THIRD
PARTY CLAIMANTS MAY SUE INSURERS
FOR
UNFAIR CLAIMS SETTLEMENT PRACTICES
In 1979, third party claimants in
California were allowed to sue insurers for unfair claims settlement
practices under the Royal Globe case.
In 1988, this right was taken away in the Moradi-Shalal case.
Civil Code section 2870 and 2871
allows third party claimants to sue insurers for unfair claims settlement
practices under Insurance Code section 790.03(h) if the insurer rejected a
settlement demand in the third party liability action and the claimant
obtained a judgment for more than the amount demanded.
Insurers may defend themselves
from allegations of unfair claims settlement practices if they made an
honest mistake in rejecting the settlement demand.
The right of third party
claimants to sue insurers for unfair claims settlement practices may not
be applicable in personal injury cases worth less than $50,000 because of
Civil Code sections 1776 et seq.
Under Civil Code sections 1776 et
seq., an insurer who receives a settlement demand of $50,000 or less has
90 days to request binding arbitration of the claim.
If the policy limits on a claim are $50,000 or less, the insurer
has 150 days to request binding arbitration of the claim.
A request by an insurer for binding arbitration acts as a bar to
any subsequent action for unfair claims settlement practices by the third
party claimant under Civil Code sections 2870 and 2871.
Claimants also may request
binding arbitration if the amount in controversy is $50,000 or less.
Acceptance by the insurer of a request for arbitration also acts to
bar any subsequent action for unfair claims settlement practices.
The clear intent of these
statutes are to provide insurers with a powerful incentive to settle third
party claims, and to encourage arbitration of cases worth $50,000 or less.
