California Demurrer — Insurance Bad Faith

A bad-faith claim cannot exist where there is no underlying coverage under the policy. Waller v. Truck Insurance Exchange settled this: the implied covenant of good faith and fair dealing operates within the contract, not beyond it. If the policy unambiguously excludes the loss, there is no contractual benefit to be deprived, and therefore no bad-faith claim.

If you're the moving party: Attach the policy (or judicially notice it through a request for judicial notice) and walk the court through the exclusion. Where the loss is unambiguously excluded, the breach-of-contract count fails, and the bad-faith count fails with it. Frame the demurrer as a sequential analysis: contract first, bad faith second. Avoid attacking only the bad-faith count if the contract count survives — Waller applies coverage-down, not bad-faith-up.

If you're the opposing party: Plead coverage with specifics — the operative policy provision, the loss type, why it falls within coverage. For ambiguous policy language, plead the ambiguity and invoke the rule of construction in favor of coverage (AIU Insurance Co. v. Superior Court (1990) 51 Cal.3d 807). Where the case turns on a coverage carve-out exception, plead the exception and the facts that trigger it.

Primary source: Waller v. Truck Insurance Exchange, Inc. (1995) 11 Cal.4th 1, 35-36; Love v. Fire Insurance Exchange (1990) 221 Cal.App.3d 1136, 1151-1153.

Where the insurer's denial or delay rests on a genuine dispute about coverage or value, bad faith does not lie. Wilson v. 21st Century and Chateau Chamberay establish the framework: an insurer's reasonable, even if mistaken, position on coverage or amount is not bad faith.

If you're the moving party: Where the policy and the alleged dispute are visible on the face of the complaint or judicially noticeable, attack the bad-faith count on the genuine-dispute doctrine. Document the insurer's reasonable basis for the denial — the coverage analysis, the contested factual issue, the legal-uncertainty factor. The doctrine is most often applied at summary judgment, but a strong genuine-dispute showing on demurrer can shift the count even before evidence.

If you're the opposing party: Plead facts negating the existence of a genuine dispute — the insurer's investigation defects (no investigation, biased investigation, ignoring evidence in the policyholder's favor), the unreasonable factual inferences, the clearly-controlling authority the insurer ignored. Wilson v. 21st Century identified specific patterns that defeat the genuine-dispute defense; plead facts fitting those patterns.

Primary source: Wilson v. 21st Century Insurance Co. (2007) 42 Cal.4th 713, 723; Chateau Chamberay Homeowners Assn. v. Associated International Insurance Co. (2001) 90 Cal.App.4th 335, 347.

A bad-faith complaint typically pleads two counts: breach of contract and tortious breach of the implied covenant of good faith and fair dealing. The two have separate elements and remedies — contract damages on the first, tort damages (including emotional distress where direct, and punitives where § 3294 is satisfied) on the second.

If you're the moving party: Read the bad-faith count for absence of tort-specific elements: unreasonable conduct (not just breach), lack of proper cause for the denial or delay, conduct that goes beyond mere non-payment. Where the complaint alleges only that the insurer failed to pay, that is breach of contract — not tortious breach of the implied covenant. Attack the tort count on the absence of unreasonable-conduct facts.

If you're the opposing party: Plead the bad-faith count's distinct tort elements in addition to the breach. Identify the specific unreasonable conduct: failure to investigate, failure to communicate, lowball settlement offer, biased valuation, refusal to consider relevant evidence, delay without explanation. The tort count must allege facts the breach-of-contract count does not — otherwise it is duplicative and demurrable as such.

Primary source: Cates Construction, Inc. v. Talbot Partners (1999) 21 Cal.4th 28, 43-44; Gruenberg v. Aetna Insurance Co. (1973) 9 Cal.3d 566, 574-575.

Bad faith does not automatically entitle a plaintiff to punitive damages. Civ. Code § 3294 requires clear and convincing evidence of oppression, fraud, or malice — and the complaint must plead facts (not labels) supporting that level of culpability. For corporate insurer defendants, the § 3294(b) authorization-or-ratification rule applies: pleading must identify an officer, director, or managing agent.

If you're the moving party: Attack any punitive-damages allegation through a motion to strike (CCP § 436) targeting the § 3294 elements specifically. Where the complaint pleads "defendant acted with malice, oppression, and fraud" without underlying facts, the strike succeeds. For corporate defendants, attack the absence of corporate-attribution facts under White v. Ultramar — without an identified managing agent, punitives against the corporation fail.

If you're the opposing party: Plead the specific conduct supporting malice, oppression, or fraud — internal communications, written policies, decision-maker statements, documented disregard. For corporate defendants, identify the officer, director, or managing agent who authorized or ratified the conduct. Generic allegations cannot survive § 3294's clear-and-convincing standard at the pleading stage.

Primary source: Civ. Code § 3294, subds. (a), (b); Mock v. Michigan Millers Mutual Insurance Co. (1992) 4 Cal.App.4th 306, 327-331; Tomaselli v. Transamerica Insurance Co. (1994) 25 Cal.App.4th 1269, 1287.

Third parties — claimants who are not the insured but are adverse to the insured — generally cannot sue an insurer for bad faith. Moradi-Shalal v. Fireman's Fund abrogated Royal Globe Insurance Co. v. Superior Court and held there is no private right of action under Insurance Code § 790.03(h). The narrow exceptions are first-party claims by the insured and § 790.03 actions brought by the Insurance Commissioner.

If you're the moving party: Identify the plaintiff's relationship to the policy. If the plaintiff is a third-party claimant (the underlying tort victim suing the tortfeasor's insurer for bad-faith claims-handling), Moradi-Shalal forecloses the cause of action. The demurrer is dispositive without leave to amend — there is no curable defect, just no private right of action.

If you're the opposing party: Where the plaintiff is in fact the insured (or a named insured, additional insured, or loss payee), plead that relationship explicitly. Third-party-bad-faith counts require an alternative theory — e.g., assignment of the insured's bad-faith claim post-judgment, or stipulated judgment plus assignment under the Hamilton v. Maryland Casualty / Smith v. State Farm framework. Pleading must establish the assignment with specifics.

Primary source: Moradi-Shalal v. Fireman's Fund Insurance Companies (1988) 46 Cal.3d 287, 304; Insurance Code § 790.03, subd. (h).

When an insurer wrongfully withholds policy benefits and the insured must hire an attorney to recover them, the attorney's fees incurred to recover those benefits are recoverable as damages in a bad-faith action — not as attorney's fees under § 1021.5 or any fee-shifting statute. Brandt v. Superior Court established the rule.

If you're the moving party: Read the prayer for relief. Where the complaint prays for "attorney's fees" generally without identifying a fee-shifting statute, attack the prayer as improper — fees are not freely recoverable. Where the complaint correctly identifies the request as Brandt damages, no demurrer or strike is appropriate on that ground; Brandt damages are recoverable as tort damages.

If you're the opposing party: Plead the fee request as Brandt damages explicitly: "as a result of defendant's wrongful denial of policy benefits, plaintiff has incurred attorneys' fees in pursuing those benefits, recoverable as damages under Brandt v. Superior Court." Where you also have a separate fee-shifting hook (CLRA, § 1021.5), plead both bases.

Primary source: Brandt v. Superior Court (1985) 37 Cal.3d 813, 817-820; Cassim v. Allstate Insurance Co. (2004) 33 Cal.4th 780, 806-812.

Bad-faith claims are governed by the two-year tort SOL (CCP § 339(1)); breach-of-policy claims by the four-year contract SOL (§ 337). Accrual generally runs from the insurer's denial, not from the underlying loss. Vu v. Prudential recognized equitable tolling in narrow circumstances.

If you're the moving party: Pin the denial date from the complaint or attached correspondence. Where more than two years passed since the denial and no tolling is pleaded with facts, the bad-faith count is time-barred even if the breach-of-contract count survives under the four-year SOL. Insurers often issue successive denials or partial payments, and the SOL clock can reset depending on the Velasquez analysis — account for that before framing the demurrer.

If you're the opposing party: Plead the denial date and any tolling-supporting facts. For Vu-style tolling, plead the specific circumstances (continued investigation, settlement negotiations, insurer's affirmative misrepresentation about coverage status). For successive denials, plead each one and identify which started the clock for which theory.

Primary source: Code Civ. Proc. §§ 337, 339(1); Vu v. Prudential Property & Casualty Insurance Co. (2001) 26 Cal.4th 1142, 1149-1154; Velasquez v. Truck Insurance Exchange (1991) 1 Cal.App.4th 712, 723.

The implied covenant of good faith and fair dealing cannot create new contractual obligations or impose duties that the contract itself does not contemplate. Foley and Carma Developers drew this line in employment and commercial-lease contexts; the principle carries to insurance.

If you're the moving party: Read the bad-faith allegations against the policy provisions. Where the complaint essentially asks the court to enforce coverage the policy does not provide (the policy excludes the type of loss; the limits are exceeded; the policy period is past), the bad-faith count cannot rescue the contract count. Quote the policy provision and frame the bad-faith allegation as an attempt to create coverage that does not exist.

If you're the opposing party: Identify the contractual benefit the insurer's conduct deprived the insured of. The benefit must come from the contract itself — not from the implied covenant supplying a new obligation. For genuine bad-faith claims (insurer's unreasonable handling of a covered loss), the contractual benefit is the policy proceeds; the bad faith is the unreasonable conduct in delivering them. Plead both.

Primary source: Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 689-690; Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 373-374; Guz v. Bechtel National Inc. (2000) 24 Cal.4th 317, 349-350.

Where the insurer defends under reservation of rights with conflicts that trigger the Cumis / Civ. Code § 2860 right to independent counsel, the insurer's failure to provide independent counsel can support bad-faith liability. Pleading demands precision: the complaint must identify the specific conflict that triggers the Cumis right and the insurer's breach.

If you're the moving party: Read the Cumis allegations for absence of conflict-and-trigger facts. § 2860 does not give the insured an automatic right to independent counsel — it gives that right when a specific conflict exists (most commonly: the insurer reserves rights on a coverage issue that the same defense lawyer would have to take a position on). Where the complaint pleads the reservation of rights without identifying the conflict it creates, attack the Cumis count.

If you're the opposing party: Plead the specific reservation-of-rights coverage issue and how it conflicts with the lawyer's defense duties. Long v. Century Indemnity is the standard articulation. Identify the timing — when the conflict arose, when the request for independent counsel was made, when the insurer denied or delayed.

Primary source: San Diego Federal Credit Union v. Cumis Insurance Society, Inc. (1984) 162 Cal.App.3d 358, 375; Civ. Code § 2860; Long v. Century Indemnity Co. (2008) 163 Cal.App.4th 1460, 1469-1470.

A bad-faith complaint is not the same as a fraud complaint. Plaintiffs frequently plead "bad faith and fraud" together and forget that fraud requires the heightened Lazar specificity (who, what, when, where, how) plus scienter and intent to induce reliance. Bad faith does not. After Rattagan v. Uber (2024), fraud-in-the-insurance-relationship counts also need the two-part economic-loss-rule analysis.

If you're the moving party: Quote the fraud allegations and run the Lazar specificity test. Generic "defendant misrepresented coverage" without names, dates, medium, and substance fails. For fraud counts that arise out of the insurance relationship rather than from independent misrepresentations causing harm beyond the contract, apply the post-Rattagan economic-loss-rule analysis.

If you're the opposing party: Plead the fraud count separately from the bad-faith count and meet Lazar specificity for each fraud allegation: who said what, when, in what medium, what plaintiff did in reliance, what damages resulted. For Rattagan-survival fraud counts, plead the conduct as independent of the contract and the harm as beyond disappointed contract expectations.

Primary source: Lazar v. Superior Court (1996) 12 Cal.4th 631, 638, 645; Rattagan v. Uber Technologies, Inc. (2024) 17 Cal.5th 1, 41; Civ. Code § 1710.