Landmark Cases That Have Shaped Bad Faith Insurance Law in California: Egan v. Mutual of Omaha Insurance Company

In our last post, we reviewed Comunale v. Traders & General Insurance Company, a landmark case from 1958 that shaped the beginning of bad faith insurance law in California. Today we look at another case from the California Supreme Court that addressed a very specific duty of insurance companies – to conduct a proper investigation when a claim is presented to them. Read on to learn about Egan v. Mutual of Omaha Insurance Company and an insurer’s liability for bad faith that can result from an absent or inadequate investigation.

The Background of Egan v. Mutual of Omaha

In Egan v. Mutual of Omaha Insurance Company, the plaintiff, Michael Egan, had a disability insurance policy with Mutual of Omaha. A roofer who fell 12 feet and suffered a back injury that required surgery, Egan was declared totally disabled by his doctor. Egan filed a claim under the policy, but it was denied by the insurance company, which claimed his back injury was the result of an illness and not a permanent disability. Egan alleged that Mutual of Omaha acted in bad faith by not adequately investigating his claim before denial.

At the conclusion of a lawsuit against the insurance company, the trial court held that Mutual of Omaha was liable to Egan for $45,600 in general damages, $78,000 for emotional distress, and $5 million in punitive damages.

The case eventually made its way to the California Supreme Court, which made a seminal ruling on the matter on August 14, 1979, in a ruling penned by the legendary justice Stanley Mosk.

The Court’s Findings: Duty to Investigate

The California Supreme Court held that insurance companies have an obligation to conduct a thorough, unbiased investigation before denying a claim. Failure to do so could make the insurer liable for bad faith. The court noted that the duty to investigate exists independently of the outcome of the claim. This means that even if the claim is found to be invalid, the insurance company could still be held liable for bad faith if it did not conduct an adequate investigation.

Implications for Bad Faith Liability in California

Bad faith liability can have significant financial consequences for insurance companies. In addition to compensatory damages for the policyholder, courts can award punitive damages as a penalty for bad faith conduct, thereby amplifying the financial risk for insurers. The Egan decision thus set a precedent that has shaped subsequent case law and also influenced how insurance companies operate in California. For instance, the threat of a bad faith lawsuit makes it imperative for insurers to allocate sufficient resources and time toward investigating claims if they want to avoid potential bad faith lawsuits.

Lessons for Policyholders and Legal Practitioners

For policyholders, Egan serves as a reminder to meticulously document the claims process, including letters, phone calls, and emails, as this information may be crucial if bad faith litigation arises. The case also highlights the importance for attorneys in this area to familiarize themselves with the standards set by Egan when evaluating a client’s bad faith claim based on inadequate investigation.

Egan v. Mutual of Omaha Today

Egan v. Mutual of Omaha Insurance Company serves as a pivotal point in California insurance law. It clearly outlines the insurer’s duty to conduct a proper investigation and the repercussions that may ensue from failing this responsibility. The case has been cited extensively and remains a standard for determining bad faith liability in California.

The principles established in the Egan decision have made it a cornerstone in California insurance jurisprudence. While many judicial opinions never have an impact beyond the original parties in the case, Egan set a precedent that continues to impact the dynamics of insurer-policyholder relationships in California to this day, nearly 45 years later.

If you’ve been the victim of bad faith insurance in California, get help from a knowledgeable and experienced bad faith insurance lawyer who will fight to get you what you are owed. Call Gianelli & Morris at 213-489-1600 for a no-cost case evaluation.