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The Reasons Behind the California Fair Claims Settlement Practices Regulations


In 1993 the state of California determined that the insurance industry needed to be regulated to stop insurers from treating the people insured badly and without good faith. It created a set of Regulations called the “California Fair Claims Settlement Practices Regulations” (the “Regulations) to enforce the mandate created by the California Fair Claims Settlement Practices statute, California Insurance Code Section 790.03 (h) in response to the direction of the California Supreme Court in Moradi-Shalal v. Fireman’s Fund Ins. Companies, 46 Cal. 3d 287 (1988).



In so doing the California Department of Insurance (CDOI) attempted to micro manage the business of insurance claims and create a method to punish those insurers who failed to comply with the Regulations. Some of the Regulations asserted what had always been recognized by the insurance industry and good faith and proper claims handling. Others imposed draconian mandates on what and when to do everything in the claims process.


The Regulations also provided a guide to insureds, public insurance adjusters and policyholders’ lawyers to assert any violation of the Regulations to be evidence of an insurer’s breach of the implied covenant of good faith and fair dealing.


All insurers doing business in California must comply with the requirements of the Regulations or face the ire of, and attempts at financial punishment from, the CDOI. That punishment is now questionable and limited because some courageous insurers fought the CDOI and succeeded before an administrative law judge who limited the right to punish.



The Regulations impose on all insurance claims personnel the requirement that they read and understand the Regulations or attend an annual training program no later than September 1 of each year. Insurers are compelled to ascertain that every employee involved in any way in the claims process is trained about the Regulations or has submitted a sworn statement that he or she has read and understands the Regulations. The Regulations even require that the insurance claims managing executive attest, under oath, that each employee has been trained with regard to and/or understands the Regulations. This requirement must be complied with in order to avoid the possibility of administrative penalties upon the insurer or prosecution of the officer for perjury.