Recovery In Tort from An Insurance Company
In Agricultural Ins. Co. v. Superior Court (1999) 70 Cal. App. 4th 385, 397 82 Cal. Rptr. 2d 594, the court summarized the policy reasons supporting recovery in tort from an insurer for breaches of the implied covenant:
"An insured seeks peace of mind and economic protection against calamity, the insurer provides that protection for a fee. . . . Insurers occupy the ' " 'status as purveyors of a vital service labeled quasi-public in nature."
Thus an insurer's obligations can include a duty to place the interests of the insured on at least an equal footing with its own interests, because the ' " 'obligations of good faith and fair dealing encompass qualities of decency and humanity' " ' similar to the responsibilities of a fiduciary.
Insurance contracts are usually adhesive in nature, since their terms are generally contained in form language dictated by the insurer. . . . 'The insured cannot turn to the marketplace to find another insurance company willing to pay for the loss already incurred.
"An insurer's breach can therefore frustrate the core purpose of insurance (protecting the insured from calamity) and leave the insured exposed to a disaster it has paid to avoid."
These policy considerations have shaped the development of the bad faith tort in two important ways.
First, because tort recovery for breaches of the implied covenant protects the insured's interests in securing an insurance policy, the scope of the implied covenant is tied to the express terms of the policy.
When policy benefits were never due to the insured, California courts have generally held that the insured may not assert a bad faith claim.
Generally, "contract law exists to enforce legally binding agreements," whereas "tort law is designed to vindicate social policy," and thus "conduct amounting to a breach of contract becomes tortious only when it also violates an independent duty arising from principles of tort law." (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal. 4th 503, 514, 515 28 Cal. Rptr. 2d 475, 869 P.2d 454.)
However, an exception to these general principles "has developed in the context of insurance contracts," and "for a variety of policy reasons, courts have held that breach of the implied covenant of good faith and fair dealing will provide the basis for an action in tort." (Foley v. Interactive Data Corp. (1988) 47 Cal. 3d 654, 684, 690 254 Cal. Rptr. 211, 765 P.2d 373.)