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Bad Faith Insurance Practices in Real Estate: Your Rights in California

By: LS Carlson Law October 3rd, 2023

Having insurance coverage in real estate transactions provides peace of mind. However, insurance companies sometimes engage in bad faith practices, denying valid claims or acting unfairly. This article overviews bad faith insurance practices in the real estate context, and how a real estate attorney can assist.

Understanding Bad Faith Insurance Practices:
An insurance company may have acted in bad faith if it unreasonably denies or delays payment of a valid claim, fails to investigate a claim thoroughly, or engages in deceptive practices. In the real estate context, these issues may be relevant following property damage, title issues, or liability disputes.
Your Rights as a California Property Owner:**
Under California law, insurance companies owe their insured parties a duty of good faith and fair dealing. See Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 573–574 (1973). Thus, insurers must generally handle claims and other contractual duties promptly, fairly, and in good faith. If an insurance company fails to meet these obligations, homeowners may have legal recourse.

Common Types of Bad Faith Insurance Practices:
• Unreasonable Delay: Insurance companies must promptly investigate and process claims. Unjustified delays in resolving a claim can constitute bad faith. See Carlton v. St. Paul Mercury Ins. Co., 30 Cal. App. 4th 1450, 1456 (1994).
• Unreasonable Denial: Denying a valid claim without proper investigation or reasonable explanation may be considered bad faith. See Wilson v. 21st Century Ins. Co., 42 Cal. 4th 713, 714 (2007).
• Failure to Provide Adequate Coverage: If an insurance policy provides coverage for specific risks, the insurance company must fulfill its obligations according to the terms of the policy. See Butcher v. Truck Ins. Exch., 77 Cal. App. 4th 1442, 1446 (2000).
• Misrepresentation or Fraud: Insurance companies must provide accurate and truthful information to policyholders. Making false statements or misrepresenting policy terms can be considered bad faith. See Clement v. Smith, 16 Cal. App. 4th 39, 41 (1993).

Consulting a Real Estate Attorney:
If you are dealing with a difficult insurance situation, LS Carlson Law is here to help. Our experienced real estate attorneys can guide you through the claims process, negotiate with the insurance company on your behalf, or pursue legal action if necessary. Call us today for a consultation.

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