Procedural Posture

Procedural Posture

Appellant workers’ compensation insurer challenged a decision of the Superior Court of Los Angeles County (California), which ruled in favor of respondent yacht corporation and held that appellant breached the express terms of the contract and the implied covenant of good faith and fair dealing as a result of its improper handling of claims.

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Overview

Respondent yacht corporation filed a tort and contract action against appellant workers’ compensation insurer to recover damages that resulted from appellant’s improper handling of workers’ compensation claims by respondent’s employees. The trial court dismissed respondent’s tort claim, but awarded respondent $ 300,000 in damages for the contract claims. Appellant sought review. The court affirmed the trial court. The court held that appellant breached the express terms of the contract because the insurance contract required appellant to defend, investigate, and settle the workers’ compensation claims. Appellant breached the implied covenant of good faith and fair dealing by its improper reserve practices, its improper claims handling practices, and its refusal to allow audits of the claim files. Appellant improperly defined adequate reserves as the maximum probable potential cost without considering the interests of the insured. Appellant’s wholesale refusal to permit access to the claim files was improper despite the privacy interests of the injured employees. The damage award was supported by the testimony of an actuarial analyst and was not excessive.

Outcome

The court affirmed the decision of the trial court that ruled in favor of respondent yacht corporation in a contract action against appellant workers’ compensation insurer, because appellant breached the express terms of the insurance contract and the implied covenant of good faith and fair dealing as a result of its improper reserve and claims handling practices and its failure to permit audits of the claim files.