Foran Glennon Palandech Ponzi & Rudloff

May 2017

The “Genuine Dispute Doctrine” Is Alive And Well In California

The recent California Court of Appeal decision in Paslay v. State Farm General Insurance Company, 203 Cal. Rptr. 3d 785, 2016 WL 3524086 (Cal. Ct. App. June 27, 2016) (“Paslay”), serves as a good reminder that a “bad faith” claim can be disposed of on summary judgment if there is a “genuine dispute” about coverage or the amount owed on a claim, even though there are questions of fact for trial on an insured’s breach of contract claim.

The Paslay case involved a roof drain failure which resulted in a water damage claim under a homeowners policy.  State Farm paid the undisputed amount of the repairs to the home and also paid the insureds’ additional living expenses during the period of repair, but denied certain aspects of the claim.  The insureds brought suit for breach of contract seeking to recover unpaid costs, breach of the implied covenant of good faith and fair dealing, and “elder abuse.”  The insureds also sought punitive damages.

The trial court granted summary judgment for State Farm on all of the insureds’ claims, including the breach of contract claim.  The appellate court found that there were triable issues of fact as to certain aspects of the insureds’ breach of contract claim.  However, that court found that there was a genuine dispute regarding whether State Farm actually owed additional amounts.  Thus, the “bad faith,” elder abuse, and punitive damage claims could not survive.  The Paslay decision reiterates several principles of note:

  • To support a claim for bad faith, the insured “must demonstrate misconduct by [the insurer] more egregious than an incorrect denial of policy benefits.” Paslay, 203 Cal. Rptr. 3d at 795.
  • An 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.
  • A denial or delay in payment due to a genuine dispute with the insured as to coverage or the amount of the claim is not bad faith.
  • An insurer can advance its side of a genuine dispute without incurring liability for bad faith.
  • Insurers may properly rely on independent experts to estimate repair benefits owed under the policy.
  • An insured’s failure to provide critical information is a factor to consider in judging whether an insurer acted unreasonably.

In sum, the Paslay decision illustrates the importance of summary judgment motions in “bad faith” cases to limit the company’s exposure on extra-contractual claims.  So, give some thought to the summary judgment motion as a tool for carving away at your extra-contractual cases.

By G. Edward Rudloff, Jr. and Dianne J. Meconis