Insurer Can't Sue Insured for Reverse Bad Faith.

An insurer has no claim against its insured in tort for the breach of the covenant of good faith and fair dealing, the California Court of Appeal, Second District, decided in Agricultural Insurance Co. v. Superior Court (MKDG/Rhodes SC Partnership), 82 Cal.Rptr.2d 594 (1999).

The case arose from a controversy over payments to an insured for damage to its building resulting from the January 1994 earthquake in Northridge, California. The insurer charged the insured with falsifying claims, and in a cross-complaint to the insurer's action for bad faith and breach of contract, it employed the tort theories of reverse bad faith and fraud. The trial court sustained the insured's demurrer to both.

The court of appeal agreed that the insurer could not assert a reverse bad faith cause of action, but it remanded for the insurer to have an opportunity to plead with greater specificity. As to the reverse bad faith contention, Justice Zebrowski wrote that a breach of the covenant of good faith and fair dealing is really a breach of contract. "A relationship including specialized circumstances of reliance and dependence is necessary to transmute such a contractual breach into a tort," he added. "Such circumstances do not exist in the context of an insured's responsibilities toward its insurer, or in the reciprocal context of an insurer's legitimate expectations from its insured.... [A]n insured does not bear a risk of affirmative tort liability for failing to perform the panoply of indefinite...