This document summarizes key points from a presentation on proof of loss, insurer bad faith, and related insurance claims issues: 1) Proof of loss forms are typically a policy condition and aim to notify insurers of loss details and prevent fraud. Insurers cannot deny claims solely for minor proof of loss defects and must show substantial prejudice from material defects or late submission. 2) Insurers should pay undisputed damages after investigation of obviously covered losses. Failing to do so can constitute bad faith if intended to wear down the insured. 3) Bad faith requires lack of reasonable investigation, unreasonable delays or denials, or other unfair practices. Case law and statutes provide examples like failing to consider relevant evidence or

1. Proof of Loss & the Road to Bad Faith
presented by:
Henri Tartt, Esq., MBA, ARM
Law Offices of Henri Tartt
3325 Wilshire Blvd., Suite 749
Los Angeles, CA 90010
Tel: (213) 480-1511; Fax: (213) 480-1584
htartt@tarttlaw.com
www.tarttlaw.com
NAPIA/CAPIA Insurance Seminar
March 23, 2011
Marina del Rey, California

2. OVERVIEW
• Proof of Loss
• Undisputed Damages—rationale for payment
• Insurer Bad Faith—First Party
• Lawyer Time—when to notify insured
• Sundry Issues:
– Agent/Broker Negligence & underinsurance
– Extortion Avoidance

3. PROOF OF LOSS

4. Proof of Loss—Purpose
• To advise the insurer of relevant facts of loss
• Give insurer the opportunity to investigate
• To prevent & discourage fraud
• To make an informed estimate of its rights and
liabilities before being obligated to pay

5. Proof of Loss—Aspects
• POL is typically a condition of policy
– Policy is a contract:
• wording controls whether POL is a “condition” of the policy
– Can affect insured’s right to receive benefits
– Can affect insured’s right to sue insurer
• POL part of “Cooperation Clause”
– Allstate policy: “[W]ithin 60 days after the loss, give
us a signed, sworn proof of loss….”

6. POL—Substantial Compliance
• Substantial Compliance Doctrine (in CA)
– Cannot deny claim (or prevent suit) if insured
Substantially Complied with a condition
• E.g., Condition of submitting POL
– Substantial Compliance:
• If timely POL given (i.e., “deadline” stated in policy)
with adequate supporting documents/evidence
– Cal. Ins. Code § 552: “[n]ot bound to give such proof as would
be necessary in a court of justice; but is sufficient for him to
give the best evidence in his power at the time.”

7. Proof of Loss—Improper Rejections
• Insurer rejects otherwise timely POL
– Improper Grounds
• Disagreement with value of items submitted
• Not to challenge the “credibility” of evidence
• If credibility of submissions questioned, facts, or
the insured, then insurer is to:
– Request more documentary “proof”; and/or
– Conduct Examination Under Oath
• If insurer denies claim instead:
– Lawyer’s Substantial Compliance argument viable

8. Proof of Loss—Proper Rejections
• Insurer rejects otherwise timely POL
– Proper Grounds = Material Defects in POL
• Omissions
– Omit RCV and/or ACV information & write “TBD”
– Not supplying a inventory list of condition of contents
• Insufficient Descriptions
– Inventory list had vague descriptions of contents
• Material Defects re: timely POL
– NOT Substantial Compliance

9. POL—Substantial Prejudice
• Once condition breached—Substantial Compliance n/a:
then look for INSURER’s Substantial Prejudice
– Breach, e.g., POL form submitted 1 day late
– Breach, e.g., supplying inventory list 1 day late
• (in CA) Substantial Prejudice caused by Material Breach:
– E.g.: Never submit completed POL—or doing so “extra tardy”
– E.g.: Never submit key supporting documents—or extra tardy
– Insurer unable to investigate claim—rare in 1st party
– Breach increased damages : e.g., ALE increases via delay
• Abdelhamid v. Fire Ins. Exchange (2010) 182 Cal.App.4th 990
• Burden of proving Substantial Prejudice:
– California: Insurer’s, need actual prejudice & not possibility
– BEWARE tardy POLs/breaches in, e.g., Florida & New York, etc.

10. Proof of Loss—Insurer’s Waiver
• Waiver by insurer: Cal. Ins. Code § 554
– “Delay in the presentation to an insurer of notice
or proof of loss is waived, if caused by an act of
his, or if he omits to make objection promptly and
specially upon that ground.”
• Insurer does confusing inventory before PA hired
thereby increasing time needed to sort through;
• Still insists on POL in 60 days
• Probably waived right to insist on POL

11. Proof of Loss—Synopsis
• Time: essentially “of the Essence”
– Denial of benefits “possible”
– Ultimate denial of right to sue (done in court)
– Avoid breach of conditions & prejudice arguments
• Even if POL incomplete—turn in anyway
– Then complete POL & provide documents asap
• But Cal. Ins. Code § 552 (court-ready POL n/a)
• Data on POL are correctable

12. UNDISPUTED
DAMAGES

13. Undisputed Damages
• Damages to be paid after POL and insurer’s
“hypothetical” reasonable investigation:
– For things that are “obviously covered”
• Track Mortgage Group, Inc. v. Crusader Insurance
Company (2002) 98 Cal.App.4th 857
• Strategic Non-Payment
– Wears down insured’s resolve by delaying
– “Cash is King”
• Insurer earns interest
• Investment income via more money

14. BAD FAITH
What lawyers are typically looking for
in First Party situations

15. Bad Faith—Authority & “Indicia”
• Bad Faith
– Every contract has an implied covenant of good faith & fair
dealing: typically sued as a tort
– Need a covered loss
– Need to have complied/substantially complied with terms
& conditions of policy
• Judge-made law/Case law (Authority)
• State Statutes & Regulations (“Indicia”)
– Unfair Insurance Practices Act
• Cal. Insurance Code § 790 et seq.: Includes the “Unfair Claims
Settlement Practices Act,” 790.03(h) (UCSPR)
– Fair Claims Settlement Practices Regulations (FCSPR)
• 10 California Code of Regulations § 2695.1 et seq.

16. Case law/Judge-made law: Bad Faith
• Bad Faith
– Deny the claim without a reasonable investigation .
• Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809
– The investigation must rise to constitute unfair dealing
• “[I]nsurer fails to consider, or seek to discover, evidence relevant to
the issues of liability and damages.” Shade Foods, Inc. v. Innovative
Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847
• Keep claim open “forever”—constructive denial.
– McCormick v. Sentinel Life Ins. Co. (1984) 153 Cal.App.3d 1030
• Unreasonably withholding/delaying payment of claim.
– Jordan v. Allstate Ins. Co. (2007) 148 Cal.App.4th 1062
• Unreasonable withholding or done without proper cause

17. Case law/Judge-made law: Bad Faith
• Bad Faith:
– Unreasonable or Unnecessary Document/Info Requests:
• No right to ask for certain types of info: issue is sufficient info
• Insured’s objectively reasonable expectations defeated where
insurer insists on documents did not have and could not obtain.
Insurer has duty to pay claim once it has received sufficient info
– The issue is not if insurer has received everything it
requested, or even what it prefers. Rather, issue is would
it be unreasonable to deny claim [or withhold payment]
given the proof in its possession.
• McCormick v. Sentinel Life Ins. Co. (1984) 153 Cal.App.3d 1030

18. Case law/Judge-made law: Bad Faith
• Nitpicking
– Denying claims because insured’s submissions,
they failed to: Dot all the “I”s and cross the “T”s
• Violations of UIPA/UCSPA & FCSPR do not
create a private cause of action:
– Violations not “instant Bad Faith”
• But provide evidence of Bad Faith.
– Shade Foods, Inc. v. Innovative Products Sales & Marketing,
Inc. (2000) 78 Cal.App.4th 847, 916.

19. Statutory Indicia of Bad Faith
• Unfair Ins. Practices Act/Unfair Claims Settlement Practices Act
– Cal. Ins. Code 790.03(h)(12): “Failing to settle claims promptly, where
liability has become apparent, under one portion of the insurance
policy coverage in order to influence settlements under other portions
of the insurance policy coverage.”
– Cal. Ins. Code 790.03(h)(5): “Not attempting in good faith to effectuate
prompt, fair, and equitable settlements of claims in which liability has
become reasonably clear.”
– Cal. Ins. Code 790.03(h)(6): “Compelling insured to institute litigation
to recover amounts due under insurance policy by offering
substantially less than the amounts ultimately recovered in the
lawsuit where insureds have made claims for amounts reasonably
similar to the amounts ultimately recovered.”

20. Regulatory Indicia of Bad Faith
• Fair Claims Settlement Practices Regulations
– Cal. Code of Regulations (“CCR”) § 2695.7(d): “every insurer shall
conduct and diligently pursue a thorough, fair, and objective
investigation and shall not persist in seeking information not
reasonably required for or material to the resolution of a claim
dispute.”
– CCR § 2695.4(a): “Every insurer shall disclose to a first party claimant
or beneficiary, all benefits, coverage…of any insurance policy issued
by that insurer that may apply to the claim presented by the claimant.
When additional benefits might reasonably be payable under an
insured's policy upon receipt of additional proofs of claim, the insurer
shall immediately communicate this fact to the insured and
cooperate with and assist the insured in determining the extent of
the insurer's additional liability.”

21. Regulatory Indicia of Bad Faith
• Fair Claims Settlement Practices Regulations
– CCR § 2695.7(g): “No insurer shall attempt to settle a
claim by making a settlement offer that is unreasonably
low….” No lowballing!
– CCR § 2695.7(c)(1):
• If more than 40 days are needed [per CCR § 2695.7(b)—unless
fraud is suspected: then 80 days (per CCR § 2695.7(k)(1)] needed
“to determine whether a claim should be accepted and/or denied
in whole or in part, every insurer shall provide the claimant,
within [said] timeframe…with written notice of the need for
additional time. This written notice shall specify any additional
information the insurer requires in order to make a
determination and state any continuing reasons for the insurer’s
inability to make a determination. Thereafter, the written notice
shall be provided every thirty (30) days until a determination is
made or notice of legal action is served….”

22. LAWYER TIME

23. Lawyer Time—insured hires
• Reservation of Rights letter cites:
– policy language that expressly excludes coverage
• Reservation of Rights letter cites:
– policy language that is ambiguous requiring
interpretation of exclusion/condition of coverage
• After awhile, you:
– think you notice dittoed bad faith conduct

24. Lawyer Time
• Lawyer may be able to make:
– insurer pay claim they otherwise may have denied
– a “stalled claim” pay faster
– settle for more than policy limits: bad faith damages
• Lawyer can accelerate PA getting paid
• Significant underinsurance issues probable
– Ocean view home in Malibu with $500,000 policy limit
– Insured can speak to lawyer re: agent/broker liable

25. AGENT/BROKER
NEGLIGENCE

26. Agent/Broker Issues
• Agent or broker negligence
– Caused insured to be underinsurance
• Statute of Limitations (“SOL”)
– 2 year SOL for agent or broker negligence lawsuit not
tolled/stopped during claim investigation
• WARNING: start of SOL may vary from date of loss
• Timely consult an attorney “asap” for calculation
• Agents: insurer delays claim so SOL expires
– Agents—negligence/liability attributable to insurer
• PA may be accused of holding onto claim too long
– and not advising insured to consult lawyer regarding
underinsurance suit against agent or broker

27. EXTORTION

28. Sundry—Avoid Extortion
• Cal. Penal Code § 518: “Extortion is the
obtaining of property from another, with his
consent…induced by a wrongful use of force
or fear….”
• “Property” can be many things:
– not just money
• Note: property can be legitimately owed!
– Still extortion!

29. Avoid Extortion—Fear Element
• Cal. Penal Code, § 519: “Fear, such as will
constitute extortion, may be induced by a
threat either:
– To do an unlawful injury to the person or property
of the individual threatened or of a third person;
or,
– To accuse someone or their family of crime; or,
– To expose/impute any deformity, disgrace, or
crime; or,
– To expose any secret affecting them.”

30. Extortion—Consequences
• Cal. Penal Code § 524: Verbal and unsuccessful
– This is Attempted Extortion: misdemeanor (1 year or less in jail)
• Cal. Penal Code § 523: “Every person who, with intent to
extort any money or other property from another sends or
delivers to any person any letter or other writing, whether
subscribed or not, expressing or implying, or adapted to
imply, and such threat specified in § 519, is punishable in
the same manner as if such money or property were
actually obtained by means of such threat.”
• § 520: this is a felony punishable by 2, 3, or 4 years in state
prison; per § 525, if elderly or dependent person such is an
aggravating factor under § 1170(b)

31. Examples of Extortion
• ATTEMPTED EXTORTION: To the insured’s face, you say:
– “If you don’t sign this check, I’m going to call the IRS & inform
them of bogus tax write-offs you mentioned!” They don’t sign
the check.
• “COMPLETED EXTORTION”: you send EMAIL to contractor:
– “I’m going to tell the CSLB that you’ve been getting deposits of
more than 10% down if you don’t sign this insurance check.”
• ATTEMPT: via telephone to an Allstate rep:
– “I’m tell your manager that you shoved the insured after her
recorded statement if you Interplead that check with the
court!” But, they Interplead anyway.
• COMPLETED: you threaten to “go upside the insured’s
head” if he doesn’t sign the claims check, after balking at
your fee; then, signs & hands you the check.

32. Avoiding Extortion—Key Takeaways
• It doesn’t matter if they legitimately owe you
the money or you earned your fee!
• If you want to report them to the police or
other agency, just do it—don’t tell them
• You cannot even imply a threat—it doesn’t
have to be specifically stated
• OK: say/write—“I’m going to sue you” if you
don’t pay!
– E.g., demand letters threatening only to sue.