In California, an insurer that unreasonably withholds policy benefits owed to an insured may face liability beyond the amount of the policy. This additional liability is based on:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
California recognizes a tort of bad faith: every insurance contract contains an implied covenant of good faith and fair dealing, and an insurer that unreasonably withholds benefits breaches that covenant. Because of the special relationship and unequal bargaining power between insurer and insured, the breach sounds in tort as well as contract, allowing the insured to recover damages beyond the policy benefits — including emotional distress and, in egregious cases, punitive damages. The concept is distinct from the contract claim for the unpaid benefits themselves.
Why the other options are wrong
- B) There is no federal statute awarding double damages for all late claims; bad-faith remedies come from California state law.
- C) Denying a claim is not itself a crime; criminal liability requires fraud or other intentional misconduct.
- D) A certificate of authority is not automatically revoked over a single claim dispute; discipline is a separate regulatory process.
Memory hook
Good faith is implied; unreasonable denial is a tort. Bad faith pays beyond the policy's face.