Most people learn the at-fault driver’s policy limit early in a claim, and it can be the worst news they’ve gotten since the crash. Bad faith insurance in California is the reason that number isn’t always where the conversation ends. There’s a route by which an injured person recovers more than the policy, and it runs through the way the insurance company handled the claim rather than through the collision itself. It’s uncommon, it’s widely misunderstood, and it gets built during the claim instead of discovered after one.
What the other driver’s insurer owes you
Very little, as a legal matter. An insurance company’s duty of good faith runs to its own policyholder, not to the person that policyholder injured. In Moradi-Shalal v. Fireman’s Fund Ins. Cos. (1988) 46 Cal.3d 287, the California Supreme Court held that Insurance Code section 790.03 creates no private right of action, overruling an earlier rule that had allowed injured claimants to sue the other side’s carrier directly for unfair claims practices.
So the adjuster who lets three letters go unanswered and then offers a number disconnected from the medical records isn’t handing you a second lawsuit. The Department of Insurance can still discipline a carrier for that conduct, and California’s claims-handling regulations still bind it, but you can’t sue over it yourself. That behavior is a problem to be managed while the claim is open, which is a different skill, and the tactics involved are worth recognizing before you’re on the phone.
The exception that moves the ceiling
There’s one situation where the other side’s carrier ends up paying more than its policy, and it turns on a decision the carrier makes rather than on anything you do.
If a liability insurer unreasonably refuses a reasonable settlement offer within its policy limits, and the case then goes to judgment for more than those limits, that insurer can be liable for the entire judgment, including the portion above the policy. That rule comes from Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, the decision that created the tort of insurance bad faith in California. Crisci v. Security Ins. Co. of New Haven (1967) 66 Cal.2d 425 framed the test as whether a prudent insurer with no policy limits at all would have accepted the offer. In other words, the carrier has to weigh settlement as though the whole verdict were coming out of its own pocket, because for its policyholder, it is.
The claim for that excess belongs to the insured, not to you. But it can be assigned. Comunale itself began with two people struck in a marked crosswalk, and it reached the Supreme Court because the injured plaintiff took an assignment of the defendant’s rights and sued the carrier for the amount above the policy.
This is why a policy limits demand is written the way it is. A demand inside the limits, damages documented thoroughly enough that refusing looks unreasonable, and a firm deadline aren’t formalities or posturing. They’re the record that determines whether the policy limit is a ceiling or a starting point. That record can’t be assembled after a verdict, which is one reason how a case is paced affects more than the calendar.
Where you hold the stronger hand
The duty that doesn’t reach you as an injured claimant applies with full force to your own insurer. That relationship comes up more often than people expect in serious cases, because the coverage that ends up carrying the recovery is frequently coverage the injured person bought: an uninsured or underinsured motorist claim, medical payments coverage, or another first-party benefit. At that point your carrier stops being the company on your insurance card and becomes the party deciding what your injury is worth.
Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566 established what that duty means on a first-party claim: the insurer may not unreasonably withhold benefits due under the policy. A distinction inside that sentence does most of the work. Withholding benefits you’re owed can breach the insurance contract even where the carrier behaved reasonably. It becomes a tort, with tort damages attached, only if the carrier acted unreasonably and without proper cause.
What unreasonable looks like
Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713 is the clearest illustration, and the facts will sound familiar to anyone who has been through a UIM claim. A 21-year-old woman injured by a drunk driver demanded her underinsured motorist limit. Her treating physician wrote that the disc changes in her neck were atypical for her age and almost certainly caused by the high-speed collision. Her carrier rejected the claim anyway, saying she had only soft tissue injuries and pre-existing degenerative disc disease. The examiner’s internal denial memo also discounted her reports of severe pain because she had been traveling.
The Supreme Court reversed summary judgment for the insurer, holding that on those undisputed facts a jury could reasonably find the carrier reached its medical conclusion without a good faith investigation and without a reasonable basis for a genuine dispute.
The lesson isn’t that “pre-existing” is an illegal argument. It’s legitimate, and carriers raise it in nearly every case involving a spine or a head. What created the exposure was reaching for it without the work behind it: no medical opinion backing the examiner’s view, and reliance on the claimant’s travel instead of the medicine.
Where these claims fail
Insurers defend bad faith cases with the genuine dispute doctrine, and they win with it regularly. A real disagreement about causation or value, supported by an actual investigation, isn’t bad faith even if the carrier turns out to be wrong. Wilson narrowed the doctrine without abolishing it, clarifying that a dispute isn’t legitimate unless it rests on a basis that is reasonable under all the circumstances. Not whether the carrier disagreed with you, then, but whether it had a defensible reason and did enough work to get there. That’s also why a low offer and a mishandled claim are different problems, and why what the claim is actually worth is the first thing to pin down.
What a bad faith finding adds
Where bad faith is established, the recovery isn’t capped at the benefits that should have been paid. It can include economic losses the delay caused, plus emotional distress as damages incidental to the withholding of benefits. Under Brandt v. Superior Court (1985) 37 Cal.3d 813, it can include the attorney fees spent forcing the carrier to pay what it already owed, recovered as damages rather than as a fee award. Where the conduct rises to malice, oppression, or fraud under Civil Code section 3294, punitive damages come into play. None of that is automatic or predictable at the outset, and any lawyer who quotes a figure in a first conversation about a denied claim is guessing.
Talk to Someone Who Will Read the File
If you’ve been told the at-fault driver’s policy won’t cover what happened to you, or your own carrier has denied or stalled a claim you paid premiums to protect, the answer depends on documents you probably haven’t seen yet. We’ll read the claim file and tell you what we see, including when the carrier is within its rights. What we’d ask is that you not accept an offer before that conversation, because a signed release closes the claim permanently, including the part you’d want to revisit later. Call Wunderli Injury Law, PC at (949) 866-3833 or reach us through the contact page. There is no attorney fee unless we recover compensation for you. Costs and expenses may apply depending on the outcome of your case.
Disclaimer: The content of this article is for general informational purposes only and does not constitute legal advice. Reading this article does not create an attorney-client relationship with Wunderli Injury Law, PC or any of its attorneys. Every case is different, and the outcome of any legal matter depends on the specific facts involved. If you believe an insurance company has mishandled your claim, consult with a qualified California attorney about your specific situation.
Frequently Asked Questions
The at-fault driver’s policy is smaller than my medical bills. Is that the end of it?
Not necessarily. Beyond the excess-judgment route described above, other sources of recovery may exist, including your own uninsured or underinsured motorist coverage, an employer’s policy if the driver was working, or a claim against a public entity where a roadway condition contributed. A full evaluation looks for every available policy before treating any single limit as the ceiling.
Can I sue the other driver’s insurance company for how it treated me?
Generally no. Under Moradi-Shalal v. Fireman’s Fund Ins. Cos. (1988) 46 Cal.3d 287, Insurance Code section 790.03 gives an injured third party no private right of action, and the duty of good faith runs to the carrier’s own insured. The exception arises after a judgment above the policy limits, where the defendant’s claim against their insurer for refusing a reasonable within-limits settlement can be assigned to the injured plaintiff.
What actually makes a refusal to settle unreasonable?
Under Crisci, the test is whether a prudent insurer facing no policy limits would have accepted the offer. In practice that turns on how clear liability was, how well the damages were documented at the time of the demand, whether the demand was within the limits, and what the carrier did to evaluate it. The evidence for all of that is created while the claim is open, not afterward.
My own insurer denied my UIM claim and blamed a prior injury. Is that bad faith?
It depends on what the carrier looked at before deciding. The prior-injury argument is legitimate, and California’s eggshell plaintiff rule separately protects your right to recover for the aggravation of a pre-existing condition. Whether the denial crosses into bad faith turns on the adequacy of the investigation behind it, which is exactly what Wilson v. 21st Century Ins. Co. addressed.
Does any of this apply outside car accidents?
The good faith duty attaches to the insurance relationship rather than to how someone was hurt, so it reaches any policy a claim is made under. The most common first-party disputes in personal injury practice do arise from motor vehicle collisions, because that’s where uninsured motorist and medical payments coverage live.
Sources and Citations
All citations independently verified against the published opinions and primary California authority.
[1] Every insurance policy carries an implied covenant of good faith and fair dealing; an insurer that unreasonably refuses a reasonable settlement within policy limits is liable for the entire judgment, including the excess, and the insured’s cause of action is assignable. Source: Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 658-661.
[2] The test is whether a prudent insurer without policy limits would have accepted the settlement offer; liability is imposed for failure to meet the duty to accept reasonable settlements. Source: Crisci v. Security Ins. Co. of New Haven (1967) 66 Cal.2d 425, 429-430; see also CACI No. 2334.
[3] An injured third party has no private right of action under Insurance Code section 790.03; Royal Globe overruled. Source: Moradi-Shalal v. Fireman’s Fund Ins. Cos. (1988) 46 Cal.3d 287, 300-304.
[4] The implied covenant includes a first-party duty not to unreasonably withhold benefits due under the policy; withholding may breach the contract even if reasonable, but tort liability arises only where the conduct was unreasonable and without proper cause. Source: Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 574-575; see also CACI No. 2331.
[5] Summary judgment for a UIM insurer reversed where a jury could reasonably find the carrier rejected the claim without a good faith investigation and without a reasonable basis for genuine dispute; a dispute is not legitimate unless founded on a basis reasonable under all the circumstances. Source: Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 723-725 and fn. 7.
[6] The genuine dispute doctrine as developed in the Court of Appeal. Source: Chateau Chamberay Homeowners Assn. v. Associated Internat. Ins. Co. (2001) 90 Cal.App.4th 335, 346-348.
[7] Attorney fees attributable to obtaining policy benefits wrongfully withheld are recoverable as an item of damages in a bad faith action. Source: Brandt v. Superior Court (1985) 37 Cal.3d 813, 817.
[8] Punitive damages require clear and convincing evidence of oppression, fraud, or malice, and against a corporate defendant require conduct by or ratification from an officer, director, or managing agent. Source: Cal. Civ. Code section 3294(a), (b).
[9] Emotional distress damages in a bad faith action are compensable as damages incidental to the breach rather than as a separate cause of action. Source: Major v. Western Home Ins. Co. (2009) 169 Cal.App.4th 1197, 1214.