Legal Question in Insurance Law in California

My 2011 Toyota Camry, an Arizona registered and titled vehicle, was damaged by water in Arizona in September 2011 when its engine sucked in water and hydrolocked the engine. The car was basically a brand new car with approximately 2,000 miles on it.

I had a California insurance policy for the car, because I am a resident of California and own homes in California and own California registered vehicles. I travel between Arizona and California for business. I also have a residence in Arizona as well.

My insurance company appraised the car's predamage value at $20,756, and its salvage value at $14,486. I obtained a repair estimate from an independent shop in Arizona for $4,001.11 at the time. My insurance company then recommended that I take the car to a local Toyota dealer in Arizona for a repair estimate. I took their recommendation and had the local Toyota dealer, Precision Toyota, give a repair estimate. Precision Toyota then gave a repair estimate of $14,759.58, which they later reduced to $13,320.83 for the insurance company.

Based on Precision Toyota's repair estimate of $13,320.83, my insurance company declared the car to be a total loss. I disputed the total loss determination, based on the fact that I had a repair estimate from an independent shop for only $4,001.11 and the car's predamage value was $20,756 and its salvage value was still $14,486. However, my insurance company continued to assert a total loss.

I then paid out of pocket the $4,001.11 repair and had the car repaired. I then demanded reimbursement from my insurance company in writing in two separate letters by certified mail. My insurance company ignored my demands for reimbursement and continued to assert a total loss.

I then had two Toyota dealerships do an inspection of the vehicle. Both Toyota dealers found no problems with the vehicle. I presented all this evidence to an attorney, who took my case on a contingency fee basis and sued my insurance company for insurance bad faith and unfair business practices in November of 2012 in California state court, based on the fact that the insurance contract was a California contract.

The insurance company filed a motion for summary judgment, arguing that they had the subjective discretion to determine a vehicle to be a total loss, regardless of the evidence or any contrary opinion. Therefore, they argued that they could not issue payment without the car first having a salvage title, because such payment would be in violation of Arizona Code section 28-2091. In addition, their motion argued that they should not be subject to liability for punitive damages even if their position is wrong.

The judge disagreed that they had the subjective discretion to determine a vehicle to be a total loss regardless of the evidence or any contrary opinion, and ruled that a triable issue of material fact exists whether the insurance company acted in bad faith. The judge's ruling in this regard states:

"A triable issue of material fact exists whether plaintiff's Toyota Camry is a salvaged vehicle under Arizona Code section 28-2091, the law of the state wherein plaintiff's vehicle is registered; a triable issue of material fact exists whether plaintiff's demand for payment does not violate Arizona Code section 28-2091; a triable issue of material fact exists whether Standard Fire unreasonably delayed in payment under the insurance policy."

The judge denied their motion for summary judgment, with one exception. The judge granted their motion for summary judgment with respect to the issue of punitive damages, finding that the insurance company applied an objective standard to their decision making regarding the vehicle, and therefore there is insufficient bad faith to justify a jury considering punitive damages. The judge's ruling in this regard states:

"Standard Fire's alternative motion for summary adjudication on the punitive damages claim is granted. In tort cases, the plaintiff may seek punitive damages for "oppression, fraud, or malice" by the defendant (Civil Code 3294(a)). Recovery of punitive damages is governed by the clear and convincing standard (Civil Code 3294(a)). Where punitive damages are sought against a corporation, the plaintiff must show that the "oppression, fraud, or malice" was committed or ratified by an "officer, director, or managing agent." (Civil code 3294(b)). Here, there is no clear and convincing evidence to support a claim for punitive damages against Standard Fire. Even under the standard enunciated by plaintiff, it appears to the court the adjusters sought to apply an objective standard to their decision making regarding the vehicle, and there is insufficient evidence of bad faith to justify a jury considering the issue of punitive damages. It is undisputed there was water damage to the car, and this justified the carrier's caution. Accordingly, Standard Fire's alternative motion for summary adjudication on the claim for punitive damages is granted."

This is a very peculiar situation. On the one hand, the judge is ruling that there is a triable issue of bad faith, but on the other hand, the judge is ruling that the insurance company applied an objective standard to their decision making regarding the vehicle and therefore there is insufficient bad faith to justify the consideration of punitive damages.

Bad faith, by definition, means that the insurance company was unreasonable. If there is a triable issue as to whether the insurance company was unreasonable, then that means that a finding cannot be made that the insurance company sought to apply an objective standard to its decision making. These two findings conflict with one another. On the one hand, the judge rules that there is a triable issue of bad faith, which means a triable issue as to whether an objective standard was used. On the other hand, the judge finds that the insurance company sought to apply an objective standard to its decision making. This is, in effect, two different findings, that conflict with one another.

If the judge's findng is that there is a triable issue of bad faith, then that finding means that there is a triable issue as to whether an objective standard was used. That's WHY there is a triable issue of BAD FAITH. Bad faith, by definition, means unreasonable. Objective, by definition, means REASONABLE. If there is a finding of a triable issue of bad faith/UNREASONABLE, then that precludes a finding that an objective/REASONABLE standard was used. The insurance company did not necessarily seek to apply an objective standard to its decision making. That's WHY there is a TRIABLE issue of BAD FAITH, exactly BECAUSE the adjusters were not clearly reasonable. Therefore, it cannot be said that they sought to apply an objective standard to their decision making. These two findings contradict one another.

In fact, the insurance company applied a SUBJECTIVE standard to its decision making, arguing in their summary judgment motion that they had the SUBJECTIVE DISCRETION to determine a vehicle to be a total loss, regardless of the evidence or any contrary opinion. By this reasoning, there is no objective standard for determining when a vehicle is a total loss. There is only their SUBEJECTIVE DISCRETION. This is clearly not an objective standard being used. On the contrary, this is a SUBJECTIVE standard being used.

The whole point of insurance bad faith is the consideration of punitive damages. That's why it's called "insurance BAD FAITH." I don't see how the judge can say that there is a triable issue of bad faith, but then say that the adjusters sought to apply an objective standard to their decision making. These two statements contradict one another. Is the judge's reasoning correct? Or is he wrong? If he is wrong, then should I appeal his ruling? Please let me know your opinion.

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