Rights of policyholders to sue insurance companies expanded by California court

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California Insurance NewsLegal observers are predicting a small increase in the number of consumer protection lawsuits against insurers in California, as a result of a decision by state appellate that says that in a case of alleged unfair claims practices, policyholders are permitted to sue The Progressive Group of Insurance Companies.

Until now, California courts had maintained that individuals have no private right of action to file a lawsuit within the Unfair Insurance Practices Act (UIPA) of the state for alleged violations. A California Supreme Court decision in 1988 stated that the state insurance commissioner was responsible for litigating civil actions which result from allegations of unfair claims.

That said, the law in the state prohibits the California Insurance Code’s private enforcement, therefore preventing claims from being made under the UIPA. This is because the state insurance commissioner is given the regulatory and statutory authority by the California Insurance Code to pursue circumstances of bad faith by insurers. These include allegations such as delaying the process of claims, misrepresenting benefits and coverage, attempting to settle claims unfairly, and recommending that a policyholder not seek legal assistance or representation.

The California Court of Appeals has now decided that a new option should be created allow potential litigants to pursue legal action when they have suffered from the unfair business practices of an insurer.

Dennis Perluss, Presiding Justice over the case, stated that “[T]he Legislature intended the insurance commissioner’s authority to use UIPA enforcement powers to be cumulative, not exclusive.” The court’s panel had three judges in total and they ruled that a policyholder is within his or her rights to sue an insurer for alleged violations to claims, as long as that claim was not made under the UIPA.

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