Zalma on Insurance
Education • Business
Insurance Claims professional presents articles and videos on insurance, insurance Claims and insurance law for insurance Claims adjusters, insurance professionals and insurance lawyers who wish to improve their skills and knowledge. Presented by an internationally recognized expert and author.
Interested? Want to learn more about the community?
September 19, 2023
Parties to Insurance Contract Alone Can Commit Bad Faith

Attorneys May Not Be Sued for the Tort of Bad Faith
Barry Zalma

Sep 19, 2023

Read the full article at https://lnkd.in/grdrF8Rq, see the full video at https://lnkd.in/g5dH3SFc and at https://lnkd.in/g8hbd4Ce and at https://zalma.com/blog plus more than 4600 posts.

For many years lawyers for policyholders have sued insurer’s lawyers for the tort of bad faith to avoid federal court. I was sued dozens of times in spurious lawsuits claiming that drafting a denial letter was sufficient to sue me personally as the lawyer for an insurer for the tort of bad faith. In so doing the suits almost invariably drove a conflict between the lawyer and his or her client although the lawyer was not a party to the contract of insurance.

The California Supreme Court resolved the issue in a case called Jerome Gruenberg v. Aetna Insurance Company et al., 9 Cal.3d 566, 510 P.2d 1032, 108 Cal.Rptr. 480, Supreme Court of California, In Bank. (June 11, 1973.)

FACTS

Gruenberg sued his insurers and their lawyers for the tort of bad faith after his claim for fire damage to his bar, the Brass Rail, was damaged by fire. The insurers engaged the services of defendant P. E. Brown and Company (Brown). Carl Busching, a claims adjuster employed by Brown, went to the Brass Rail to investigate the fire and inspect the premises. While he was there, he stated to an arson investigator of the Los Angeles Fire Department that plaintiff had excessive coverage under his fire insurance policies. Eventually the premises were locked, and nothing was removed until November 14, 1969, when Busching authorized the removal of the rubble and debris.

Gruenberg was eventually charged in a felony complaint with the crimes of arson (Pen.Code, § 448a) and defrauding an insurer (Pen.Code, § 548).

Defendant insurance companies also retained attorney Donald Ricketts who demanded in writing that plaintiff appear on December 12, 1969, to submit to an examination under oath and to produce certain documents. On November 26, 1969, plaintiff’s attorney responded by letter to Ricketts explaining that he had advised plaintiff not to make any statements concerning the fire loss while criminal charges were pending. The letter also requested that the insurers waive the requirement of an examination until the criminal charges lodged against plaintiff were concluded. Ricketts refused the request and warned that failure to appear for the examination would void coverage under the policies. Gruenberg did not appear and Rickets, on behalf of the insurers denied the claim.

The charge against Gruenberg were dismissed by the magistrate for lack of probable cause.

DISCUSSION

The Supreme Court only ruled on the sufficiency of these allegations which of course must be sustained by proper proof.

Plaintiff alleged that Brown, the insurance adjusting firm, and its employee, Busching, and Cummins, the law firm, and its employee, Ricketts, were the agents and employees of defendant insurers and of each other and were acting within the scope of that agency and employment when they committed the acts attributed to them. Gruenberg contended that these non-insurer defendants breached only the duty of good faith and fair dealing.

The Supreme Court concluded that the non-insurer defendants were not parties to the agreements for insurance; therefore, they are not, as such, subject to an implied duty of good faith and fair dealing. Moreover, as agents and employees of the defendant insurers, they cannot be held accountable on a theory of conspiracy.

Plaintiff sufficiently pleaded a cause of action against the insurers for breach of the covenant. However, since the remaining defendants were not subject to the implied duty arising from the contractual relationship, the complaint does not state sufficient facts to constitute a cause of action against them and that the judgment of dismissal in their favor was proper.

ZALMA OPINION

The tort of bad faith is a mix of contract and tort. One cannot commit the tort unless that person or entity is a party to the contract of insurance. Therefore, the lawyers and adjusters were dismissed since they were charged with a tort they could not commit. I personally was sued multiple times as the lawyer for an insurer who denied a claim only to defeat those suits with a motion for summary judgment and a declaration that “I am not now, nor have I ever been, an insurer.” I then, in an attempt to stop spurious lawsuits, sued the lawyers who filed suits against me for malicious prosecution. I would recommend the same to any lawyer sued for bad faith, a tort that an insurer’s lawyer cannot commit.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.

Subscribe to Excellence in Claims Handling at locals.com at https://zalmaoninsurance.locals.com/subscribe or at substack at https://barryzalma.substack.com/publish/post/107007808

Go to Newsbreak.com https://www.newsbreak.com/@c/1653419?s=01

Follow me on LinkedIn: http://www.linkedin.com/comm/mynetwork/discovery-see-all...

Daily articles are published at https://zalma.substack.com.

Go to the podcast Zalma On Insurance at https://podcasters.spotify.com/pod/show/barry-zalma/support; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – http://zalma.com/blog/insurance-claims-library/

Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.

Subscribe to substack at https://lnkd.in/gpiauwgf; Go to Newsbreak.com https://lnkd.in/g8azKc34;

Go to the Insurance Claims Library – https://lnkd.in/gYq44VM

00:08:27
Interested? Want to learn more about the community?
What else you may like…
Videos
Posts
May 01, 2026
Zalma’s Insurance Fraud Letter – May 1, 2026

Happy Law Day

ZIFL – Volume 30, Issue 9 – May 1, 2026

Read the full article at https://www.linkedin.com/pulse/zalmas-insurance-fraud-letter-may-1-2026-barry-zalma-esq-cfe-2tywc, see the video at at and at https://zalma.com/blog plus more than 5300 posts.

THE SOURCE FOR THE INSURANCE FRAUD PROFESSIONAL

ZIFL – Volume 30, Issue 9 – May 1, 2026

Zalma’s Insurance Fraud Letter (ZIFL) continues its 30th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year and is written by Barry Zalma.

DOJ Creates National Fraud Enforcement Division

Will the Feds Take on Insurance Fraud? Possibly as Part of a National Anti-Fraud Effort

On April 7, 2026, the Acting Attorney General, Todd Blanche, issued a memorandum establishing the Department of Justice National Fraud Enforcement Division (NFED). The memo describes an ambitious, but perhaps redundant, vision for this ...

00:08:23
placeholder
April 30, 2026
The Efficient Proximate Cause Doctrine Saves a Claim

When Abalone Died As a Result of Multiple Causes The Efficient Proximate Cause Requires Payment

Post number 5345

Read the full article at https://www.linkedin.com/pulse/efficient-proximate-cause-doctrine-saves-claim-barry-zalma-esq-cfe-yndlc, see the video at and at and at https://zalma.com/blog plus more than 5300 posts.

In American Abalone Farms, LLC v. Star Insurance Company et al., H052643, California Court of Appeals, Sixth District (April 27, 2026) the Court of Appeals dealt with an insurance coverage issue that required application of the efficient proximate cause doctrine.

FACTS

American Abalone Farms, LLC ("American Abalone" ) operates an aquaculture farm in Santa Cruz County, California, raising abalone in tanks. In August 2020, the CZU Lightning Complex Fires led to a prolonged power outage and road closures near the farm. As a result, the farm’s water pumps failed, causing the death of most of the ...

00:08:38
placeholder
April 29, 2026
Breach of a Specific Condition Precedent Is a Complete Defense

Breach of a Specific Condition Precedent Is a Complete Defense

See the video at and at and at https://zalma.com/blog plus more than 5300 posts.

In United Services Automobile Association and State Farm Mutual Automobile Insurance Company v. Anthony Wenzell, 2026 CO 25 (Colo. Apr. 27, 2026) Anthony Wenzell was rear-ended in a car accident. He had a significant prior 2014 accident that required back surgery.

Wenzell claimed underinsured-motorist (UIM) benefits under three policies: (1) the tortfeasor’s liability policy, (2) his own primary UIM policy with State Farm, and (3) an excess UIM policy issued by USAA (under his brother’s policy, which contained an “other insurance” clause making USAA’s coverage excess over any collectible insurance).

After receiving the claims, both USAA and State Farm repeatedly requested that Wenzell execute comprehensive medical-release authorizations so they could obtain his full medical records and ...

00:11:27
placeholder
12 hours ago

It is Fraud to Make the Same Claim Twice

Read the full article at https://www.linkedin.com/pulse/fraud-make-same-claim-twice-barry-zalma-esq-cfe-c4g8c and at https://zalma.com/blog.

Chutzpah: After Being Paid for a New Roof Insured Makes Second Claim For Same Damages

Post number 5347

No One is Entitled to be Paid for the Same Loss Twice

In Mohammed Ali Khalili v. State Farm Lloyds, No. 14-25-00611-CV, Court of Appeals of Texas (April 30, 2026) Khalili maintained a State Farm Lloyds homeowners insurance policy for decades. In 2008 he filed a roof-damage claim; State Farm paid him to replace the entire roof (shingles and gutters). Khalili never replaced the roof and repeated his claim.

BACKGROUND

In 2021 he filed a second roof claim. State Farm’s inspectors found the roof “very old” with extensive non-storm-related damage. The claim was denied because (1) the damage did not exceed the deductible and (2) State Farm had already paid for a full roof replacement.

PROCEDURAL HISTORY

State Farm filed motion for summary...

post photo preview
12 hours ago

It is Fraud to Make the Same Claim Twice

Read the full article at https://www.linkedin.com/pulse/fraud-make-same-claim-twice-barry-zalma-esq-cfe-c4g8c and at https://zalma.com/blog.

Chutzpah: After Being Paid for a New Roof Insured Makes Second Claim For Same Damages

Post number 5347

No One is Entitled to be Paid for the Same Loss Twice

In Mohammed Ali Khalili v. State Farm Lloyds, No. 14-25-00611-CV, Court of Appeals of Texas (April 30, 2026) Khalili maintained a State Farm Lloyds homeowners insurance policy for decades. In 2008 he filed a roof-damage claim; State Farm paid him to replace the entire roof (shingles and gutters). Khalili never replaced the roof and repeated his claim.

BACKGROUND

In 2021 he filed a second roof claim. State Farm’s inspectors found the roof “very old” with extensive non-storm-related damage. The claim was denied because (1) the damage did not exceed the deductible and (2) State Farm had already paid for a full roof replacement.

PROCEDURAL HISTORY

State Farm filed motion for summary...

post photo preview
April 30, 2026
Investigation of First Party Property Claims

What Must be Done after Notice of a Claim is Received by the Insurer

Read the full article at https://lnkd.in/gzvvdkMZ and at https://zalma.com/blog.

Below you will read from this post until you reach the the end of this blog post as the free part of an Excellence in Claims Handling post. To read the full article and receive all articles for members of Excellence in Claims Handling you should consider joining as a paid member to get full access to articles for members only, to our news, analysis, insurance coverage, claims, insurance fraud and insurance webinars, by clicking at the subscription link below.

A first party property policy does not insure property: it insures a person, partnership, corporation or other entity against the risk of loss of the property. Before an insured can make a claim for indemnity under a policy of first party property insurance the insured must prove that there was damage to property the risk of loss of which was insured by the policy. The obligation imposed on the insured ...

post photo preview
See More
Available on mobile and TV devices
google store google store app store app store
google store google store app tv store app tv store amazon store amazon store roku store roku store
Powered by Locals