"First-party" insurance is any policy that protects the person or company that purchased it against a covered loss. It contrasts with third-party insurance (liability insurance) which protects someone other than the policy holder -- for instance a pedestrian that is hit by someone with bodily injury liability insurance.
Examples of first-party insurance in California include (but are not limited to):
- Homeowner's or renter's content insurance,
- Fire or flood insurance,
- Health insurance,
- Uninsured / underinsured motorist insurance,
- Collision and comprehensive car insurance,
- Med Pay insurance, and
- Travel insurance.
To help you better understand first party insurance, our California personal injury lawyers discuss, below:
- 1. What is “first-party” insurance?
- 2. Why is first-party insurance important?
- 3. What damages can I recover for “bad faith” by an insurer in California?
An insurance policy is a legally binding contract between an insurance company and the policyholder.
The term “first party” comes from old legalese, which referred to contracting parties as the “party of the first part” and the “party of the second part.”
In the insurance context the "first party" is the policy holder. The "second party" is the insurance company. People and companies that are not parties to the contract are known as “third parties.”
Third parties do not have the same rights as people who are first parties to a contract of insurance in California.
Insurance contracts are governed both by general principals of contract law and the California Insurance Code.1 These laws impose various obligations on insurance companies in California.
One of the most important of these is the obligation of good faith and fair dealing.2 It requires insurance companies in California to investigate claims by their insurers promptly and in good faith.
Another important obligation is the duty to defend and indemnify liability policy holders when they are sued by a third party. A breach of either of these or obligations can lead to a lawsuit for "bad faith" by an insurer in California.
A policy holder whose first party insurance claim has been denied in bad faith can sue for his or her reasonable compensatory damages, including:
- Mental suffering, anxiety, humiliation and/or emotional distress;
- The cost of attorney fees needed to recover the insurance policy beneﬁts;
- Future anticipated damages that can be proved with reasonable certainty; and
- In cases of malice, fraud or oppression, punitive damages.
Example: Lou suffers a serious brain injury after being struck by an uninsured driver while on the 405. He has an uninsured / underinsured motorist policy with limits of $100,000.
Lou's family makes a timely claim with Lou's auto insurer for Lou's medical bills, lost wages, lost earning capacity and pain and suffering (which together exceed the $100,000 policy limit).
Lou's insurer denies payment, claiming that Lou was responsible for the accident.
Lou's family hires a California injury lawyer with experience handling catastrophic injuries. The lawyer is able to prove that the insurer denied payment in order to get Lou's family to accept less than $100,000 as a settlement.
A jury finds that the insurer acted in bad faith and with "malice" as defined under California's "punitive damages" law. It awards Lou his $100,000 policy limits, his attorney's fees and court costs, and punitive damages in the amount of $300,000.
Similar damages are available when an insurer engages in a bad faith breach of the duty to defend its first-party insured.
Did your insurer deny your claim in California? Call us for help…
If you or a loved one has had a claim wrongly denied by your insurance company, we invite you to contact us for a free consultation.
Call us at (855) JUSTICE to discuss your "bad faith" case with a lawyer.
You can also call us for help if you have suffered from bad faith by an insurer in Nevada.