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- The most recent state and federal cases that cite the actions’ elements;
- The applicable statute of limitations for each action; and
- Defenses to each cause of action.
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Breach of Implied Covenant of Good Faith and Fair Dealing, Tortious

1 Elements and Case Citations

The California Supreme Court has found “a general rule precluding tort recovery for noninsurance contract breach, at least in the absence of violation of ‘an independent duty arising from principles of tort law’ other than the bad faith denial of the existence of, or liability under, the breached contract.” Freeman & Mills, Inc. v. Belcher Oil Co., 11 Cal. 4th 85, 103 (1995).

“A cause of action for tortious breach of the covenant of good faith and fair dealing requires the existence and breach of an enforceable contract as well as an independent tort.” Innovative Business Partnerships, Inc. v. Inland Counties Regional Center, Inc., 194 Cal. App. 4th 623, 631-32 (1988).

“[T]here are at least two separate requirements to establish [tortious] breach of the implied covenant [in the insurance context:

  1. benefits due under the policy must have been withheld; and
  2. the reason for withholding benefits must have been unreasonable or without proper cause.”

Love v. Fire Ins. Exchange, 221 Cal. App. 3d 1136, 1144 (1990).

“Generally, outside the insurance context, ‘a tortious breach of contract . . . may be found when (1) the breach is accompanied by a traditional common law tort, such as fraud or conversion; (2) the means used to breach the contract are tortious, involving deceit or undue coercion or; (3) one party intentionally breaches the contract intending or knowing that such a breach will cause severe, unmitigable harm in the form of mental anguish, personal hardship, or substantial consequential damages.’” Erlich v. Menezes, 21 Cal. 4th 543, 553-54 (1999).

“In addition, ‘[g]enerally, no cause of action for the tortious breach of the implied covenant of “fiduciary characteristics.”’” Vegas Diamond Props., LLC v. Wiggins, No. 10cv1205-WQH-BGS, 2012 U.S. Dist. LEXIS 54671, at *24 (S.D. Cal. Apr. 18, 2012).

CALIFORNIA STATE COURTS

Supreme Court of California: Robinson Helicopter Co., Inc. v. Dana Corp., 34 Cal. 4th 979, 989-990 (2004); Erlich v. Menezes, 21 Cal. 4th 543, 553-54 (1999); Freeman & Mills, Inc. v. Belcher Oil Co., 11 Cal. 4th 85, 103 (1995).

California 1st District: Stop Loss Ins. Brokers, Inc. v. Brown & Toland Medical Group, 143 Cal. App. 4th 1036, 1043 (2006); Kruse v. Bank of America, 202 Cal.App.3d 38, 57 (1988).

California 2d District: Benavides v. State Farm General Ins. Co., 136 Cal. App. 4th 1241, 1251-52 (2005).

California 3d District: Tilbury Constructors, Inc. v. State Comp. Ins. Fund, 137 Cal. App. 4th 466, 475 (2006).

California 4th District: Innovative Business Partnerships, Inc. v. Inland Counties Regional Center, Inc., 194 Cal. App. 4th 623, 631-32 (1988), rev. den., 2011 Cal. LEXIS 7359 (Cal. July 13, 2011).

California 5th District: Harris v. Atlantic Richfield Co., 14 Cal. App. 4th 70. 78 (1993).

California 6th District: None.

CALIFORNIA FEDERAL COURTS

United States Court of Appeal for the 9th Circuit: Ajir v. Exxon Corp., Nos. 97-17032 & 97-17134, 1999 U.S. App. LEXIS 11046, at *25-27 (9th Cir. May 26, 1999).

Central District: Aqua Connect v. Code Rebel, LLC, No. CV 11-05764 RSWL (MANx), 2013 U.S. Dist. LEXIS 103080, at *10-11 (C.D. Cal. July 23, 2013).

Eastern District: Valenzuela v. American Home Mortg. Inv. Trust 2005-2, No. CV-F-08-1179 OWW/SMS, 2009 U.S. Dist. LEXIS 31111, at *70-71 (E.D. Cal. Mar. 30, 2009).

Northern District: Wine Bottle Recycling, LLC v. Niagara Sys. LLC, No. 12-1924 SC, 2013 U.S. Dist. LEXIS 138896, at *9-10 (N.D. Cal. Sept. 26, 2013).

Southern District: Vegas Diamond Props., LLC v. Wiggins, No. 10cv1205-WQH-BGS, 2012 U.S. Dist. LEXIS 54671, at *24 (S.D. Cal. Apr. 18, 2012).

2 Defenses to Claim for Breach of Implied Covenant of Good Faith and Fair Dealing, Tortious

(1) Cal. Code Civ. Proc. § 431.30(b)(2) (pleading affirmative defenses), and other standard defenses. See Chapter 1 for all defenses.

(2) Statute of Limitations: Tort remedies on a claim for breach of the covenant of good faith and fair dealing is governed under and is barred by the two-year statute of limitations under Cal. Code Civ. Proc. § 339(1); non-tortious breach of the covenant is governed by Cal. Code Civ. Proc. § 337(1)’s four-year statute of limitations for breach of contract.

(3) No Claim for Tortious Breach of Covenant in Employment Contracts: Foley v. Interactive Data Corp., 47 Cal.3d 654, 700 (1988) (“we hold that tort remedies are not available for breach of the implied covenant in an employment contract to employees who allege they have been discharged in violation of the covenant”).

(4) Application in the Insurance Context: “The covenant of good faith and fair dealing ‘is the obligation, deemed to be imposed by the law, under which the insurer must act fairly and in good faith in discharging its contractual responsibilities. Where in so doing, it fails to deal fairly and in good faith with its insured by refusing, without proper cause, to compensate its insured for a loss covered by the policy, such conduct may give rise to a cause of action in tort for breach of an implied covenant of good faith and fair dealing.’” Suarez v. Life Insurance Co. of North America, 206 Cal. App. 3d 1396, 1407 (1988).

“In insurance cases there is a well-developed history recognizing a tort remedy for a breach of the implied covenant. . . . A review of those cases demonstrates that the existence of this remedy has been justified by the "special relationship" existing between insurer and insured, which is characterized by elements of public interest, adhesion and fiduciary responsibility. . . . In addition, it is essential to a recovery in tort that the insurer, in breaching the implied covenant, have acted unreasonably . . . or without proper cause.” Careau & Co. v. Security Pacific Business Credit, Inc., 222 Cal. App. 3d 1371, 1395 (1990) (citations omitted).

(5) Questionable Application Outside Insurance Context: Despite dicta suggestion the possibility of broader application, “the Courts of Appeal have considered this issue in a variety of settings and have unanimously refused to sanction tort remedies outside the context of an insurance policy.” Cates Construction, Inc. v. Talbot Partners, 21 Cal. 4th 28, 46 n.9 (1999).

(6) Cannot be Used to Imply an Obligation Contrary to Express Terms: “‘As to acts and conduct authorized by the express provisions of the contract, no covenant of good faith and fair dealing can be implied which forbids such acts and conduct. And if defendants were given the right to do what they did by the express provisions of the contract there can be no breach.’” Carma Developers, Inc. v. Marathon Dev. California, Inc., 2 Cal. 4th 342, 374 (1992)