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In 1979, the California Supreme Court, in Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329 allowed an individual injured through the negligence of an insured to sue the insured’s insurer for unfair claims practices pursuant to California Insurance Code section 790.03, subdivision (h)(5), the Fair Claims Settlement Practices AcT.
Plaintiffs’ lawyers were ebullient. They had two swipes at the insurer.
Justice was not served. In my opinion, justice for the insurer and those insured was destroyed.
The case load in California trial courts almost immediately doubled.
In Moradi-Shalal v. Fireman’s Fund Ins. Companies, 250 Cal.Rptr. 116, 46 Cal.3d 287, 758 P.2d 58 (Cal. 1988) the California Supreme Court reversed the Royal Globe decision. In reaching its decision, the Supreme Court noted:
“Confirming Justice Richardson’s prediction in his Royal Globe dissent, several commentators have observed that the rule in that case promotes multiple litigation, because its holding contemplates, indeed encourages, two lawsuits by the injured claimant: an initial suit against the insured, followed by a second suit against the insurer for bad faith refusal to settle."
Moradi-Shalal v. Fireman’s Fund Ins. Companies, 250 Cal.Rptr. 116, 46 Cal.3d 287, 758 P.2d 58 (Cal. 1988)] Since the decision in Moradi-Shalal an insurer acting in bad faith must be, and may only be, disciplined by the California Department of Insurance which eventually created the California Fair Claims Settlement Practices Regulations in 1993.
ZALMA OPINION
Moradi-Shalal stopped one abuse of the so-called tort of bad faith, third party bad faith. It left alone first party bad faith although the argument that the statute provides a administrative remedy for bad faith claims handling and the effect of the California Fair Claims Settlement Practices Regulations in 1993. The Supreme Court did not apply the same reasoning to first party bad faith because the appeal only dealt with third party bad faith. The arguments used in Moradi-Shalal, apply equally in first party bad faith cases.
Article adapted from my book It’s Time to Abolish the Tort of Bad Faith Available as a paperback here. Available as a Kindle book here.
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