No Duty to Defend Policy In California
In Waller v. Truck Ins. Exchange, Inc. (1995), 11 Cal. 4th 1, a third party insurance bad faith case, our Supreme Court held that when an insurer properly concludes that it has no duty to defend its insured under the policy and denies benefits on that basis, the insured may not assert a claim for bad faith, reasoning that "the covenant of good faith and fair dealing is implied as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct that frustrates the other party's rights to the benefits of the agreement." (Id. at p. 36.)
In reaching this conclusion, the Waller court favorably cited Love v. Fire Ins. Exchange (1990) 221 Cal. App. 3d 1136 271 Cal. Rptr. 246, a first party insurance bad faith case.
In Love, the insureds made untimely claims for policy benefits, and the court in Love concluded that the insureds' bad faith claim failed as a matter of law because no benefits due under the policy had been withheld. (Id. at pp. 1151-1152.)
In so concluding, the Love court stated:
"When benefits are due an insured, delayed payment based on inadequate or tardy investigations, oppressive conduct by claims adjusters seeking to reduce the amounts legitimately payable and numerous other tactics may breach the implied covenant because it frustrates the insured's primary right to receive the benefits of his contract--i.e., prompt compensation for losses.
Absent that primary right, however, the auxiliary implied covenant has nothing upon which to act as a supplement, and should not be endowed with an existence independent of its contractual underpinnings." (Id. at p. 1153.)