Insurers Win Ban on ‘Bad Faith’ Lawsuits

In a multimillion-dollar victory for insurance companies, the California Supreme Court today overturned a landmark 1979 ruling that gave accident victims the right to sue insurers for “bad faith” in handling claims.

The 5-2 decision bans such suits after the ruling becomes final. It allowed pending cases to continue but limited them severely by requiring proof of the wrongdoer’s liability before the insurer can be sued--a restriction that eliminates the vast majority of cases, which are settled without an admission of liability.

‘Inequitable Results’

Today’s majority opinion by Chief Justice Malcolm Lucas said the ruling in the 1979 Royal Globe case “has generated and will continue to produce inequitable results, costly multiple litigation, and unnecessary confusion unless we overrule it.”

In dissent, Justice Stanley Mosk, the author of the Royal Globe decision, said the court had “replaced Royal Globe with a ‘Royal Bonanza’ for insurance carriers . . . total immunity for unfair and deceptive practices committed on innocent claimants.”

The ruling marked the first major rollback by the conservative Deukmejian-appointed justices in the civil arena.

The insurance industry has suggested complaints against firms could be taken to the insurance commissioner of the state. But trial lawyers groups scoffed at the idea during earlier arguments, noting that the commissioner had never held firms liable prior to the 1979 decision.

In its decision today, the court dismissed a case Parveni Moradi-Shalal filed in Los Angeles County after she was hit by a car driven by a Fireman’s Fund insurance policyholder. Her $750,000 suit said the company made no effort to settle the policy claim for several months after being asked; it settled five months after she sued the driver.