Legal Question in Business Law in California

Generally only the insured can sue an insurance company for bad faith denial of her claim. This often comes up in the context of liability insurance, where the insured has been either sued or threatened with a lawsuit. The insurer's duty runs only to the insured and not to the third-party plaintiff. Since the insurer owes no duty to the plaintiff, it cannot breach such a duty at all, let alone in bad faith.

Sometimes, though, the plaintiff will settle with the insured on terms that include assigning the insured's bad-faith claim to the plaintiff, who is then able to pursue a lawsuit that could otherwise have been brought only by the insured. The insured will have to cooperate with the plaintiff in any such lawsuit against the insurer.

You should discuss the specifics of your situation with a lawyer. Since I do not know your circumstances, I cannot say what rights you do or don't have and I can't offer any suggestions about what you should do.

Currently California only recognizes bad faith actions in first party insurance situations. That means a bad faith action can only be brought against the person's insurer, not a third party. At one time, third party actions could be brought against the other party's insurer, in what were known as Royal Globe actions, named after the California Supreme Court opinion that allowed them. Royal Globe actions were abolished in 1988 by the California Supreme Court. "In light of certain developments occurring subsequent to Royal Globe which call into question its continued validity, we have found it appropriate to reexamine that decision. As will appear, we have concluded that the Royal Globe court incorrectly evaluated the legislative intent underlying the passage of section 790.03, subdivision (h), and that accordingly Royal Globe should be overruled. (Moradi-Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287.)

There are several exceptions, including the one that Mr. Hoffman pointed out. The best advice for you is to consult with a competent attorney as soon as possible to explore whether or not you have a viable claim.