In Bornoff v. State Farm Gen. Ins. Co., No. B339796, 2026 WL 1194424 (Cal. Ct. App. May 1, 2026), the California Court of Appeal, Second District, reversed summary adjudication of a policyholder’s bad faith claim, holding that the insurer failed to meet its initial burden to negate allegations that delayed payment caused extracontractual economic loss.
Facts
The Court recited the facts as follows: the insured operated a retail business in California, under a business insurance policy effective March 1, 2022 through March 1, 2023. On March 6, 2022, the business was burglarized. The insured reported the loss that same day and submitted a claim for business personal property and lost income. On March 7, the insurer acknowledged the claim and requested documentation, including an inventory of stolen and damaged property. The following week, the insured provided requested materials, including partial inventory documentation, but received no response. On March 31, the business reported a second burglary and submitted a second claim. Both claims were internally reassigned to the same adjuster on April 1.
On April 7, the insured retained counsel, who sent the insurer a certified letter and fax enclosing itemized inventories for both burglaries, separated by date. Throughout April and May, the insured sought status updates and clarification as to whether additional information was needed. On May 26, the insurer again requested certain inventory information. On June 3, the insurer asked the insured to clarify which stolen items corresponded to each burglary. Counsel resubmitted the inventories on June 6, adding hand-written, loss-specific notations. The insurer assigned the claims to a team in June, and valuation began early July.
On July 15, four months after initial notice, the insured filed suit, in part alleging “unreasonable delay.” Within days, the insurer paid the lost property benefits. The insured thereafter amended her complaint to allege that the unreasonable delay itself caused independent, actionable harm that payment of benefits did not undo, including attorney’s fees, lost income, and other consequential losses, in addition to emotional distress and punitive damages.
Trial Court Ruling
The insured conceded summary adjudication was appropriate as to her breach of contract claim, but opposed summary adjudication of her claims for bad faith and punitive damages. The trial court granted summary judgment in favor of the insurer, concluding that the insured could not establish bad faith because she ultimately received all policy benefits owed.
Appellate Court Decision
The Court of Appeal reversed, holding that payment of benefits does not defeat a bad faith claim where the insured alleges that unreasonable delay caused independent economic harm. The court emphasized that recoverable economic loss in a tort‑based bad faith action may include extracontractual damages, such as Brandt attorney fees and other consequential losses.
Critically the Court found that, although the insurer demonstrated that it paid all policy benefits, the insurer did not meet its initial burden of making a prime facie showing that no triable issues of material fact existed as to the delay causing extracontractual economic losses, precluding summary judgment. The Court found that because the insurer did not affirmatively negate the insured’s mere allegations as to the delay, the burden never shifted to the insured to establish them. The court also held that the record raised triable issues of fact as to whether State Farm’s claims handling was unreasonably slow.
The case was remanded for further proceedings on the bad faith claim, including the insured’s requests for extracontractual and punitive damages.
Conclusion
While this decision addresses procedural burdens rather than ultimate liability, insurers should be aware that an eventual payment of all policy benefits, even just four months after notice of loss, may not preclude bad faith exposure where the insured alleges independent economic harm resulting from unreasonable claims‑handling delays. Insurers will want to directly address all theories of economic loss raised in the pleadings because, in bad faith cases, courts may be reluctant to ignore unaddressed theories of economic loss arising from delay, such as attorney’s fees or consequential business damages, even where an insurer ultimately paid all policy benefits owed.