A recent federal court ruling in California involving State Farm and a commercial policyholder offers an important lesson for anyone litigating insurance bad faith claims. 1 Even where there is evidence of disputed causation and arguably imperfect claims handling, a bad-faith claim can still fail if the evidentiary bridge between conduct and industry standards is missing. In this case, there were no expert witness opinions about insurance industry claims standards.
The court granted summary judgment to State Farm on the policyholder’s bad faith claim. The ruling rested on facts showing that State Farm conducted an inspection, retained two outside experts, and that those experts concluded the damage was most likely caused by wear and tear and improper installation rather than a covered wind event. Even though one of the reports did not entirely rule out wind as a contributing factor, the court held that no reasonable jury could find State Farm acted unreasonably in relying on those opinions.
The court’s key logic was not deciding whether State Farm was ultimately correct on coverage. Instead, it asked a narrower question about whether the insurer’s conduct was reasonable at the time it made its decision. Based on the documented inspections and expert opinions, the court answered in the affirmative.
For those of us who have spent years litigating bad-faith claims, this result is not surprising but instructive. The policyholder argued that State Farm failed to conduct a thorough and fair investigation, ignored favorable evidence, and improperly focused on facts supporting denial. These are classic bad-faith arguments, and in the right case, they can defeat summary judgment. California law is clear that an insurer must conduct a full, fair, and objective investigation and cannot ignore evidence supporting coverage.
Significantly, there was no clear indication in the record of a retained insurance claims handling expert tying the facts of this case to industry standards of good faith claims handling. Instead, the policyholder relied on declarations from a public adjuster, fact witnesses, and contractor-type opinions. Those may establish what happened, but they do not necessarily establish what should have happened under accepted claims handling standards.
That omission likely mattered. It left the judge with roofing and causation evidence, but not a clean evidentiary bridge from “these things happened” to “this handling fell below insurer good-faith standards.” In a case where the insurer had documented inspections and retained outside experts, the missing bridge was probably fatal to the bad-faith claim.
This dynamic is not unique. As I noted in a prior discussion of a Hurricane Laura case involving Church Mutual: 2
While this case represents a win for Church Mutual, it doesn’t negate the importance of prompt, thorough claims handling by insurers. The key takeaway is that having a reasonable basis for disputing certain damages, relying on expert opinions, and showing ongoing claim evaluation can help insurers avoid bad faith penalties – even if some aspects of the claim handling were less than perfect.
My observation from that case applies with equal force here in a California case. Courts are increasingly willing to find that an insurer acted reasonably, despite imperfections, if the carrier can point to a documented process, expert involvement, and a rational basis for its conclusions.
There is another interesting aspect of the ruling. The court allowed the punitive damages issue to remain for now, even as it dismissed the bad-faith claim with prejudice. That procedural posture raises questions because punitive damages in first-party cases typically depend on a viable tort claim. Whether that portion of the ruling holds up later remains to be seen.
What should policyholders and their advocates take away from this decision? First, do not assume that pointing out flaws in an insurer’s investigation will be enough. You must connect those flaws to recognized standards of good faith conduct.
Second, understand that when an insurer has retained experts and documented its decision-making process, courts are often inclined to find the conduct reasonable unless there is compelling evidence to the contrary. Third, consider whether your case includes the right type of expert testimony. A claims handling expert can provide the missing link between facts and legal standards. Without that link, even a case with troubling facts can fail before it ever reaches a jury.
This case serves as a reminder that bad faith is not just about what happened. Instead, it is about proving, in a disciplined and structured way, that what happened was unreasonable and constituted a failure of good faith claims conduct.
I suggest others interested in this topic of a full investigation under California good faith claims standards study an article by Merlin Law Group attorney Victor Jacobellis, “Another Quick California Guide to Holding an Insurer Accountable – What Constitutes a Bad Faith Lack of a Thorough Investigation,” and “Insurance Bad Faith Can Also Be Found When an Insurer Fails to Properly Investigate the Claim.”
Thought For The Day:
“Good judgment comes from experience, and experience comes from bad judgment.”
— Will Rogers
1 PSY Burger v. State Farm General Ins. Co., 2:25-cv-10901 (C.D. Cal. Mar. 20, 2026). See also, State Farm’s Motion for Partial Summary Judgment, Policyholder’s Opposition to Motion for Summary Judgment, and State Farm’s Reply in Support of Motion for Summary Judgment.
2 Chip Merlin. Church Mutual Prevails in Latest Hurricane Laura Bad Faith Case: Key Differences and Lessons Learned. Property Insurance Coverage Law Blog. Oct. 20, 2024.