Court Opinion

ID: 2680896
Source: CourtListenerOpinion
Date Created: 2014-06-27 20:01:29.261112+00
Date Added: 2024-06-11T13:15:04.626829
License: Public Domain

Filed 6/27/14
                        CERTIFIED FOR PUBLICATION

          IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                         SECOND APPELLATE DISTRICT

                                   DIVISION FOUR

TED MASLO,                                     B249271

        Plaintiff and Appellant,               (Los Angeles County
                                               Super. Ct. No. LC097118)
        v.

AMERIPRISE AUTO & HOME
INSURANCE,

        Defendant and Respondent.

        APPEAL from a judgment of the Superior Court of Los Angeles County,
James A. Kaddo, Judge. Reversed, and remanded with directions.
        Law Offices of Steven B. Simon and Lawrence P. Perle for Plaintiff and
Appellant.
        Woolls & Peer and H. Douglas Galt for Defendant and Respondent.

                         ________________________________
                                 INTRODUCTION
      Appellant Ted Maslo was the insured on an automobile insurance policy
                                                                         1
issued by respondent Ameriprise Auto and Home Insurance (insurer). After
sustaining bodily injuries as a result of an accident caused by an uninsured
motorist, Maslo filed a claim seeking the $250,000 limit on the policy’s uninsured
motorist coverage. In response, the insurer demanded arbitration. After being
awarded $164,120.91 by the arbitrator, Maslo filed a second amended complaint
(SAC) against the insurer. The SAC alleged that the insurer breached the implied
covenant of good faith and fair dealing by forcing the insured to arbitrate his claim
without fairly investigating, evaluating and attempting to resolve it. The trial court
sustained the insurer’s demurrer to the SAC and dismissed the complaint. This
appeal followed.
      We conclude that the complaint adequately stated a claim for bad faith when
it alleged that the insurer, presented with evidence of a valid claim, failed to
investigate or evaluate the claim, insisting instead that its insured proceed to
arbitration. We reject the insurer’s argument that its right to resolve a disputed
claim through arbitration relieves it of its statutory and common law duties to fairly
investigate, evaluate and process the claim. We further reject the suggestion that in
the absence of a genuine dispute arising from an investigation and evaluation of the
insured’s claim, the insurer may escape liability for bad faith simply because the
amount ultimately awarded in arbitration was less than the policy limits or the

1
       Respondent contends the proper defendant is IDS Property Casualty
Insurance Company (IDS), although Ameriprise Financial, Inc. is admittedly the
indirect parent of IDS. To avoid confusion, we will refer to the defendant
insurance company as “insurer.” On remand, if appropriate, appellant may amend
his complaint to substitute IDS as the named defendant.

                                           2
insured’s initial demand. Finally, we conclude that the complaint adequately
alleged causation where, as pled, the conduct of the insurer made arbitration
inevitable and settlement impossible. Accordingly, we reverse the trial court’s
judgment of dismissal following its order sustaining the demurrer.
        FACTUAL BACKGROUND AND PROCEDURAL HISTORY
      On October 9, 2012, appellant filed a first amended complaint (FAC) for
damages against his insurer, alleging one cause of action for breach of the
covenant of good faith and fair dealing. According to the FAC, appellant was an
insured on an automobile insurance contract that provided up to $250,000 in
coverage for injuries and damages resulting from the negligence of an uninsured
motorist. During the policy term, an uninsured motorist struck appellant’s vehicle
from the rear, forcing it to collide with a third vehicle. The FAC alleged that “[a]t
no time did [appellant] contribute any fault or negligence concerning said
accident.” The FAC further alleged that on or about September 3, 2008, the
accident was investigated by the Los Angeles Police Department (LAPD), which
prepared a traffic collision report. The report concluded the uninsured motorist
was the sole cause of the accident.
      As a result of the accident, appellant suffered numerous bodily injuries,
including a severe injury to his shoulder. Appellant was referred to an orthopedic
surgeon, and an MRI revealed an “internal derangement of the left shoulder; a
SLAP lesion of the left shoulder; a split tear of the superior rotator cuff; and
downsloping of the acromion and impingement syndrome.” Appellant underwent
two surgeries to repair his shoulder.
      The FAC further alleged that appellant reported the accident to his insurer
on September 3, 2008, and provided a statement about the accident the following
day. The insurer also received a copy of the LAPD traffic collision report. On

                                           3
August 13, 2009, appellant supplied his insurer with copies of all his medical
records and billing statements regarding his treatment. In that letter, appellant
sought settlement of the uninsured motorist claim in the amount of the policy limit
of $250,000. The insurer did not respond to the settlement demand.
      On January 22, 2010, appellant renewed his demand and requested a
response. On February 2, the insurer asked for an extension of time to respond,
which appellant granted. On February 26, the insurer retained counsel for an
arbitration proceeding on appellant’s uninsured motorist claim. The FAC alleged
that although appellant had offered to mediate his claim, the insurer “refused to
participate in the Mediation process, refused to make any offer of settlement to
Plaintiff, and refused to respond to Plaintiff’s policy limits demand.”
      From February 26, 2010 through November 2, 2011 (the date of the
arbitration), the parties engaged in discovery for the arbitration proceeding. The
FAC alleged that appellant’s discovery responses provided the insurer with “all
documents concerning liability and damages that [the insurer] needed to fully and
fairly evaluate the case.” The FAC further alleged that “[a]t no time prior to the
Arbitration hearing did [the insurer] schedule the depositions of Plaintiff’s treating
physicians or interview them.” Nor did the insurer “request a defense medical
examination, conduct a defense medical examination, or obtain a defense medical
record review.”
      The FAC alleged that the insurer’s failure and refusal to make any offer of
settlement was contrary to Insurance Code section 790.03, subdivision (h)(5),
which provides that it is an unfair claim settlement practice not to “‘attempt[] in
good faith to effectuate a prompt, fair, and equitable settlements of claims in which

                                          4
                                          2
liability has become reasonably clear.’” The FAC further alleged that liability was
reasonably clear as of the date of the accident, and that the insurer failed to comply
with the Insurance Code when it made no offer of settlement.
         The parties stipulated that appellant’s medical expenses totaled $64,120.91.
At the conclusion of the arbitration, the arbitrator awarded appellant that amount in
medical damages and $100,000 in general damages, for a total award of
$164,120.91.
         The FAC alleged that the insurer had “a duty of good faith and fair dealing[]
to properly and fairly investigate and handle Plaintiff’s claim and to enter into a
prompt[,] fair and equitable settlement with Plaintiff.” The FAC further alleged
that the insurer breached this duty by, among other acts, “fail[ing] to attempt in
good faith to effectuate a prompt, fair, and equitable settlement of Plaintiff’s claim
for uninsured motorist bodily injury in which liability had become reasonably
clear.” The insurer made no offer of settlement prior to the arbitration, which was
more than three years after the accident and more than two years after the insurer
had all appropriate medical documentation in its possession. The FAC further
alleged that as a result of the insurer’s failure, “Plaintiff was forced to go to
Arbitration and to incur costs in excess of $25,000 as well as additional attorney
fees.”
         Finally, the FAC prayed for compensatory and consequential damages for
the delay and withholding of benefits under the uninsured motorist provisions of
the automobile insurance policy, for reimbursement of all costs and attorney fees,
for general damages, for punitive damages, for all costs of the lawsuit, and for
interest on all sums.

2
       All further statutory citations are to the Insurance Code, unless otherwise
stated.

                                              5
      The insurer filed a demurrer to the FAC. It argued that the complaint failed
to state a cause of action for breach of the covenant of good faith and fair dealing,
as allegations in the complaint established the existence of a “genuine dispute”
over the amount of payment due under the insurance policy. Relying on an
insurance law treatise, the insurer argued that the elements of an insurance “bad
faith” claim are: (1) that the insured made a claim for which liability was clear, (2)
that damages plainly exceeded the uninsured motorist coverage limits, and (3) that
the insurer unreasonably refused to pay. As the damages in the instant case did not
plainly exceed $250,000, the insurer argued that the superior court should sustain
the demurrer. In the alternative, the insurer argued that the complaint failed to
adequately allege causation. According to the insurer, “it was not [the insurer’s]
failure to make a settlement offer that resulted in the need for arbitration; rather, it
was [appellant’s] overvaluation of his claim that was the cause of the delay in
resolution of his claim.”
      On November 29, 2012, the superior court sustained the demurrer with leave
to amend. The court ruled that appellant had properly set forth the duty and breach
elements of the bad faith claim by alleging that the insurer did not attempt in good
faith to effectuate prompt, fair and equitable settlement of a claim in which liability
had become reasonably clear. The court found that “the genuine di[sp]ute rule
does not cut-off [sic] liability under the facts alleged.” However, the court
determined that causation was not supported by sufficient factual allegations.
      On December 13, 2012, appellant filed his SAC. It mirrored the FAC, but
contained additional factual allegations detailing the specific costs appellant
incurred as a result of being compelled to arbitrate a claim the insurer had made no
attempt to settle. The insurer filed a demurrer to the SAC, repeating the same
argument regarding causation and relying upon the same legal authorities. The

                                            6
insurer further contended that causation on an insurance “bad faith” claim could be
shown only where the arbitrator determined that the claim was worth more than the
initial demand made by the insured.
         After another hearing, the trial court issued an order sustaining the demurrer
without leave to amend. The court found that appellant could not allege causation,
as the facts did not show that appellant’s damages “plainly exceed[ed] the
unin[su]red motorist coverage policy limits.” A judgment dismissing the SAC was
entered March 26, 2013. Appellant timely noticed an appeal.
                                     DISCUSSION
         A.    Standard of Review
         “In reviewing an order sustaining a demurrer, we assume well-pleaded
factual allegations to be true and examine the complaint de novo to determine
whether it alleges facts sufficient to state a cause of action on any legal theory.
[Citation.]” (Kyablue v. Watkins (2012) 210 Cal. App. 4th 1288, 1292.) To the
extent our analysis requires interpretation of certain provisions of the Insurance
Code, we apply a de novo review. (Honig v. San Francisco Planning Dept. (2005)
127 Cal. App. 4th 520, 524.)
         B.    Breach of the Covenant of Good Faith and Fair Dealing
         Appellant contends his SAC alleged facts sufficient to state a cause of action
for breach of the covenant of good faith and fair dealing against his insurer. We
agree.
         “The law implies in every contract, including insurance policies, a covenant
of good faith and fair dealing. ‘The implied promise requires each contracting
party to refrain from doing anything to injure the right of the other to receive the
agreement’s benefits. To fulfill its implied obligation, an insurer must give at least
as much consideration to the interests of the insured as it gives to its own interests.

                                            7
When the insurer unreasonably and in bad faith withholds payment of the claim of
its insured, it is subject to liability in tort.’” (Wilson v. 21st Century Ins. Co.
(2007) 42 Cal. 4th 713, 720 (Wilson), quoting Frommoethelydo v. Fire Ins.
Exchange (1986) 42 Cal. 3d 208, 214-215 (Frommoethelydo).) Thus, “[a]n
insurer’s obligations under the implied covenant of good faith and fair dealing with
respect to first party coverage include a duty not to unreasonably withhold benefits
due under the policy. [Citation.] An insurer that unreasonably delays, or fails to
pay, benefits due under the policy may be held liable in tort for breach of the
implied covenant. [Citation.]” (Rappaport-Scott v. Interinsurance Exchange of
the Automobile Club (2007) 146 Cal. App. 4th 831, 837 (Rappaport-Scott).)
      Moreover, “[w]hile an insurance company has no obligation under the
implied covenant of good faith and fair dealing to pay every claim its insured
makes, the insurer cannot deny the claim ‘without fully investigating the grounds
for its denial.’” (Wilson, supra, 42 Cal.4th at pp. 720-721, quoting
Frommoethelydo, supra, 42 Cal.3d at p. 215.) “By the same token, denial of a
claim on a basis unfounded in the facts known to the insurer, or contradicted by
those facts, may be deemed unreasonable. ‘A trier of fact may find that an insurer
acted unreasonably if the insurer ignores evidence available to it which supports
the claim. The insurer may not just focus on those facts which justify denial of the
claim.’” (Wilson, at p. 721, quoting Mariscal v. Old Republic Life Ins. Co. (1996)
42 Cal. App. 4th 1617, 1623.) “An insurer’s good or bad faith must be evaluated in
light of the totality of the circumstances surrounding its actions.” (Id. at p. 723.)
      Applying these principles, we conclude the SAC stated an insurance bad
faith cause of action. Appellant alleged (1) that the insurer was apprised that
appellant, its insured, had suffered bodily injuries resulting from the negligence of
an uninsured motorist; (2) that the insurer knew the LAPD traffic collision report

                                            8
had concluded the uninsured motorist was solely at fault; (3) that appellant made a
demand for payment of the $250,000 policy limit on his uninsured motorist
coverage; (4) that appellant submitted his medical records and billing statements;
(5) that the insurer rejected the demand without an adequate investigation, as the
insurer failed, among other things, to conduct a defense medical examination or
interview appellant’s treating physicians; (6) that despite clear evidence of liability,
the insurer made no offer of settlement; (7) that the insurer agreed to pay the claim
only after the arbitration, which was more than three years after the accident and
more than two years after the insurer had all appropriate medical documentation in
its possession; and (8) that as a result of the insurer’s refusal to investigate and
evaluate his claim, appellant was compelled to incur the costs of an arbitration
necessitated solely by the insurer’s intransigence. Under this factual scenario, a
reasonable jury could find the insurer liable for breach of the covenant of good
faith and fair dealing. (See Wilson, supra, 42 Cal.4th at pp. 721, 723 [affirming
denial of summary judgment of an insurance bad faith claim and finding triable
issues of fact on reasonableness of insurer’s denial of claim where (1) insured
complained of neck pain after accident and in subsequent weeks and months,
(2) insured’s treating physician concluded the pain was a result of the accident,
(3) an MRI corroborated the medical conclusion, and (4) insurer’s claims examiner
                                                                 3
rejected conclusion without any medical basis for doing so].)

3
       The insurer argues that appellant sought to impose a “duty to settle” upon it.
While an insurer has no duty to settle every claim asserted by an insured, it does
have a duty to investigate a submitted claim and to attempt in good faith to
effectuate a prompt and equitable settlement of a claim for which liability has
become reasonably clear (see § 790.03, subd. (h)(5)). This would include
investigating the claim, negotiating in good faith and, in the appropriate situation,
paying or denying the claim. While the SAC suggested that the insurer should
have settled the claim, the gravamen of the complaint was not that the insurer

                                            9
      The insurer advances four arguments in support of its claim that appellant
has not -- and cannot -- state an insurance bad faith cause of action. First, relying
on out-of-state authority, it contends an insurer does not have the same duty to act
in good faith in the uninsured motorist context as it does in other insurance
contexts. Second, it contends it cannot be liable for failing to attempt to settle
appellant’s claim, as the complaint demonstrated the existence of a “genuine
dispute” over the amount of the claim. Third, it contends appellant cannot show
bad faith, as the complaint failed to allege either that the insured’s pre-arbitration
damages plainly exceeded the policy limits or that the amount of damages awarded
by the arbitrator exceeded the settlement demand. Finally, it contends appellant
cannot show that the insurer caused him to incur the costs of arbitration, as he
failed specifically to allege that he would have accepted an offer to settle for an
amount less than $250,000. We reject all four arguments.
      1.     Insurer’s Duty to Insured in the Uninsured Motorist Context
      In support of its first argument, the insurer relies on the Utah case of Lyon v.
Hartford Accident and Indem. Co. (Utah 1971) 480 P.2d 739 (Lyon). That case’s
holding, however, is contrary to binding California case authority. (See Beck v.
                                                              4
Farmers Ins. Exch. (Utah 1985) 701 P.2d 795, 799 (Beck).) As discussed above,

failed to finalize a settlement with appellant, but that it failed to adequately
investigate and evaluate his claim on the policy, and failed to attempt to negotiate a
settlement, despite clear evidence of liability.
4
       In Gruenberg v. Aetna Ins. Co. (1973) 9 Cal. 3d 566, the California Supreme
Court held that an insured may bring a tort action against an insurer who fails to
bargain in good faith in a “first-party” situation, that is, a situation where the
insurer agrees to pay claims submitted to it by its insured for losses suffered by the
insured. It is undisputed that the instant case is a first-party insurance action.
       In Beck, the Utah Supreme Court noted that this was not the law in Utah. It
cited Lyon, in which that same court had held that in the “third-party” situation --

                                           10
in California, “[t]o fulfill its implied obligation [of good faith and fair dealing], an
insurer must give at least as much consideration to the interests of the insured as it
gives to its own interests.” (Wilson, supra, 42 Cal.4th at p. 720 [applying principle
to first-party bad faith action].) Moreover, under section 790.03, subdivision (h)(5)
of California’s Insurance Code, it is an unfair claim settlement practice not to
“attempt[] in good faith to effectuate prompt, fair, and equitable settlements of
claims in which liability has become reasonably clear.” That statutory provision
applies to “all . . . persons engaged in the business of insurance.” (See § 790.01.)
Thus, in California, an insurer has the same duty to act in good faith in the
uninsured motorist context as it does in any other insurance context.
      2.     The “Genuine Dispute” Rule
      The insurer next contends that on the facts alleged in the SAC, it may avoid
liability for an insurance bad faith claim under the “genuine dispute” rule. The
“genuine dispute” rule is “a close corollary” to the principle that “an insurer’s
denial of or delay in paying benefits gives rise to tort damages only if the insured
shows the denial or delay was unreasonable.” (Wilson, supra, 42 Cal.4th at p.
723.) Under the rule, “‘an insurer denying or delaying the payment of policy
benefits due to the existence of a genuine dispute with its insured as to the
existence of coverage liability or the amount of the insured’s coverage claim is not
liable in bad faith even though it might be liable for breach of contract.’” (Ibid.,
quoting Chateau Chamberay Homeowners Assn. v. Associated Internat. Ins. Co.

where the insurer contracts to defend the insured against claims made by third
parties against the insured -- the insurer must act in good faith and be as zealous in
protecting the interests of the insured as it would be in regard to its own, but that
in the “first-party” situation, the insurer had no such duty. (See Lyon, 480 P.2d at
p. 745.)

                                           11
(2001) 90 Cal. App. 4th 335, 347; accord Rappaport-Scott, supra, 146 Cal.App.4th
at p.837 [same].) Pointing to the fact that appellant’s initial demand was $250,000
and the arbitrator ultimately awarded roughly $164,000, the insurer contends that a
genuine dispute necessarily existed. We disagree.
      “The genuine dispute rule does not relieve an insurer from its obligation to
thoroughly and fairly investigate, process and evaluate the insured’s claim. A
genuine dispute exists only where the insurer’s position is maintained in good faith
and on reasonable grounds.” (Wilson, supra, 42 Cal.4th at p. 723.) Here, the
insurer cannot rely upon the genuine dispute rule, as the SAC alleged that the
insurer failed to comply with its common law and statutory obligations to
thoroughly and fairly investigate, process, and evaluate appellant’s claim.
Specifically, the SAC alleged that the insurer was promptly apprised of the claim,
provided with the LAPD traffic collision report showing the uninsured motorist
was solely responsible for the accident, and provided with medical documentation
of the injuries sustained by appellant and the nature and cost of his medical
treatment. The SAC further alleged that the insurer neither interviewed appellant’s
treating physicians, nor conducted its own medical examination or review. The
SAC alleged that despite being provided with “all documents concerning liability
and damages . . . needed to fully and fairly evaluate the case,” the insurer failed to
promptly and properly investigate and handle appellant’s claim. Specifically, it
failed to respond in good faith to appellant’s settlement demand, made no
settlement offer, failed to provide a reason for withholding payment, refused
appellant’s offer to participate in mediation, and provided appellant no opportunity
to negotiate a settlement. Our Supreme Court has made clear that there can be no
genuine dispute in the absence of a thorough and fair investigation. (See Wilson,
supra, 42 Cal.4th at p. 723 [genuine dispute must be based on reasonable

                                          12
grounds].) As the SAC alleged an inadequate investigation and dilatory claim
handling procedures, the genuine dispute rule provides no basis for sustaining the
demurrer.
      Appellant’s reliance on Rappaport-Scott, supra, and Behnke v. State Farm
General Ins. Co. (2011) 196 Cal. App. 4th 1443 (Behnke) is misplaced. In those
cases, the insurer fairly investigated, processed and evaluated the insured’s claim.
In Rappaport-Scott, supra, 146 Cal.App.4th at page 834, the insurer made an offer
of settlement and participated in meditation prior to arbitration. In Behnke, the
insurer provided a reasonable explanation for disputing the hourly rate charged by
                                                                                 5
the insured’s Cumis counsel (see Behnke, supra, 196 Cal.App.4th at p. 1470). In
contrast, here, the SAC alleged that the insurer failed to investigate appellant’s
claim, failed to respond in good faith to appellant’s settlement demand, failed to
make its own settlement offer, refused to accept appellant’s offer to mediate, and
provided no explanation for withholding payment. In short, on the facts alleged,
the genuine dispute rule does not assist the insurer.
      3.     Bad Faith
      The insurer further contends that an insurer’s failure to investigate, evaluate,
or attempt in good faith to settle its insured’s claim does not constitute bad faith
except under limited circumstances, as an insurer has a statutory right to arbitrate
disputes over the amount of damages. (See § 11580.2, subd. (f) [“The
policy . . . shall provide that the determination as to whether the insured shall be
legally entitled to recover damages, and if so entitled, the amount thereof, shall be
made by agreement between the insured and the insurer or, in the event of

5
       Cumis counsel refers to independent counsel selected by an insured but paid
for by an insurer as required by Civil Code section 2860 and San Diego Federal
Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal. App. 3d 358.

                                          13
disagreement, by arbitration.”].) According to the insurer, it may be liable only
where the damages plainly exceed the policy limits. In all other circumstances, the
insurer contends, when faced with a claim for which liability is shown with
reasonable certainty, it may refuse to investigate, evaluate or even respond to its
insured, force the insured to incur the costs of arbitration, and avoid liability for
breaching its common law and statutory duties so long as the ultimate award is less
than the insured’s initial demand. This position is at odds with California common
law and the statutory requirements of the Insurance Code.
      The insurer’s reliance on California Uninsured Motorist Practice (CEB 2d
ed. 2013) to support its position is misplaced. Summarizing the holding in
Hightower v. Farmers Insurance Exchange (1995) 38 Cal. App. 4th 853
(Hightower), the treatise states:
      “ . . . In Hightower, the court held there is bad faith when:

      * The owner of an uninsured motorist policy makes a claim for which
      liability of the uninsured motorist is clear;

      * Damages plainly exceed the uninsured motorist coverage policy limits;
      and

      * The insurer unreasonably refuses to pay.” (California Uninsured Motorist
      Practice, supra, § 5.9, at pp. 5-9.)

Although bad faith was found when these three elements were present, the treatise
neither stated nor suggested there could be no finding of bad faith under other
circumstances.
      More important, the Hightower court expressly rejected the position
advocated here by the insurer. Recognizing that an insurer has a statutory right to
binding arbitration when the insurer and insured disagree over the existence or
extent of coverage (see § 11580.2), the court held that the adoption of that statutory

                                           14
provision did not abrogate the insurer’s duty of good faith in handling uninsured
motorist claims. (Hightower, supra, 38 Cal.App.4th at pp. 862-863.) Rejecting the
position now advanced by the insurer, the court observed: “Under [the insurer’s]
interpretation of the statute, an insurer could ‘stonewall’ uninsured motorist
claimants in every case but avoid bad faith liability through the simple act of
requesting arbitration and refusing to pay until ordered to do so by an arbitrator.
We cannot ascribe such an intent to the Legislature.” (Id. at p. 863.) The court
further stated: “Where there is no issue reasonably to be resolved by arbitration, as
in a case where the insured’s damages plainly exceed policy limits and the liability
of the uninsured motorist is clear, the failure to attempt to effectuate a prompt and
fair settlement violates the insurer’s statutory duties (Ins. Code, § 790.03, subd.
(h)(5)) and gives rise to tort liability. Similarly, an insurer cannot shield other
dilatory conduct, such as failing to investigate a claim, by the mere act of
requesting uninsured motorist arbitration.” (Hightower, at p. 863, italics added.)
      Thus, an insurer may be liable for bad faith in failing to attempt to effectuate
a prompt and fair settlement (1) where it unreasonably demands arbitration, or (2)
where it commits other wrongful conduct, such as failing to investigate a claim.
An insurer’s statutory duty to attempt to effectuate a prompt and fair settlement is
not abrogated simply because the insured’s damages do not plainly exceed the
policy limits. Nor is the insurer’s duty to investigate a claim excused by the
arbitrator’s finding that the amount of damages was lower than the insured’s initial
demand. Even where the amount of damages is lower than the policy limits, an
insurer may act unreasonably by failing to pay damages that are certain and
demanding arbitration on those damages. Here, the SAC adequately stated a bad
faith insurance cause of action, as it alleged that the insurer breached its statutory
and common law duties to its insured by failing to adequately investigate, evaluate,

                                           15
and process the insured’s claim, and by failing to attempt to settle the claim even
after liability became reasonably clear.
      4.     Causation
      Finally, the insurer argues that its alleged failure to investigate, evaluate, or
process appellant’s claim could not, as a matter of law, be the legal cause of
appellant’s damages. Specifically, it contends that in the absence of an allegation
that the appellant would have settled for anything less than his initial demand,
arbitration was inevitable. We disagree. It was not appellant’s initial demand that
made arbitration inevitable, but the insurer’s alleged refusal to investigate and
process his claim. Even in the face of reasonably certain damages, the insurer
offered nothing. Contrary to the insurer’s suggestion, the SAC did not allege
appellant’s demand was non-negotiable; indeed, it alleged that appellant had
offered to mediate the claim, but the insurer refused. Thus, it was not appellant’s
conduct, but the insurer’s that precluded any possible settlement and made
arbitration inevitable. In short, the SAC adequately alleged causation by asserting
that the insurer’s conduct was the direct and proximate cause of appellant’s
damages, including unnecessary costs and fees incurred for the arbitration.
      C.     Conclusion
      There can be no serious dispute that an insurer is required to thoroughly and
fairly investigate, process, and evaluate its insured’s claim. The SAC alleged facts
sufficient to state a tort claim for the insurer’s breach of the duty of good faith and
fair dealing under common law and for failure to attempt to effectuate a prompt
and fair settlement under the Insurance Code. It further adequately alleged that the
insurer’s breach of its duty of good faith and its failure to attempt to effectuate a
prompt and fair settlement directly and proximately caused appellant to suffer
damages, including incurring unnecessary costs and fees of arbitration.

                                           16
Accordingly, the court erred in sustaining the demurrer and dismissing the SAC
with prejudice.
                                  DISPOSITION
      The judgment is reversed, and the matter is remanded with directions to the
trial court to vacate its order sustaining the demurrer to the SAC and to enter a new
order overruling the demurrer. Appellant is awarded his costs on appeal.

      CERTIFIED FOR PUBLICATION.

                                                    MANELLA, J.

We concur:

EPSTEIN, P. J.

EDMON, J.*

________________________________________________________________________
* Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant
to article VI, section 6 of the California Constitution.

                                         17