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?

<p>Negligence involves third-party claims, while bad faith involves first-party claims. (D)</p> Signup and view all the answers

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

<p>A reasonable demand to settle within policy limits (A)</p> Signup and view all the answers

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

<p>When the potential judgment exceeds the demand amount. (D)</p> Signup and view all the answers

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

<p>The policy limit amount (D)</p> 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?

<p>Full judgment against the insured, even beyond policy limits (B)</p> Signup and view all the answers

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

<p>The demand is made without adequate supporting evidence. (D)</p> Signup and view all the answers

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

<p>Demand is made at a time of uncertain liability. (C)</p> Signup and view all the answers

Flashcards

Purpose of Insurance

The primary reason for purchasing an insurance policy is to protect against potential financial losses arising from unforeseen events.

Implied Covenant of Good Faith and Fair Dealing

In California, every contract implicitly includes a duty for parties to act in good faith and fairly towards each other.

Consequences of Bad Faith

When an insurance company acts in bad faith, the insured can recover damages beyond just the policy amount, including compensation for emotional distress and punitive damages.

Distinguishing Negligence and Bad Faith

Negligence claims usually involve third parties, while bad faith claims typically involve the insured themselves and their own insurer.

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Duty to Settle

A reasonable settlement demand within the policy limits is crucial for triggering the insurer's duty to settle. If it's reasonable, the insurer must seriously consider it.

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Reasonable Settlement Demand

A settlement demand is considered reasonable when there's a high likelihood of a judgment exceeding the policy limits, creating a strong incentive to settle.

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Policy Limit

The maximum payment an insurance company is obligated to make under a policy is the policy limit amount, regardless of actual damages.

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Liability for Failure to Settle

If an insurer unreasonably refuses to settle within policy limits, they can be held liable for the entire judgment against the insured, even if it exceeds the policy limits.

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Unreasonable Demand

A policy limit demand is considered unreasonable if it lacks sufficient evidence to support its validity and justifies the requested amount.

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Criteria for a Reasonable Demand

A policy limit demand should be made when there is a clear opportunity to settle the case within the policy limits and the liability of the insured is reasonably clear.

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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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Related Documents

Bad Faith and Open Policy Quiz PDF

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.

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