It is not Bad Faith Only to Deny a Claim

Post 4734

The California Court of Appeals dealt with a claim by Wynzell Lynn, Jr.
in a breach of insurance contract case against defendants are AAA Life
Insurance Company and its agent, Craigory Webb. Plaintiff appealed from a
final judgment of dismissal that was entered after the trial court
struck certain causes of action in plaintiff's operative complaint and
sustained the defendants' demurrer as to other causes of action, without
leave to amend.

In Wynzell Lynn, Jr. v. AAA Life Insurance Company et al., F085402,
California Court of Appeals, Fifth District (February 9, 2024) explained
in a lengthy opinion why the trial court erred.

FACTUAL BACKGROUND

Plaintiff purchased from defendant AAA Life Insurance Company (AAA) a
life insurance policy for himself, along with a child term rider (rider)
providing up to $10,000 in coverage per insured child. According to the
First Amended Complaint (FAC) plaintiff understood from his prepurchase
conversations with Webb that the rider would cover all of the children
in plaintiff's household.

When plaintiff first contacted Webb within their household were four
children under the age of 19.

Webb, as the agent for the insurer, stated, "'the rider covers all your
children for $7.00."

The three-page rider contained the following relevant provisions. The
rider "provides term life insurance coverage for each Insured Child." An
Eligible Child must be dependent upon the Insured for support and
living within the Insured's household or attending an educational
institution as a full-time or part-time student.

In November 2020, about seven months after plaintiff's policy became
effective, tragically, Bowen was fatally shot. On the date of his death,
Bowen was 17 years old, unmarried, financially dependent on plaintiff,
and living in plaintiff's household.

DISCUSSION
Breach of Contract (Express Contract Theory)

To the extent the rider can reasonably be interpreted to provide
coverage for a child with a relationship to the insured akin to Bowen's
relationship with plaintiff, the FAC properly pleads the element of
breach-the only element the trial court found missing.

In addition, in Shade Foods, Inc. v. Innovative Products Sales
&Marketing, Inc. (2000) 78 Cal.App.4th 847 (Shade Foods) the Court
of Appeals held that an insurance carrier is "bound by its agent's
interpretation of coverage under the policy," and an agent's authority
to bind the principal "unquestionably extends to giving ambiguous
contract provisions an interpretation that the insurer itself might
reasonably adopt." As a result, the court concluded, the insurer was
"bound by its agent's interpretation of the contract."

Breach of the Covenant of Good Faith and Fair Dealing

Negligence

Accordingly, it concluded the FAC alleges adequate facts to show a
special duty of care, breach of that duty, causation, and damages.


ZALMA OPINION

This case, over a $10,000 dispute, went through a claim denial, a
demurrer dismissing the entire action, an appeal, a reversal of the
breach of contract claim, and a return to the trial court to allow
amendment of a statutory breach claim, if possible, and trial on the
breach of contract case. No bad faith because it took the court to find a
statute making a person "held out as a son" to be a son even if there
is no physical, natural relationship nor a relationship by adoption.
This is a case where the concept of "millions for defense and not a dime
for tribute" requires reconsideration, mediation and settlement.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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