awarded compensatory damages to plaintiffs, surety principals and claimants, in an action for tortious breach of the covenant of good faith and fair dealing arising from defendant’s refusal to pay a judgment awarded to plaintiff claimants against plaintiff surety principals.
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Plaintiffs claimants sought payment from defendant surety for a judgment obtained against plaintiff surety principals by plaintiff claimants. Defendant refused to cover the claim and plaintiffs filed an action for tortious breach of the covenant of good faith and fair dealing and violation of Cal. Ins. Code § 790.03. The trial court dismissed the § 790.03 claim and the claims for punitive damages and emotional distress as time-barred but awarded consequential damages. Defendant appealed. The court on appeal reversed, holding that a surety bond is not an insurance policy and that defendant’s duty to pay arose only if plaintiffs were unable to make full payment of a financial obligation, not in order to cover plaintiffs’ liabilities. Thus, any denial of liability by defendant before the plaintiffs’ legal obligation was established could not give rise to a cause of action against defendant on the surety bond.
The court reversed and remanded the award to plaintiffs, surety principals and claimants, in an action for tortious breach of the covenant of good faith and fair dealing, holding that defendant was not an insurer and, thus, had no duty to cover plaintiff’s liability under the surety bond agreement.