California federal court addressing an issue of the first impression holds that tort liability for breach of the implied covenant of good faith and fair dealing was not a valid cause of action under California law in a reinsurance dispute.
A typical reinsurance dispute is essentially a breach of a contract dispute. A reinsurance agreement is a contract between two insurance companies. Tort liability rarely comes into play. Under California law, however, tort liability has been extended in certain disputes between insurers and policyholders. Recently, a California federal court had to address whether tort liability for breach of the implied covenant of good faith and fair dealing was a valid cause of action under California law in a reinsurance dispute.
In California Capital Insurance Co. v. Maiden Reinsurance North America, Inc., No. 2:20-cv-01264-ODW (C.D. Ca. Jul. 16, 2020), the cedent, apparently frustrated with the reinsurer’s claims responses after the original reinsurer was taken over by a runoff company, brought an action for breach of an excess-of-loss reinsurance contract. The cedent’s second cause of action was for breach of the implied covenant of good faith and fair dealing. The allegations supporting the second cause of action sounded in tort (e.g., allegedly wrongfully and unreasonably delaying payment of valid claims). The reinsurer moved to dismiss the second cause of action.
