Foran Glennon Palandech Ponzi & Rudloff
The â€śGenuine Dispute Doctrineâ€ť Is Alive And Well In California
The recent California Court of Appeal decision inÂ Paslay v. State Farm General Insurance Company,Â 203 Cal. Rptr. 3d 785, 2016 WL 3524086 (Cal. Ct. App. June 27, 2016) (â€śPaslayâ€ť), serves as a good reminder that a â€śbad faithâ€ť claim can be disposed of on summary judgment if there is a â€śgenuine disputeâ€ť about coverage or the amount owed on a claim, even though there are questions of fact for trial on an insuredâ€™s breach of contract claim.
The PaslayÂ case involved a roof drain failure which resulted in a water damage claim under a homeowners policy.Â State Farm paid the undisputed amount of the repairs to the home and also paid the insuredsâ€™ additional living expenses during the period of repair, but denied certain aspects of the claim.Â 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 â€śelder abuse.â€ťÂ The insureds also sought punitive damages.
The trial court granted summary judgment for State Farm on all of the insuredsâ€™ claims, including the breach of contract claim.Â The appellate court found that there were triable issues of fact as to certain aspects of the insuredsâ€™ breach of contract claim.Â However, that court found that there was a genuine dispute regarding whether State Farm actually owed additional amounts.Â Thus, the â€śbad faith,â€ť elder abuse, and punitive damage claims could not survive.Â TheÂ PaslayÂ decision reiterates several principles of note:
- To support a claim for bad faith, the insured â€śmust demonstrate misconduct by [the insurer] more egregious than an incorrect denial of policy benefits.â€ť Paslay, 203 Cal. Rptr. 3d at 795.
- An insurerâ€™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 insuredâ€™s failure to provide critical information is a factor to consider in judging whether an insurer acted unreasonably.
In sum, theÂ PaslayÂ decision illustrates the importance of summary judgment motions in â€śbad faithâ€ť cases to limit the companyâ€™s exposure on extra-contractual claims.Â 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