney Fees in This Context—Often Called Brandt Fees
Emotional Distress
Declaratory Relief
California Law
“The law implies in every contract, including insurance policies, a covenant of good faith and fair dealing.” (Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 720.) “‘The implied promise requires each contracting party to refrain from doing anything to injure the right of the other to receive the agreement’s benefits.’” (Ibid.; see Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 818 (Egan).) In other words, it “ ‘imposes upon each party the obligation to do everything that the contract presupposes they will do to accomplish its purpose.’” (Chateau Chamberay Homeowners Assn. v. Associated Internat. Ins. Co. (2001) 90 Cal.App.4th 335, 345 (Chateau Chamberay).) “An insurer is said to act in ‘bad faith’ when it not only breaches its policy contract but also breaches its implied covenant to deal fairly and in good faith with its insured.” (Jordan v. Allstate Ins. Co. (2007) 148 Cal.App.4th 1062, 1071.) In this context, “the term ‘bad faith’ is used as “a shorthand reference to a claimed breach by the insurer of the covenant of good faith and fair dealing.” (Bosetti v. United States Life Ins. Co. in City of New York (2009) 175 Cal.App.4th 1208, 1235.) “An insurer’s tortious ‘breach of the implied covenant of good faith and fair dealing involves something beyond breach of the contractual duty itself.’” (Howard, supra,187 Cal.App.4th at p. 528.) That is, “an insurer’s responsibility to act fairly and in good faith in handling an insured’s claim ‘is not the requirement mandated by the terms of the policy itself—to defend, settle, or pay. It is the obligation ...under which the insurer must act fairly and in good faith in discharging its contractual responsibilities.’” (California Shoppers, Inc. v. Royal Globe Ins. Co. (1985) 175 Cal.App.3d 1, 15, quoting Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 573–574.)“ In simple terms, an insurer’s tortious bad faith conduct is conduct that is unreasonable.” (Howard, at p. 529.)
Reasonableness is an objective standard (Bosetti, at p.1237) and must be evaluated as of the time of the insurer’s decisions and actions, not “in the light of subsequent events that may provide evidence of the insurer’s errors.” (Chateau Chamberay, at p.347.)
“Ordinarily, reasonableness is a factual issue to be decided by a jury.” (Fadeeff v. State Farm General Ins. Co. (2020) 50 Cal.App.5th 94, 102.) However, the reasonableness of an insurer’s conduct “can be decided as a matter ‘of law where the evidence is undisputed and only one reasonable inference can be drawn from the evidence.’” (Ghazarian v. Magellan Health, Inc. (2020) 53 Cal.App.5th 171, 186–187; accord Chateau Chamberay, supra, 90 Cal.App.4th at pp.346, 350; Mt. Hawley Ins. Co. v. Lopez (2013) 215 Cal.App.4th 1385, 1424 (Mt. Hawley).)
The relevant facts related to Bartel’s tender requests and Chicago Title’s investigation and denials of tender are neither in dispute nor susceptible to competing reasonable inferences. We therefore review the trial court’s determination on Bartel’s bad faith claim de novo, and we do not defer to the trial court’s determination that Chicago Title did not act in bad faith. Regarding the legal principles governing Bartel’s claim for damages in relation to Chicago Title’s alleged breach of the implied covenant of good faith and fair dealing, a finding of bad faith exposes the insurer to a broad range of possible damages. (See Kransco v. American Empire Surplus Lines Ins. Co. (2000) 23 Cal.4th 390, 400 [“The availability of tort remedies in the limited context of an insurer’s breach of the covenant [of good faith and fair dealing] advances the social policy of safeguarding an insured in an inferior bargaining position who contracts for calamity protection, not commercial advantage”].) Such damages include any damages, including attorney fees, that are the proximate result of the insurer’s breach of the implied covenant of good faith and fair dealing. (Brandt v. Superior Court (1985) 37 Cal.3d 813, 817(Brandt); see Civ. Code, § 3333.) The recovery of attorney fees in this context—often called Brandt fees—is an exception to the generally applicable rule that parties to a lawsuit must ordinarily pay their own fees. (Cassim v. Allstate Ins. Co. (2004) 33 Cal.4th 780, 806 (Cassim).) “If an insurer fails to act fairly and in good faith when discharging its responsibilities concerning an insurance contract, such breach may result in tort liability for proximately caused damages. Those damages can include the insured’s cost to hire an attorney to vindicate the insured’s legal rights under the insurance policy. ‘When an insurer’s tortious conduct reasonably compels the insured to retain an attorney to obtain the benefits due under a policy, it follows that the insurer should be liable in a tort action for that expense. The attorney’s fees are an economic loss—damages—proximately caused by the tort. [Citation.] These fees must be distinguished from recovery of attorney’s fees qua attorney’s fees, such as those attributable to the bringing of the bad faith action itself.’ ” (Ibid., quoting Brandt, supra, 37 Cal.3d at p. 817.) Stated differently, because the “entitlement to attorney fees as compensatory damages is premised on an insured’s need to hire an attorney to vindicate his or her contractual rights under an insurance policy” (Cassim, supra, 33 Cal.4th at p. 807), our high court has “placed a critical limitation on the amount of fees recoverable. ‘The fees recoverable, . . ., may not exceed the amount attributable to the attorney’s efforts to obtain the rejected payment due on the insurance contract. Fees attributable to obtaining any portion of the plaintiff’s award which exceeds the amount due under the policy are not recoverable.’ ” (Ibid., italics omitted.) To the extent the claimed legal fees for both the contract and tort recoveries are intertwined, the plaintiff bears “the burden of demonstrating how the fees for legal work attributable to both the contract and the tort recoveries should be apportioned.” (Cassim, supra, 33 Cal.4th at p. 813.) Further, “to the extent some overlap in legal work occurs, the trial court should exercise its discretion to apportion the fees” (id. at p. 811) to ensure that the Brandt fee award reflects only those fees attributable to the attorney’s efforts to recover under the breach of the insurance contract. (Id. at p. 813.) Similarly, while noneconomic damages such as for emotional distress are available, those damages must flow from the initial breach of the implied covenant and resulting economic loss. (Gourley v. State Farm Mut. Auto. Ins. Co. (1991) 53 Cal.3d 121, 128–129; see also Major v. Western Home Ins. Co. (2009) 169 Cal.App.4th 1197, 1215 (Major).)
Whether a party is entitled to a particular measure of damages is a question of law. (Atkins v. City of Los Angeles (2017) 8 Cal.App.5th 696, 738).
(…) As our Supreme Court has stated in connection with the duty to defend, “an insurer must defend against a suit even ‘“where the evidence suggests, but does not conclusively establish, that the loss is not covered.”’” (Hartford, supra, 59 Cal.4th at p. 287.) Any doubt must be resolved in favor of the insured (ibid.), such that the insurer is excused from defending against a third party claim “only when ‘“the third party complaint can by no conceivable theory raise a single issue which could bring it within the policy coverage.”’”(Id. at p. 288, italics added; see also Montrose, supra, 6 Cal.4th at p. 300, italics omitted [stating, to prevail in an action seeking declaratory relief on the issue of the duty to defend “the insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot”].)
The implied covenant in this context did not require Chicago Title to divine the outcome or speculate as to unpleaded legal theories. Rather, in the face of a claim against the property based on ambiguous maps and road designations, Chicago Title had an implied promise to take reasonable steps to fulfill the expectations of its insured and provide a defense to the claim arising from circumstances conceivably within the scope of the policy. (See Lambert, supra, 53 Cal.3d at p.1081 [“The contract of insurance is unique in that the purchaser seeks not commercial advantage, but rather peace of mind and security in the event of unforeseen calamity.”].)
(California Court of Appeal, Bartel v. Chicago Title Insurance Co., May 30, 2025, Docket No. H052083, Certified for Publication)
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