Why You Cannot Sue Your Insurer Under Insurance Code 790.03 — And What You Can Do Instead

The Question Every Frustrated Policyholder Asks

California Insurance Code Section 790.03 defines a detailed list of unfair claims settlement practices — the specific acts that constitute insurer misconduct. It prohibits insurers from misrepresenting policy provisions, failing to promptly investigate claims, lowballing settlements, and engaging in dozens of other specified bad acts. When a policyholder reads this statute and recognizes the insurer’s conduct in its prohibitions, the natural assumption is: “I can sue my insurance company for violating this law.”

That assumption is wrong. Since 1988, California law has been clear: there is no private right of action under Insurance Code Section 790.03. A policyholder cannot file a lawsuit alleging a violation of the statute as an independent cause of action. This result surprises virtually every policyholder who encounters it — and many attorneys who do not specialize in insurance law.

Understanding why this is the law, and what alternatives exist, is essential for any policyholder navigating a disputed insurance claim in California.

The Rise: Royal Globe and the Brief Era of Private 790.03 Lawsuits

In Royal Globe Ins. Co. v. Superior Court(1979) 23 Cal.3d 880, the California Supreme Court held that Insurance Code Section 790.03 did create an implied private right of action. This meant that individual policyholders — and even third-party claimants — could sue an insurer directly for violating the unfair claims settlement practices provisions of the statute.

The Royal Globedecision was controversial from the moment it was issued. It opened the door to a wave of litigation, including suits by third-party claimants (people injured by the insured, not the policyholder) who claimed that the insurer had violated 790.03 in handling their claims. The insurance industry argued that the decision created an unmanageable flood of litigation, drove up costs, and went beyond the legislative intent of the statute. Policyholder advocates argued that private enforcement was necessary because CDI’s administrative enforcement was too slow and too limited to deter widespread misconduct.

Royal Globe remained the law for nearly a decade. During that period, policyholders and claimants routinely included 790.03 causes of action in their complaints against insurers.

The Reversal: Moradi-Shalal v. Fireman’s Fund

In Moradi-Shalal v. Fireman’s Fund Insurance Companies (1988) 46 Cal.3d 287, the California Supreme Court reversed Royal Globe and held that Insurance Code Section 790.03 does not create a private right of action. The Court concluded that the Legislature intended the statute to be enforced exclusively by the Insurance Commissioner through administrative proceedings, not through private lawsuits.

The Moradi-Shalal Court identified several reasons for overruling Royal Globe:

• Legislative intent.The Court found that the Unfair Insurance Practices Act (UIPA), of which Section 790.03 is a part, was modeled on the National Association of Insurance Commissioners (NAIC) Model Unfair Claims Settlement Practices Act, which was designed for administrative enforcement by the Insurance Commissioner — not for private litigation.
• Statutory scheme. The UIPA provides a comprehensive administrative enforcement mechanism through the Insurance Commissioner, including investigation, hearing, and penalty provisions. The Court concluded this indicated the Legislature intended that mechanism to be the exclusive enforcement avenue.
• Existing common law remedies.The Court noted that policyholders already had robust remedies through common law bad faith (breach of the implied covenant of good faith and fair dealing), which provided compensatory damages, emotional distress, and punitive damages — making a statutory private right of action unnecessary to protect policyholders.

Why Policyholders Wrongly Assume They Can Sue Under 790.03

The misconception is understandable, and it persists for several reasons:

• The statute reads like a list of actionable violations.Section 790.03(h) enumerates specific prohibited acts in detail. When a policyholder reads that it is unlawful for an insurer to “not attempt in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear,” the natural conclusion is that violating this prohibition creates a right to sue.
• The “790 letter” is widely used. Public adjusters, attorneys, and policyholder advocates routinely send 790 letters citing specific provisions of the statute. This can create the impression that the statute provides a direct legal remedy, when in fact the 790 letter serves a different strategic purpose: documenting the insurer’s conduct for a potential common law bad faith claim or CDI complaint.
• Other states allow it. Some states do permit private causes of action under their unfair claims settlement practices statutes. Policyholders who research insurance law generally may find information from other jurisdictions and assume California works the same way.
• The internet is full of incorrect information. Many online resources about California insurance law are outdated, inaccurate, or written by non-attorneys who do not understand the Moradi-Shalal distinction.

What You Can Do Instead

The elimination of the private right of action under 790.03 does not leave policyholders without recourse. California provides several powerful alternative remedies:

1. Common Law Bad Faith (Breach of the Implied Covenant of Good Faith and Fair Dealing)

This is the primary remedy for policyholders in California. Every insurance policy carries an implied covenant of good faith and fair dealing. When an insurer unreasonably denies, delays, or underpays a claim, the policyholder can bring a tort action for breach of this covenant — commonly known as a bad faith claim.

The remedies available in a common law bad faith action are extensive:

• Contract damages. The full policy benefits that were wrongfully withheld.
• Consequential economic damages.Financial losses caused by the insurer’s delay or denial — loan defaults, lost rental income, additional costs incurred because benefits were not timely paid.
• Emotional distress damages.The anxiety, stress, and suffering caused by the insurer’s misconduct.
• Punitive damages.Under Civil Code Section 3294, available when the insurer’s conduct demonstrates oppression, fraud, or malice.
• Brandt fees. Attorney fees incurred to obtain the wrongfully withheld policy benefits, recoverable as compensatory damages under Brandt v. Superior Court (1985) 37 Cal.3d 813.

In many respects, the common law bad faith remedy is more powerful than a statutory 790.03 claim would be, because it includes emotional distress and punitive damages — remedies that the UIPA administrative process does not provide.

2. Breach of Contract

Separate from the tort of bad faith, a policyholder can always bring a breach of contract claim when the insurer fails to pay benefits owed under the policy. A breach of contract claim does not require proof that the insurer acted unreasonably — only that the insurer failed to perform its contractual obligations. However, breach of contract damages are more limited: they include the policy benefits owed and consequential damages, but generally do not include emotional distress or punitive damages.

In practice, most insurance disputes that proceed to litigation include both breach of contract and bad faith causes of action. The breach of contract claim ensures recovery of the policy benefits even if the bad faith claim is not established.

3. CDI Complaint (Administrative Remedy)

Although policyholders cannot sue under 790.03, the statute is enforced by the California Department of Insurance. Policyholders can file a complaint with the CDI alleging that their insurer has violated the unfair claims settlement practices provisions. The CDI investigates complaints and has authority to impose administrative penalties, issue cease and desist orders, and take enforcement action against insurers that violate the statute.

Filing a CDI complaint serves several purposes:

• It creates an official record of the insurer’s conduct with the regulatory agency that oversees them.
• The CDI’s inquiry can sometimes prompt the insurer to re-evaluate its position, particularly on claims where the insurer’s handling has been clearly deficient.
• A pattern of CDI complaints against an insurer can support broader enforcement action, even if no single complaint results in penalties.
• The fact that a CDI complaint was filed can become evidence in a subsequent bad faith lawsuit, demonstrating that the policyholder put the insurer on notice of the alleged violations.

4. Brandt Fees

As noted above, Brandt fees allow a policyholder who establishes bad faith to recover the attorney fees incurred to obtain the policy benefits that were wrongfully withheld. This is not a separate cause of action but rather an element of damages within the bad faith claim. It is listed here because it addresses one of the concerns that originally motivated the Royal Globedecision — the cost to policyholders of enforcing their rights against recalcitrant insurers.

The Role of 790.03 in Bad Faith Litigation

Although Section 790.03 does not provide a private right of action, it is far from irrelevant in litigation. Courts regularly look to the standards set out in 790.03 and the Fair Claims Settlement Practices Regulations (10 CCR 2695) as evidence of the standard of care that insurers must meet. In a common law bad faith case, an insurer’s violation of 790.03 provisions can be powerful evidence that the insurer’s conduct was unreasonable.

This is the practical pathway: 790.03 defines what constitutes unfair claims settlement practices. Common law bad faith provides the cause of action and the damages. The two work together — the statute provides the standard, and the common law provides the remedy.

For a detailed explanation of how 790.03 and the 790 letter function as tools in the claims process, see the full article on Insurance Code 790.03 and the 790 letter.

The Practical Pathway for Policyholders

For a policyholder dealing with an insurer that is acting unfairly, the practical pathway in California involves multiple tracks working simultaneously:

• Document everything. Keep written records of every communication, every delay, every lowball offer, and every misrepresentation. This documentation forms the foundation of both a CDI complaint and a potential bad faith lawsuit.
• Send a 790 letter. Even though the statute does not provide a private cause of action, a formal letter citing the specific provisions of 790.03 that the insurer is violating puts the insurer on notice, creates a paper trail, and can change the dynamics of the claim.
• File a CDI complaint. The administrative remedy creates an official record and may prompt the insurer to reconsider its position.
• Consult an attorney.If the insurer’s conduct is egregious enough to constitute bad faith, the full range of common law remedies — including compensatory damages, emotional distress, punitive damages, and Brandt fees — may be available. An experienced insurance bad faith attorney can evaluate the claim and advise on whether litigation is warranted.

Key Takeaways

• Royal Globe Ins. Co. v. Superior Court (1979) briefly allowed private lawsuits under Insurance Code 790.03. Moradi-Shalal v. Fireman’s Fund (1988) reversed that holding and eliminated the private right of action. This has been settled law for over 35 years.
• Policyholders cannot sue their insurer directly under Section 790.03. Any complaint alleging a standalone 790.03 cause of action will be dismissed.
• The primary remedy for insurer misconduct is a common law bad faith claim — breach of the implied covenant of good faith and fair dealing — which provides compensatory damages, emotional distress, punitive damages, and Brandt fees.
• Breach of contract claims are available when the insurer fails to pay benefits owed, regardless of whether bad faith is established.
• A CDI complaint is the administrative remedy for 790.03 violations. It creates an official record but does not award damages to the policyholder.
• Although 790.03 does not provide a private right of action, its standards are highly relevant in bad faith litigation as evidence of the insurer’s standard of care.
• The practical pathway combines documentation, 790 letters, CDI complaints, and — when warranted — litigation through common law bad faith and breach of contract causes of action.