Ding Dong the Witch is Dead: Is the Genuine-Dispute Doctrine Finally Gone?
The linchpin of a bad faith claim is that the denial of coverage was unreasonable. Before an insurer can be found to have acted in bad faith for its delay or denial in the payment of policy benefits, it must be shown that the insurer acted unreasonably or without proper cause. The courts created a defense for the insurance companies, the genuine-dispute doctrine, which allows the judge, not the jury, to decide whether an insurer was “reasonable” in denying a claim. In other words, if an insurance company can show that a genuine dispute existed as to coverage, then it is entitled to summary adjudication of the bad-faith cause of action. The jury never hears evidence of the insurer’s conduct in adjusting the claim.
The genuine-issue defense has been firmly cemented in California after the decisions in Fraley v. Allstate Ins. Co. (2000) 81 Cal.App.4th 1282 [97 Cal.Rptr.2d 386], Guebara v. Allstate Ins. Co.(9th Cir. 2001) 237 F.3d 987, and Chateau Chamberay Homeowners Association v. Assoc. International Ins. Co(2001) 90 Cal.App.4th 335 [108 Cal.Rptr.2d 776]. Guebara was the first decision to take a hard look at the doctrine. There the Ninth Circuit held that the doctrine could be applied to both legal and factual disputes. Chateau Chamberay was the California appellate equivalent to Guebara, also found that the doctrine was applicable to both factual and legal disputes, and adopting the list of factors that would allow a court not to apply the doctrine in a particular case. As defense attorneys salivated, the courts applied the doctrine with increased frequency and broad in scope. It seemed that no insurance bad faith case would survive.
Then came the trifecta of cases Wilson v. 21st Century Insurance Company (2007) 42 Cal. 4th 713, Brehm v. 21st Century Insurance Company (2008) 166 Cal. App. 4th 1225, and most recently McCoy v. Progressive West Insurance Co., 171 Cal. App. 4th 785, 793-794 (2009). Each case has slowly chipped away at the great insurance defense. Under Wilson and Brehm, an insurance company may not rely on the genuine-dispute doctrine if it failed to conduct a thorough investigation into an insured’s claim in a motion for summary adjudication or demurrer.
McCoy was the final nail on the coffin. The Court of Appeal found there was no authority for any instruction on the genuine-dispute doctrine and upheld the trial court’s refusal to issue special jury instructions proposed by the insurance company because the genuine-dispute doctrine issues were subsumed by the reasonableness instructions, set forth in CACI 2331 and 2332, that were provided to the jury. The Court further found that there was abundant evidence to support the jury’s finding of bad faith and the award of punitive damages. The Court of Appeal has sent the clear message that key issue in bad faith cases is whether insurance company’s actions were reasonable.
This case has hopefully slam shut the door for the defense use of the genuine-dispute doctrine as a legal defense to bad faith claims. The message from the Court of Appeal is that absent undisputed evidence an insurer acted reasonably, a jury may act properly in finding to the contrary.
It will be interesting to see how the big insurance defense firms will now devise creative ways to sneak the genuine-dispute doctrine back into their defense repertoire. Stay tuned.
The linchpin of a bad faith claim is that the denial of coverage was unreasonable. “Before an insurer can be found to have acted in bad faith for its delay or denial in the payment of policy benefits, it must be shown that the insurer acted unreasonably or without proper cause.” (Jordan v. Allstate Ins. Co. (2007)148 Cal.App.4th 1062, 1072
Wilson was an underinsured-motorist (UIM) bad-faith case. The claimant, Regan Wilson, was a 21-year old woman who suffered neck injuries in an auto accident when she was struck by a drunk driver. She demanded policy limits of $100,000 from her UIM carrier.The trial court granted summary judgment for the carrier, finding that there was a genuine dispute about the extent of her injuries. The Court of Appeal reversed in a published decision. The Supreme Court affirmed the Court of Appeal’s decision.