The Zalma Philosophy of Claims Handling - Part 3

The California Fair Claims Settlement Practices Regulations

The Reasons Why the California Department of Insurance Imposed the California Fair Claims Settlement Practices Regulations on All Insurers Doing Business in California

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In 1993, after delaying for five years after receiving direction from the California Supreme Court, 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) that were designed 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 its decision, Moradi-Shalal v. Fireman’s Fund Ins. Companies, 46 Cal. 3d 287 (1988).

The great majority of state versions of the Model Act, like California Insurance Code Section 790.03(h) have been held not to create a private cause of action.

Enforcement of the Regulations

The Supreme Court of California advised the state that: “we observe that our opinion leaves available the imposition of substantial administrative sanctions by the Insurance Commissioner." (see §§ 790.05-790.09)

These sanctions include issuance of cease and desist orders to enjoin further violations of section 790.03 and monetary fines. (See § 790.05.)

The California Department of Insurance (CDOI) issued rules that were designed 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 recited what had always been recognized by the insurance industry as good faith and proper claims handling. Others imposed draconian paper work 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.

Statutory Enforcement is for the Department of Insurance

The CDOI issued the first version of the Regulations in 1993 and modified the Regulations in 1996, 1997, 2004, 2007, 2009, 2012 and 2021. The 1997 changes renamed the Regulations the “California Fair Claims Settlement Practices Regulations,” which name remains.

The Regulations imposed on all insurance personnel a detailed laundry list of actions the CDOI considered wrongful or in violation of the Fair Claims Settlement Practices Act, California Insurance Code Section 790.03(h).

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. Whether in California or not it is useful to every claims person to study and follow the Regulations to become a professional adjuster.

For a complete understanding of the California Fair Claims Settlement Practices Regulations see my book, California Fair Claims Settlement Practices Regulations 2022 Available as a Kindle Book.  Available as a Paper Back

Part Four of The Zalma Philosophy of Claims Handling will deal what is required by the Regulations that have codified the custom and practice of the insurance claims industry.

(c) 2025 Barry Zalma & ClaimSchool, Inc.

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