A plaintiff’s attorney sends a documented policy limits demand. Liability is clear, the records support the number, and the demand sits comfortably inside the at-fault driver’s coverage. The carrier goes quiet, then counters with a fraction of it. Anyone in that position starts asking about a bad faith insurance claim, and most of the answers online point in the wrong direction.
California bad faith insurance law gives plaintiffs real leverage. It just does not run where most people assume it does, and knowing the difference separates a viable claim from a dead end.
Why a Bad Faith Insurance Claim Is Not Simply a Denied Claim
California defines unfair claims settlement practices by statute. Insurance Code section 790.03(h) lists sixteen specific practices that qualify, including:
- Misrepresenting facts or policy provisions relating to coverage
- Failing to adopt and implement reasonable standards for prompt investigation of claims
- Failing to attempt a prompt, fair, and equitable settlement where liability has become reasonably clear
- Compelling insureds to file suit by offering substantially less than what they ultimately recover
- Unreasonable delay in acknowledging or acting on communications about a claim
That list matters, but not in the way many articles suggest. In 1988, the California Supreme Court held that section 790.03 does not create a private cause of action against an insurer. Enforcement of the statute belongs to the Department of Insurance. What the statute does is supply the standard: those sixteen practices show up almost verbatim in the jury instructions courts use to evaluate whether an insurer handled a claim unreasonably.
So the practical takeaway is narrow and important. Bad faith is not “the insurer said no.” It is a documented pattern of conduct that a jury can measure against a defined standard. When an insurer refuses to pay a claim after a reasonable investigation and a genuine coverage dispute, that is usually not bad faith. When it stalls, ignores evidence, or lowballs a claim with clear liability, it becomes something a jury can evaluate.
The Duty to Settle, and Who Actually Holds It
Every liability policy in California carries an implied covenant of good faith and fair dealing. Under long-standing California Supreme Court authority, that covenant obligates the insurer to make reasonable efforts to settle a third-party claim against its insured. Where liability is clear, and the exposure exceeds the available limits, a good faith consideration of the insured’s interests can require the carrier to accept a reasonable demand within those limits.
The logic is straightforward. The insurer controls the defense and the settlement decision. If it gambles and loses, only the insured pays the excess. An insurer that unreasonably refuses a reasonable settlement offer within limits can be held liable for the entire judgment, including the portion above the policy limits.
Here is the part that trips people up: that duty runs to the insured, meaning the at-fault defendant. It does not run to the injured claimant. The plaintiff is a stranger to the insurance contract.
Can an Injured Plaintiff Sue the Other Driver’s Insurer Directly?
No. For a brief window after a 1979 decision, California allowed injured third parties to sue the other side’s carrier directly for statutory unfair practices. The Supreme Court overruled that decision in 1988, reasoning that the Legislature never intended section 790.03 to create a private lawsuit.
What happens instead is a two-step mechanism, and it is worth stating plainly:
The plaintiff makes a reasonable, well-documented demand within policy limits. The carrier rejects or ignores it. The case tries, and the jury returns a verdict against the insured that exceeds the coverage. The insured now holds a claim against their own carrier for the excess, because it was the carrier’s unreasonable refusal that created the exposure. From there, the insured either pursues that claim directly, or assigns it to the plaintiff, frequently as part of a covenant not to execute against the insured’s personal assets. The plaintiff then stands in the insured’s shoes.
That distinction is the whole ballgame. Content that describes suing the tortfeasor’s insurer for bad faith as a direct right is describing law that has not existed in California since 1988. An insurance bad faith lawyer structuring the assignment, and the language of the underlying judgment, is doing the work that makes recovery possible.
The consequence for practice: the demand letter is not just a negotiating document. It is the evidentiary record showing the insurer had a real opportunity to protect its insured and passed on it.
What a Reasonable Settlement Demand Actually Looks Like
California appellate authority has held that a demand triggers the duty to settle when its terms are clear enough to form an enforceable contract had the insurer accepted, all claimants join in it, it offers a complete release of all insureds, and the acceptance window gives the carrier an adequate opportunity to investigate and evaluate the exposure. Rushed or ambiguous demands have sunk otherwise strong cases.
Since January 1, 2023, the Legislature has codified much of this for pre-suit demands. Code of Civil Procedure section 999.1 requires that a time-limited demand:
- Be in writing and labeled as a time-limited demand, or reference the statute directly
- Allow at least 30 days for acceptance if sent by email, fax, or certified mail, and at least 33 days if sent by regular mail.
- Make a clear and unequivocal offer to settle all claims within policy limits, including satisfaction of all liens.
- Offer a complete release of the insureds from all present and future liability for the occurrence.
- State the date and location of the loss, the claim number if known, and describe all known injuries
- Include reasonable proof supporting the claim, such as medical records or bills.
The chapter applies to demands made before a complaint or arbitration demand is filed, where the claimant has counsel, on motor vehicle, homeowner, and commercial premises liability policies. A demand that fails to substantially comply will not be treated as a reasonable offer within policy limits in later litigation seeking extracontractual damages. That is a procedural trap with substantive consequences, and it is why careful attorneys treat the demand as a drafting exercise rather than a letter.
What Plaintiffs and Attorneys Can Recover
Damages in a bad faith insurance claim are described by category, not by figure, because outcomes turn entirely on the record. Generally, an insured who prevails, or an assignee standing in that position, may pursue:
The excess judgment itself, meaning the amount of the verdict above the policy limits that the insurer’s unreasonable refusal exposed the insured to. Consequential economic loss proximately caused by the carrier’s conduct. Emotional distress damages in appropriate cases. Punitive damages where the insured proves oppression, fraud, or malice under Civil Code section 3294. And attorney’s fees under the Brandt doctrine, which allows recovery of the fees reasonably incurred to compel payment of benefits the insurer wrongfully withheld. Worth noting for accuracy: whether Brandt fees extend to failure to settle cases where the carrier eventually paid its limits remains contested, and at least one federal court applying California law has said they do not.
This is also why carriers settle. A well-documented demand converts an ordinary claim into a file with excess exposure attached, and adjusters price that risk. An insurance bad faith lawyer reviewing the claim later will read the same file the adjuster did.
What You Should Know
Bad faith insurance California disputes reward preparation over outrage. The statute defines the conduct. The duty to settle protects the insured, not the claimant. And the plaintiff’s path to the excess runs through the insured’s rights, by assignment or by the insured’s own action, never by a direct suit against the other side’s carrier. A demand that satisfies section 999.1 and gives the insurer a genuine chance to protect its policyholder is the foundation of everything that follows.
The pressure point is time. When an insurer refuses to pay a claim at a reasonable number, the plaintiff still has rent, medical bills, and lost income, and that pressure is exactly what a lowball offer is designed to exploit. Fund Capital America provides pre-settlement funding so plaintiffs can cover living expenses while their attorney builds the record instead of accepting an early offer out of necessity. If you are handling a case where a carrier is stalling near policy limits, talk to our team about what support looks like.
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