Chavez v. Allstate Northbrook Indemnity Company
3:22-cv-00166
| S.D. Cal. | Jun 25, 2025Background
- The case is a class action against Allstate Northbrook Indemnity Company, filed by Minerva Chavez, alleging insufficient premium refunds during the COVID-19 pandemic for California automobile insurance policyholders.
- In response to the pandemic and state "stay-at-home" orders, Allstate instituted the Shelter-In-Place Payback (SIPP) program, issuing partial refunds to policyholders as driving and risk of loss dropped.
- The California Department of Insurance (CDI) issued bulletins directing auto insurers to refund premiums and monitored their compliance, ultimately finding Allstate's refunds sufficient.
- Plaintiff received SIPP refunds but contended that Allstate's refunds were inadequate and should have averaged at least 30% of premiums paid during the pandemic period.
- The sole surviving claim was for breach of the implied covenant of good faith and fair dealing, with Plaintiff asserting Allstate failed to use its discretion to refund adequate premiums under the contract.
- The Court addressed Allstate’s motion for summary judgment on the implied covenant claim and granted it.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Allstate breached the implied covenant of good faith/fair dealing by not issuing larger COVID-19 refunds | Allstate had inherent discretion under the contract to refund more premium due to changed circumstances (i.e., reduced risk during the pandemic) and failed to do so | No policy provision gave Allstate such discretion; refunds were done out of goodwill or CDI order, not contractual duty | For Allstate; no basis in the contract for required refunds due to generalized changed circumstances |
| Whether implied covenant imposes a duty separate from express contract terms | The covenant allowed courts to prevent unfairness even if not tied to a specific provision | The implied covenant cannot create obligations beyond the contract’s specific terms | For Allstate; obligations must be tied to contractual terms |
| Whether the "Changes" policy provision authorized general premium adjustments for events like a pandemic | Policy language ("other sources") implied broader discretion to adjust premiums based on risk, not just individual information | "Changes" provision is limited to information provided by the insured—changes in insured's circumstances, not societal events | For Allstate; "Changes" provision doesn't apply to general events like COVID-19 |
| Whether summary judgment is appropriate when no contract benefits were withheld | Allstate failed to pay amounts effectively owed under the policy because the refunds were too small | No benefits were withheld under the contract because there was no contractual obligation to issue further refunds | For Allstate; no contractual benefits were due, summary judgment granted |
Key Cases Cited
- Waller v. Truck Ins. Exch., Inc., 11 Cal. 4th 1 (Cal. 1995) (implied covenant is grounded in contract and cannot impose obligations absent a contractual basis)
- Guz v. Bechtel Nat. Inc., 24 Cal. 4th 317 (Cal. 2000) (implied covenant does not impose substantive duties beyond the contract terms)
- Major v. W. Home Ins. Co., 169 Cal. App. 4th 1197 (Cal. Ct. App. 2009) (bad faith requires insurer to unreasonably withhold contract benefits)
- Pasadena Live v. City of Pasadena, 114 Cal. App. 4th 1089 (Cal. Ct. App. 2004) (covenant of good faith cannot extend beyond the agreement’s express terms)
- Love v. Fire Ins. Exchange, 221 Cal. App. 3d 1136 (Cal. Ct. App. 1990) (implied covenant supplements but does not replace underlying contract)