Velasquez v. Truck Ins. Exchange

Velasquez v. Truck Ins. Exchange (1991) 1 Cal.App.4th 712 involved a bad faith cause of action based on the denial of an insurance claim and wrongful cancellation of the policy. The insured sought both policy benefits and additional compensatory and punitive damages. ( Id. at pp. 717, 722.) The Velasquez court construed the rule from Lawrence v. Western Mutual Ins. Co, 204 Cal. App. 3d 565 and Abari v. State Farm Fire & Casualty Co. (1988) 205 Cal. App. 3d 530, to be that "where the bad faith action is based on allegations relating to the handling of a claim or the manner in which it is processed, it is an action 'on the policy' and, therefore, subject to the limitations bar." (Velasquez, at p. 719.) It distinguished Murphy v. Allstate Ins. Co., 83 Cal. App. 3d 38 on the grounds that Murphy involved "conduct by the insurer occurring after the initial policy coverage" and that "in Murphy, the bad faith action clearly related to activities by the insurer that had nothing to do with the initial claim under the policy." (Velasquez, at pp. 719, 720.) The Velasquez court held that the bad faith cause of action was "on the policy" because it was based on the denial of an insurance claim. Although the cause of action sought both policy benefits and additional damages, the court held that the entire cause of action was "on the policy" because the additional damages "related solely to their allegations of denial of their claim and wrongful cancellation and not to any additional acts by the insurer.... None of the actions alleged by appellants as bad faith relate to events subsequent to initial policy coverage ...." ( Velasquez v. Truck Ins. Exchange, supra, 1 Cal.App.4th at p. 722.)