Recovering emotional distress damages for breach of an insurance contract

In 2022, while conducting research for an article about damages for breach of an insurance contract, I stumbled across the following comment in The Rutter Group Practice Guide for "Insurance Litigation": Certain cases "suggest that emotional distress damages may be recoverable for any refusal to pay policy benefits. But the issue has not been extensively litigated or analyzed by the courts." ("California Practice Guide: Insurance Litigation," The Rutter Group, 2022, ¶ 13:26, at 7, emphasis in original).

I dug into the cases, and a fair reading of California case authority establishes that, in at least some circumstances, an insured may recover damages for emotional distress based solely on a breach of an insurance contract without proving that an insurance carrier acted unreasonably (in "bad faith") when it denied contract benefits.   

Chelini v. Nieri, 32 Cal.2d 480 (1948)

Chelini v. Nieri is not an insurance case, but it's important because later cases rely on the California Supreme Court's holding in Chelini.

In Chelini v. Nieri, the plaintiff's mother died, and the plaintiff reached an oral agreement with a mortician to prepare his mother's body for burial. 32 Cal 2d. at 482. The plaintiff "repeatedly informed defendant [the mortician] that he 'wished to have his mother's body preserved, because she had a horror . . . of bugs and water,' and defendant assured plaintiff that 'it would last almost forever.'" Id. According to the Court, the defendant "knew, at or about the time he agreed to preserve the body 'almost forever,' that plaintiff was highly preoccupied with the importance of such preservation and that at some indefinite future date plaintiff intended to move the casket and expected the body to be in such a state of preservation that defendant could place a ring and slippers on it." Id. at 482-83. After the plaintiff began to suspect that perhaps his mother's body had not been preserved as the mortician had promised, he insisted that the mortuary open his mother mother's casket. Id. at 483. When the casket was opened, the plaintiff saw that the flesh of his mother's body "had disintegrated and the skeleton was covered with insects." Id. at 484.

The plaintiff sued the mortician and alleged only one cause of action--for breach of contract. Id. at 487.  The jury awarded the plaintiff $10,000 for general damages, and the California Supreme Court affirmed the award. Id. at 481. The jury's award was "predicated on defendant mortician's breach of a contract to preserve the body of plaintiff's mother and on plaintiff's physical illness, suffering and disability resulting from his discovery that because of such breach of contract the body became a 'rotted, decomposed and insect and worm infested mass.'" Id. The Court held that recovery of "so-called 'general damages'"--including damages for "suffering"--was "proper under the rule, laid down in Westervelt v. McCullough (1924) 68 Cal.App. 198, 208-09, and included in the instructions to the jury:

Whenever the terms of a contract relate to matters which concern directly the comfort, happiness, or personal welfare of one of the parties, or the subject matter of which is such as directly to affect or move the affection, self-esteem, or tender feelings of that party, he may recover damages for physical suffering or illness proximately caused by its breach.

Chelini, 32 Cal.2d at 481-82 (quotation marks omitted).

Crisci v. Security Ins. Co., 66 Cal.2d 425 (1967)

In Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, the California Supreme Court relied on its holding in Chelini to affirm an award of damages for "mental suffering" in an action against an insurance company for the company's refusal to settle a claim against the insured within policy limits. The Court held that the insured's recovery of such damages was appropriate even though the underlying contract was a liability policy:

[P]laintiff did not seek by the contract involved here to obtain a commercial advantage but to protect herself against the risks of accidental losses, including the mental distress which might follow from the losses. Among the considerations in purchasing liability insurance, as insurers are well aware, is the peace of mind and security it will provide in the event of an accidental loss, and recovery of damages for mental suffering has been permitted for breach of contracts which directly concern the comfort, happiness or personal esteem of one of the parties.

Crisci, 66 Cal.2d at 434 (citing Chelini, 32 Cal.2d at 482).

State Farm Mut. Auto Ins. Co. v. Allstate Ins. Co., 9 Cal.App.3d 508 (1970)

Three years after Crisci, the court in State Farm Mut. Auto Ins. Co. v. Allstate Ins. Co. (1970) 9 Cal.App.3d 508, relied on Chelini and Crisci to affirm an award of $2,500 for "pain and distress" even though the only legal theory that the insured had alleged was a cause of action for breach of contract--in this instance, a liability insurance policy. The appellate court rejected Allstate's argument that damages for "pain and distress" were not recoverable in an action for breach of contract:

The theoretical distinction [between contract damages and tort damages] is of no moment at this point because the $2,500 award was proper even under a breach of contract theory. 'Whenever the terms of a contract relate to matters which concern directly the comfort, happiness, or personal welfare of one of the parties . . . he may recover damages for physical suffering . . . caused by its breach.' . . . A liability insurance policy is such a contract.

9 Cal.App.3d at 527-28 (quoting Chelini, 32 Cal.2d at 482 & citing Crisci, 66 Cal.2d at 434) (ellipses in original, emphasis added).

Egan v. Mutual of Omaha Ins. Co., 24 Cal.3d 809 (1979)

In Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, the California Supreme Court cited Crisci and extended its reasoning to an insured seeking to recover under a disability policy. The issue in Egan was whether an insurance carrier could be held liable for punitive damages if the carrier acted with "oppression," "fraud," or "malice" when it denied benefits. Egan, 24 Cal.3d at 819. The California Supreme Court held that an insured could recover punitive damages under such circumstances. Id. at 822-23. While the issue in Egan was punitive damages and not damages for emotional distress, the Court's reasoning reinforces the idea that the purpose of some contracts is "peace of mind and security," and that the recoverable damages for the breach of these contracts should be broader than the typical damages for breach of contract. Id. at 819 (citing Crisci).

Frazier v. Metropolitan Life Ins. Co., 169 Cal.App.3d 90 (1985)

Frazier v. Metropolitan Life Ins. Co. is the latest case I have found in which a court addresses recovery of damages for emotional distress for breach of an insurance contract. In Frazier, the court of appeals affirmed an award of $150,000 for emotional distress for the beneficiary of a life insurance policy even though the beneficiary had elected to proceed on a contract theory, not a tort theory. Id. at 105. The court also held that the four-year statute of limitations applied to the plaintiff's breach-of-contract claim. Id. at 102-103.

Be aware of Paulson v. State Farm Mut. Auto. Ins. Co., 867 F.Supp. 867 (C.D. Cal. 1994)

In Paulson, a federal district court, applying California law, held that an insured could not recover damages for emotional distress based on State Farm's alleged delay in paying policy benefits for an underinsured motorist claim. 687 F.Supp. at 917-18. What's remarkable about Paulson is that the court does not mention any of the California cases that have allowed recovery of emotional distress damages for breach of an insurance contract. Neither do the authorities on which the Paulson court relied. It's as if these decisions never existed. At best, Paulson is a poorly supported outlier.

Other, more recent cases support the argument that a plaintiff may recover emotional distress damages for breach of contract

There are at least three other cases that, while not insurance cases, support the argument that an insured may recover emotional distress damages for breach of contract.

In Wynn v. Monterey Club, 111 Cal.App.3d 789 (1980), the court discusses in detail the "erosion" of the "traditional rule" that a plaintiff may not recover damages for emotional distress for breach of contract and describes as "persuasive precedent" the line of cases that begins with Chelini. 111 Cal.App.3d at 799-801. The court's discussion of this "erosion" of the "traditional rule" is instructive.

Erlich v. Menezes, 21 Cal.4^th 543 (1999), provides the California Supreme Court's most recent affirmation of the principle that damages for emotional distress are recoverable for the breach of some kinds of contracts. In Erlich, the Court held that a plaintiff may not recover damages for emotional distress for a general contractor's breach of a construction contract. 21 Cal.4^th at 558. But the Court notes in dicta: "[W]hen the express object of the contract is the mental and emotional well-being of one of the contracting parties, the breach of the contract may give rise to damages for mental suffering or emotional distress." 21 Cal.4^th at 559 (collecting cases). More recently, in Levy v. Only Cremations for Pets, Inc., 57 Cal.App.4^th 203 (2020), a court relied on Erlich in holding that the breach of a contract for private cremation of a pet could support a recovery of damages for emotional distress. 57 Cal.App.4^th at 215.

Potential benefits for insureds

These decisions provide two benefits to insureds when they must sue to recover contract benefits. First, they provide authority for the argument that an insured may recover damages for emotional distress for breach of an insurance contract even if the insurance carrier just made a mistake but did not act in bad faith. In addition, an insured can take advantage of the longer limitations period for a contract claim (usually, but not always, four years) versus the shorter limitations period for a claim based on the breach of the implied covenant of good faith and fair dealing (typically two years) and still recover damages for emotional distress.