Legal Insight: California Court of Appeals Clarifies Class Certification Standards in Insurance Bad Faith

October 27, 2025

In Cobos v. Nat'l Gen. Ins. Co., 335 Cal. Rptr. 3d 90, (Ct. App. 2025), the California Court of Appeal, Fourth District, held in favor of the insureds in a class action certification case regarding an insurance bad faith claim. The appellate court reversed the trial court's denial of class action certification because the trial court applied improper legal criteria in evaluating class action certification and the plaintiffs’ trial plan. Furthermore, the appellate court concluded that individualized damages did not defeat certification where common issues of liability predominated.

The underlying dispute arose in 2019 after National General Insurance Company denied claims submitted by insureds following automobile accidents. National General Insurance Company denied the claims, rescinding the policies and returning paid premiums on the grounds that the insureds did not disclose household members aged fourteen or older. In 2022, 1,032 insureds (“Plaintiffs”) filed a putative class action against National General Insurance Company (“Defendant”) alleging insurance bad faith, unfair business practices, and breach of contract. The trial court denied class action certification for two reasons: (1) individualized damages, and (2) improper trial plan.

First, the trial court denied class action certification because the alleged damages were too individualized. The trial court reasoned that the issue of the Defendant rescinding the policy in question for failure to disclose household members required individualized proof. Although Plaintiffs cited the rule from Moen v. Regents of the Univ. of Cal., 236 Cal. Rptr. 3d 400, (Ct. App. 2018) that states individualized damages are not fatal to class certification, the trial court was not persuaded for several reasons. Cobos, 335 Cal. Rptr. 3d at 97. Defendant made repair estimates for some of the claims, and the trial court questioned if these estimates were “accurate, overvalued, or undervalued.” Id. at 96. Furthermore, the insurance bad faith and breach of contract claims implied emotional distress or other consequential damages. Additionally, the trial court faced some difficult questions, such as “whether each class member would need to testify, whether pre-trial deposition would be needed for each, and whether affirmative defense would be addressed in the damages phase.” Id. The trial court further relied on the fact that Plaintiffs admitted that much of the damages were individualized. The Defendant also argued that collision damages varied widely among the insureds. For these reasons, the trial court ultimately held that Plaintiffs’ damages in the instant case were too individualized to certify a class action.

Second, the trial court held that the trial plan was not practicable for resolving damages. Plaintiffs’ trial plan for damages was to seek only collision coverage benefits and punitive damages. Plaintiffs voluntarily abandoned four types of damages: (1) property damages, (2) bodily injury damages, (3) emotional distress damages, and (4) consequential damages. The trial court found the trial plan was improper because it did not substantially benefit the litigants since Plaintiffs were limiting damages such as property damages, bodily injury, or emotional distress.

Ultimately, however, the Court of Appeal disagreed with the trial court’s analysis. The Court of Appeal held that the denial of class action certification for Plaintiffs’ insurance bad faith claim based on class members’ individualized damages was erroneous where the common issue of automobile liability predominated because: (1) the trial court relied on an improper legal criteria, and (2) there was a common question of law and fact that predominated over the issue of liability.

1. The Trial Court Relied on Improper Legal Criteria

The appellate court found the trial court relied on improper legal criteria for the class action certification because individualized damages across the Plaintiffs were manageable, and the trial plan still benefited the litigants. 

First, the appellate court concluded that individualized damages were manageable because merely needing individualized proof for damages for each class member does not prove a class unmanageable. The appellate court cited Brinker Rest. Corp. v. Superior Ct., 273 P.3d 513, (Cal. 2012), which states “ that an individual determination of damages does not preclude class certification when common issues of liability predominate.” Id. at 99. Furthermore, the appellate court urged that dissatisfied class members with various remedies for damages can freely opt out of the class action and pursue individual litigation on the individualized damages. The appellate court relied on another important rule from Brinker Rest. Corp. that states that the “court also could have certified a class action to determine liability followed by individual hearings on damages.” Id. For these reasons, the appellate court ruled in favor of the insureds because individualized damages were still manageable.

Second, the appellate court concluded that the trial court erred in finding that the class action would not substantially benefit class members because the trial court merely considered available damages without weighing the advantages of joining all the insureds in one class. The trial court was concerned about the trial plan because some class members might forfeit certain types of damages. However, in reaching this conclusion, the trial court overlooked a fundamental feature of the class action mechanism – namely that “any individual who wishes to pursue additional categories of damages may simply opt out of the class.” Id. at 99. The appellate court cited Imperial Cnty. Sheriff's Assn. v. Cnty. of Imperial, 303 Cal. Rptr. 3d 875 (Ct. App. 2023), which held that the possibility that some class members might prefer other types of damages is not a valid basis for denying class certification. The Court of Appeals found that, based on this authority and the fact that merely having individualized damages does not automatically decertify a class action, the trial court relied on improper legal criteria for its finding.

2. Common Question of Law and Fact

The appellate court found that there was a common question of law and fact that predominated over individual issues of liability. Here, Plaintiffs’ central theory of liability arose from the allegation that Defendant’s digital insurance application prevented disclosures about household members who were fourteen years or older. The appellate court held that evidence for this would be on a standardized basis and was susceptible to common proof. On the other hand, Defendant argued that individual issues predominate because each class member would still have had to prove he or she was entitled to benefits under his or her respective policy. Defendant further argued that the facts of each accident were unique and needed to be compared to the exclusions in each policy. However, the appellate court disagreed because it found that Defendant’s practice was to rescind the policy only if the estimated damage payout exceeded the premiums paid to date. Furthermore, Defendant alleged that the class members’ interactions with the insurance brokers required individual proof because each insured may have made different disclosures. However, Plaintiffs’ theory does not require consideration of broker interactions because the key question is whether the digital application’s default structure prevented disclosure of the relevant household members’ information. This feature proves class-wide liability. For these reasons, there was a common question of law and fact that predominated over the individual issues as to liability.

The court ultimately held that, in overlooking fundamentals of class action certification, the trial court erred in deciding to decertify a class merely because of having individualized damages. For insurance carriers, this ruling highlights that courts may be more willing to certify classes even where damages differ among class members, provided that class members can prove that the claim arose out of a single theory of liability. Although this may create some litigation risk, it also provides a new clarity for insurance carriers: certification turns less on damages and more on liability theories. If application processes and rescission decisions are rooted in individualized assessment and well-documented records, it could make it more difficult for class members to argue that liability issues are common across a class. 

It is possible to reduce the risk of class certification by analyzing and challenging the plaintiffs’central theory of liability. Certification should fail if the central theory of liability cannot apply consistently across all class members. A party opposing a class certification can emphasize the individualized nature of disclosures, broker interactions, accident facts, and policy terms to demonstrate that liability is not uniform. By preparing early and isolating liability issues, insurance companies strengthen their respective positions to resist certification. 

The Cobos ruling may encourage insureds to pursue class certification where they believe a carrier’s practices are uniform. On the other hand, for carriers, the ruling demonstrates the crucial importance of evaluating rescission and claims-handling decisions with an eye toward potential class action exposure. Instead of focusing exclusively on damages, insurers should assess whether their processes could be framed as creating a common liability issue. Carriers can demonstrate that liability varies and is unsuitable for class certification by reinforcing individualized practices and carefully documenting decision-making. 

The Cobos ruling demonstrates that class certification will turn on whether liability presents a common question of law or fact, not whether damages are consistent across class members. Courts view class actions as tools to promote judicial economy and efficiency. However, courts grant class members the right to freely opt out if they are unhappy with the class action. Thus, insureds can freely opt out and pursue individual claims. For insurance companies, this ruling is a reminder to anticipate certification challenges. Insurance companies should focus on refining practices that may appear standardized while also individualizing the carrier’s documentation to prevent class action liability. The Cobos decision ultimately reinforces the value of proactive compliance and documentation in reducing exposure to class action litigation.