PERSONAL INJURY | 2026-09-30

Unfair Claims Practices: What Insurance Code § 790.03 Requires — and Who Can Enforce It

California law lists the claims-handling practices insurers may not engage in. But after Moradi-Shalal, a third party generally cannot sue directly under the statute — so the standards matter most as evidence of bad faith.

California’s Insurance Code sets out a detailed list of claims-handling practices that insurers are prohibited from engaging in — the <strong>Unfair Claims Settlement Practices Act</strong>, found in Insurance Code <strong>§ 790.03(h)</strong>. These standards govern how insurers must investigate, c

The Unfair Claims Settlement Practices Act defines fair claims handling — but its enforcement is more limited than many expect.

The Prohibited Practices — § 790.03(h)

Insurance Code § 790.03(h) lists practices that constitute unfair claims settlement when done knowingly or with such frequency as to indicate a general business practice. They include, among others:

  • Misrepresenting pertinent facts or policy provisions relating to coverage;
  • Failing to acknowledge and act reasonably promptly on communications about claims;
  • Failing to adopt and implement reasonable standards for the prompt investigation and processing of claims;
  • Failing to attempt in good faith to effectuate prompt, fair, and equitable settlement of claims in which liability has become reasonably clear;
  • Compelling insureds to litigate to recover amounts due by offering substantially less than what is ultimately recovered;
  • Failing to provide a reasonable explanation for a denial or a compromise offer; and
  • Not attempting to settle one part of a claim where liability is clear to influence settlement of another part.

Together, these standards describe what fair, good-faith claims handling looks like.

The Catch: Moradi-Shalal and the End of Private Third-Party Suits

For a time, California permitted private lawsuits directly under § 790.03 based on Royal Globe Insurance Co. v. Superior Court. But in Moradi-Shalal v. Fireman’s Fund Insurance Co., the California Supreme Court overruled Royal Globe, holding that § 790.03 does not create a private right of action for third parties (or, generally, for insureds) to sue an insurer directly for violating the unfair-claims standards. Enforcement of the Act itself was left primarily to the Insurance Commissioner and the Department of Insurance through administrative action. This means a claimant generally cannot base a lawsuit directly on a § 790.03 violation.

How the Standards Still Matter

Although § 790.03 does not support a direct private suit, the standards remain highly relevant:

  • Evidence of bad faith. A first-party insured can sue for breach of the implied covenant of good faith and fair dealing (bad faith), and the insurer’s violation of the § 790.03(h) claims-handling standards is admissible evidence that the insurer acted unreasonably.
  • Administrative enforcement. The Insurance Commissioner can investigate and sanction insurers for unfair claims practices, and consumers can file complaints with the Department of Insurance.
  • Regulatory standards. The Department’s Fair Claims Settlement Practices Regulations elaborate on these duties and further define reasonable claims handling.

So while the statute is not a direct cause of action, it defines the yardstick against which an insurer’s conduct is measured in a bad-faith case.

First-Party vs. Third-Party Context

The distinction matters most by context. A first-party insured (suing their own insurer for failing to pay their own claim) can bring a bad-faith action and use the § 790.03 standards as evidence. A third-party claimant (injured by the insured and dealing with the insured’s liability insurer) generally has no direct claim against that insurer for unfair claims practices under Moradi-Shalal, and must look to other avenues (such as pursuing the insured, and, after a judgment, the insured’s assigned bad-faith rights).

The UCL Question

Plaintiffs have sometimes tried to use California’s Unfair Competition Law (Business & Professions Code § 17200) to revive § 790.03-type claims. The California Supreme Court (in Zhang v. Superior Court) clarified that while a plaintiff cannot use the UCL simply to repackage a barred § 790.03 claim, the UCL may still reach insurer conduct that is independently unfair, fraudulent, or unlawful under other law. The interplay is nuanced and fact-specific.

Why It Matters

For a policyholder, the practical takeaways are clear: the § 790.03 standards define fair claims handling, but the enforceable claim is usually the bad-faith action (for first-party insureds), with the statutory standards serving as evidence — not a standalone lawsuit. Knowing this shapes how a claim is investigated, documented, and pursued, and prevents reliance on a theory the courts have foreclosed.

Frequently Asked Questions

What is the Unfair Claims Settlement Practices Act?

Insurance Code § 790.03(h), which lists claims-handling practices insurers may not engage in, defining fair claims handling.

Can I sue my insurer directly under § 790.03?

Generally no — Moradi-Shalal held the statute does not create a private right of action; enforcement is primarily administrative.

Then why does the statute matter?

Because violations are admissible evidence of unreasonableness in a first-party bad-faith lawsuit and inform Department of Insurance enforcement.

What can a first-party insured do?

Sue for breach of the implied covenant (bad faith) and use the § 790.03 standards as evidence of the insurer’s unreasonable conduct.

What about a third-party claimant?

A third party generally has no direct claim against the insurer under Moradi-Shalal and must pursue other avenues.

Can the UCL be used?

Under Zhang, not to repackage a barred § 790.03 claim, but it may reach conduct independently unlawful under other law.

Related Personal Injury Guides

Talk to a California Insurance Attorney

If your insurer mishandled your claim, the § 790.03 standards can help prove bad faith even though they are not a standalone lawsuit. Trembach Law Firm can evaluate your rights. Call (818) 514-7680.

Contact Trembach Law Firm at (818) 514-7680 for a confidential consultation.

Trembach Law Firm | 27001 Agoura Road, Suite 350, Calabasas, CA 91301