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Bad Faith and Open Policy

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Questions and Answers

What is the primary purpose of purchasing an insurance policy, as noted in Egan v. Mutual of Omaha Ins. Co.?

To gain a commercial advantage

To guarantee settlement of all claims

To seek maximum financial gain

To obtain protection against calamity (correct)

What does every contract in California include by default?

An implied covenant of good faith and fair dealing (correct)

Consequential economic losses

Policy limits

Punitive damages

What are plaintiffs entitled to recover if an insurer commits bad faith?

Policy limits only

Benefits due under the policy, emotional distress damages, and punitive damages (correct)

Compensatory damages only

Attorney's fees and interest only

Which of the following best differentiates negligence-based actions from bad faith actions?

Negligence involves third-party claims, while bad faith involves first-party claims. Signup and view all the answers

What must a plaintiff provide to create circumstances that trigger the duty to settle?

A reasonable demand to settle within policy limits Signup and view all the answers

When is a settlement demand considered reasonable under California Civil Procedure Section 999.1?

When the potential judgment exceeds the demand amount. Signup and view all the answers

What is the maximum payout an insurer is obligated to make under an insurance policy?

The policy limit amount Signup and view all the answers

According to Rappaport-Scott v. InterInsurance Exch., what is an insurer liable for if it fails to accept a reasonable settlement?

Full judgment against the insured, even beyond policy limits Signup and view all the answers

In which scenario is a policy limit demand likely to be considered unreasonable?

The demand is made without adequate supporting evidence. Signup and view all the answers

Which of the following is NOT a criterion for a reasonable policy limit demand?

Demand is made at a time of uncertain liability. Signup and view all the answers

Study Notes

Question 1

The primary purpose of purchasing insurance is to obtain protection against calamity, according to Egan v. Mutual of Omaha Ins. Co.

Question 2

Every contract in California contains an implied covenant of good faith and fair dealing by default.

Question 3

Plaintiffs who have suffered bad faith by the insurer are entitled to policy benefits, emotional distress damages, and punitive damages.

Question 4

Negligence involves third-party claims whereas bad faith involves first-party claims, a key differentiator between the two actions.

Question 5

A reasonable demand to settle within policy limits creates circumstances triggering the duty to settle for an insurer.

Question 6

A settlement demand is considered reasonable when the potential judgment exceeds the demand amount, per California Civil Procedure Section 999.1.

Question 7

An insurer's maximum obligation is the policy limit amount, not court-proven damages or settlement demands.

Question 8

If an insurer rejects a reasonable settlement, it is liable for full judgment even if exceeding policy limits.

Question 9

A policy limit demand is unreasonable if it lacks adequate supporting evidence, even if liability is clear.

Question 10

A demand made in a time of uncertain liability is an unreasonable policy demand criterion.

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Description

Test your knowledge on the intricacies of insurance law, particularly focusing on bad faith claims and settlement negotiations. This quiz covers key concepts like implied covenants in California, damages due to bad faith, and the differentiation between negligence and bad faith. Perfect for law students or anyone interested in insurance regulations.