The plaintiff, a joint powers self-insured retention pool consisting of numerous California public agencies, sued the defendant, a reinsurer that reinsured plaintiff pursuant to two agreements, after the defendant declined to provide reinsurance coverage. The lawsuit alleged breach of contract and tortious breach of the implied covenant of good faith and fair dealing, and sought declaratory relief. The defendant moved to dismiss the implied covenant claim, arguing that, under California law, reinsureds may not recover tort damages for a breach of the implied covenant of good faith and fair dealing. That motion was granted. The court held that the availability of tort remedies in the context of a contractual dispute depends on whether social policy supports their imposition. While tort remedies for breach of the implied covenant of good faith and fair dealing in insurance policies had previously been recognized by California courts, they were only considered appropriate because the policies were characterized by elements of adhesion and unequal bargaining power, public interest and fiduciary responsibility. The relationship between reinsurer and reinsured does not implicate the same concerns since reinsureds are sophisticated business entities and, in obtaining reinsurance coverage, are merely seeking the commercial advantage of writing more policies than their reserves would otherwise sustain. The court ruled that more was needed before it could justify the imposition of tort damages in a straightforward contractual dispute. California Joint Powers Insurance Authority v. Munich Reinsurance America, Inc., Case No. CV 08-956 (USDC C.D. Cal. Apr. 21, 2008).
This post written by Brian Perryman.