Silberg and Egan and Why There is a Tort of Bad Faith
In Silberg v. California Life Ins. Co., 11 Cal. 3d 452 (1974), the insurer advertised an accident policy with the phrase “Protect Yourself Against the Medical Bills That Can Ruin You.” It issued an accident policy to Mr. Silberg. The policy excluded injuries covered by workers’ compensation. Silberg was injured while performing incidental services at his place of employment. His employer’s compensation carrier denied coverage. Mr. Silberg found himself with substantial medical bills which California Life also refused to pay.
Many courts recommend that the two insurers attempt to agree to share the costs equally and work out their differences later. If such an agreement cannot be reached then the company you represent should front the money under a reservation of rights, take an assignment from the insured, and sue, in the insured’s name, the other insurer for all the money paid plus damages incurred by the insured.
In Egan v. Mutual of Omaha Insurance Company Egan was allowed to retain both compensatory and punitive damages as a result of the bad faith conduct of the insurer since he was able to prove the four elements required by the Supreme Court because the insurer wrongfully accused him of fraud and cut off his disability payments.
For the insurer to fulfill its obligation not to impair the right of the insured to receive the benefits of the agreement, it again must give at least as much consideration to the latter’s interests as it does to its own. The insured in a contract like the one before us does not seek to obtain a commercial advantage by purchasing the policy, rather he seeks protection against calamity.
An insurer is sometimes considered to be like a fiduciary, although it is never a fiduciary, to its insured. In Frommoethelydo v. Fire Insurance Exchange, 42 Cal. 3d. 208, 228 Cal. Rptr. 160 (1986), Mr. Frommoethelydo was arrested and tried on charges of insurance fraud, he was tried and acquitted. The Supreme Court found the failure of the insurer to investigate the basis of the acquittal was evidence of bad faith.
© 2021 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost
equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.
Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/