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By: Matthew S. Jones
It seems that “bad faith” lawsuits are becoming more and more prevalent in the California litigation landscape. While a bad faith claim can present serious implications and expose the insurer to extra-contractual damages, including punitive damages, there is a well-settled defense that can be asserted by the insurer: the genuine dispute doctrine. This defense was developed by the courts throughout years of litigation and is now a stronghold for insurers to rely upon in the defense of a bad faith lawsuit.
The genuine dispute doctrine states that an insurer is not required to be perfect, but instead to be reasonable. A mistake, difference of opinion, or incorrect decision does not constitute bad faith. The conduct of the insurer must be unreasonable and unwarranted to make it liable for bad faith. Although the insurer cannot ignore evidence that supports the insured’s claim, the insurer can advance its side of the dispute if it is objectively reasonable to do so. Even if it is later determined by a court that the claim is payable or the insurer was wrong, the insurer is not liable for bad faith so long as there existed a genuine dispute as to the insurer’s liability. Further, a report by an independent expert can be enough to support a defense based on the genuine dispute doctrine.
The genuine dispute doctrine can be used regarding two types of disputes: coverage and damages. If an insurer denies a claim based on a dispute over coverage, the genuine dispute doctrine can be asserted if the insurer’s conduct and decision to deny the claim was reasonable. If the insurer and insured disagree over the value of the insured’s claim/damages, an insurer can contend there was a genuine dispute as to the amount of the insured’s claim, assuming such position is reasonable in light of the insurer’s actions and investigation.
If you have any questions or would like more information, please contact Matthew S. Jones at [email protected].