Will the “Genuine Dispute” Doctrine Prevent Your Bad Faith Claim?
Personal injury attorneys have disagreements with insurance companies on a regular basis. When the insurer turns out to be wrong many attorneys rush to sue for “bad faith”. However, the insurers can avoid additional tort liability if they can show that there was a legitimate “genuine dispute” of an underlying issue.
“[A]n insurer’s denial of or delay in paying benefits gives rise to tort damages only if the insured shows the denial or delay was unreasonable.” (Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713,723.) Under this standard, “an insurer denying or delaying the payment of policy benefits due to the existence of a genuine dispute with its insured as to the existence of coverage liability or the amount of the insured’s coverage claim is not liable in bad faith[,] even though it might be liable for breach of contract.” (Citation) That is because “whe[n] there is a genuine issue as to the insurer’s liability under the policy for the claim asserted by the insured, there can be no bad faith liability imposed on the insurer for advancing its side of that dispute.” (Id., italics deleted.) An insurer may thus obtain summary adjudication of a bad faith cause of action “by establishing that its denial of coverage, even if ultimately erroneous and a breach of contract, was due to a genuine dispute with its insured.” (Bosetti v. United States Life Ins. Co. in City of New York (2009) 175 Cal.App.4th 1208, 1237.)
Of course, the genuine dispute doctrine “does not relieve an insurer of its obligation to thoroughly and fairly investigate, process and evaluate the insured’s claim. A genuine dispute exists only where the insurer’s position is maintained in good faith and on reasonable grounds.” (Wilson, supra, 42 Cal.4th at p. 723, italics omitted.) The reasonableness of the insurer’s decision is assessed by reference to an objective standard (Bosetti, supra, 175 Cal.App.4th at pp. 1238-1240; see Brehm v. 21st Century Ins. Co. (2008) 166 Cal.App.4th 1225, 1238-1240.)
The most common example of insurers’ use of the genuine dispute doctrine is when there is an underlying coverage issue. Insurers have tried to use the doctrine to block bad faith cases when they were caught “low balling” a claim. However, a subsequent verdict usually establishes that either the dispute was not “genuine” or that the insurer’s investigation was inadequate.
Thanks to our friend and blog author, Barry P. Goldberg, for his insight into the genuine dispute doctrine.