One of the most powerful weapons an insurance company can use to defeat a bad faith claim is the “genuine dispute” doctrine. Under this doctrine, as long as there was a genuine dispute regarding coverage or the amount owed, the insurer cannot be held liable for having withheld the disputed policy benefits even if it later turned out they were owed. Chateau Chamberay Homeowners Ass’n v. Associated Int’l Ins. Co., 90 Cal.App.4th 335 (2001). Historically, this defense has been applied most commonly in published cases involving disputes over unsettled legal issues or where the insurer’s position was supported by a qualified expert. See e.g., Fraley v. Allstate Ins. Co., 81 Cal.App.4th 1282 (2000); Guebara v. Allstate Ins. Co., 237 F.3d 987 (9th Cir. 2001); Opsal v. USAA, 2 Cal.App.4th 1197 (1991).Continue Reading New Insurance Law: The Extension of California’s “Genuine Dispute” Doctrine to Disputes Over the Value of General Damages In UM/UIM Claims Handling

This article was originally published in Daily Journal on January 4, 2023.

On January 1, 2023, a new California law, Code of Civ. P. § 999, et seq., took effect. This law sets forth various requirements that a policy “time-limited demand” must meet to justify a “bad faith refusal to settle” claim in the event the liability insurer does not accept it. Continue Reading New California Law Impacts “Time-Limited Demands” in the Insurance Industry

In Yahoo Inc. v. National Union Fire Ins. Co. of Pittsburgh, — Cal. Rptr. 3d —;2022 Cal. LEXIS 6887; 2022 WL 16985647 (Nov. 17, 2022), the California Supreme Court applied established rules of policy interpretation and found that the definition of “personal injury” in Yahoo’s policy was ambiguous. The Court also determined that the rule of contra proferentem applied to a manuscript endorsement negotiated by two sophisticated parties, because the disputed language was standard insurance language. While the holding appears to be case specific, future questions may arise regarding the application of the rule of contra proferentem. Continue Reading Yahoo Inc. v. National Union Fire Ins. Co. of Pitts.: Revisiting the Rules of Policy Interpretation 

Over the past 10 years, policy limit settlement demands with myriad conditions have become the norm. In many instances, the conditions are imposed in the hope that the insurer will falter in its efforts to comply. Unless there was strict compliance with every condition, the claimants argued, the demand was rejected and the policy was “open.” Recently, however, California courts have begun to recognize common-sense limitations to these “gotcha” tactics. In 2021, Pinto v. Farmers Ins. Exch., 61 Cal. App. 5th 676 (2021) clarified that to be liable for a bad faith failure to settle, the insurer must have acted unreasonably. In Palma v. Mercury Ins. Co., 2022 WL 3592722, issued on August 23, 2022, the Court of Appeal expressed its distaste for gamesmanship that is designed to prevent a settlement that an insurer is attempting to consummate.Continue Reading Negligence is Not Enough/Set-Up Tactics are Disfavored

Mudpie, Inc. v. Travelers Casualty Insurance Company of America, — F.4th —-, 2021 WL 4486509 (9th Cir. Oct. 1, 2021), Case No. 20-16858.

In March 2020, California state and local authorities issued orders limiting operations of businesses in response to the COVID-19 pandemic.  Mudpie, Inc., a children’s retailer, alleged that it was not able to operate after March 16, 2020, due to these orders.

Mudpie then filed a claim with Travelers, its commercial property insurer, seeking business income and extra expense coverage.  Travelers denied coverage because the limitations on Mudpie’s operations were the result of government orders, not “direct physical loss of or damage to” property, as required by the policy.Continue Reading Insurers Owe No Coverage for COVID-19 Related Business Interruption Losses Under Commercial Property Policies Insuring “Direct Physical Loss of or Damage to Property”

Brett McIsaac v. Foremost Insurance Company Grand Rapids, Michigan, A160389 (Sonoma County Super. Ct. No. SCV-265433) (Filed 4/30/21; certified for publication 5/19/21)

McIsaac had an auto insurance policy with Foremost that provided $100,000 per person in underinsured motorist (“UIM”) coverage. The policy had a UIM coverage endorsement which read:

“Arbitration [¶] A. If we and an ‘insured’ do not agree: [¶] 1. Whether that person is legally entitled to recover damages under this coverage; or [¶] 2. As to the amount of damages; [¶] then the matter will be settled by arbitration.

McIsaac was involved in an accident caused by an underinsured motorist.  After recovering the $15,000 limit from the at fault driver’s insurer, McIsaac made a UIM claim to Foremost and demanded the remaining $85,000 UIM limit. Foremost investigated the claim, and made a settlement offer that was less than the policy limit. McIsaac then demanded UIM arbitration. Foremost served discovery requests and attempted to take McIsaac’s deposition in the arbitration proceedings.  McIsaac did not appear for his noticed deposition and, instead, filed a civil suit against Foremost for breach of contract, unjust enrichment, breach of the covenant of good faith and fair dealing, and bad faith.  McIsaac alleged that Foremost had failed to adequately investigate the UIM claim and improperly attempted to settle it for less than the claim was worth.
Continue Reading Insurer Entitled to Arbitrate Disputed UIM Claim Before Insured Could Pursue Bad Faith Action

Mostafavi Law Group, APC v. Larry Rabineau, APC, et al., 2021 WL 803685 (March 3, 2021); Second Appellate District Court of Appeal, Division Four, Case No. B302344 (March 3, 2021).

California Code of Civil Procedure section 998 Offers to Compromise are an effective and widely-used settlement tool in litigation.  The main objective of a Section 998 Offer “is to encourage settlement by providing a strong financial disincentive to a party – whether it be a plaintiff or a defendant – who fails to achieve a better result than the party could have achieved by accepting his or her opponent’s settlement offer.”  Bank of San Pedro v. Sup. Ct., 3 Cal.4th 797, 804 (1992).  In the event an offeree rejects a Section 998 Offer and fails to achieve a better result at trial, Section 998 shifts certain costs to the offeree, including the offeror’s reasonable expert costs.  This case answers whether acceptance of a Section 998 Offer, served without a required acceptance provision, gives rise to a valid judgment.  It does not.
Continue Reading Statutory Offer To Compromise Void Without Express Acceptance Provision

Pinto v. Farmers Ins. Exch., ___ Cal. App. 5th ___ (2021)

Over the past several years, the insurance industry in California has been plagued by waves of “bad faith failure to settle” claims.  These claims arise out of a variety of circumstances and can take many forms, but at their core involve the following: an insured injures a third party; that third party then offers to settle his/her claim for the policy limits; but the insurer, for one reason or another, fails to accept that settlement demand.  Once that happens, the third party claimant then takes the position that the “cap is off” the policy such that the insurer should be responsible for paying the full amount of any judgment the claimant obtains against the insured, even if it exceeds the policy limits.
Continue Reading Keeping the Cap On the Policy: Unreasonable Conduct Is a Necessary Element of a “Bad Faith Failure to Settle” Claim

Thomas Guastello v. AIG Specialty Insurance Company, — Cal.Rptr.3d –, 2021 WL 650878 (Cal. Ct. App., Feb. 19, 2021), Fourth Appellate District Court of Appeal, Case No. G057714.

Various stakeholders in the Pointe Monarch housing development in Dana Point, California, accused subcontractor C.W. Poss Inc. (“Poss”) of negligently designing and constructing retaining walls.  One such party, Thomas Guastello, sued Poss for damage to a perimeter wall in the backyard of Guastello’s property.  According to Guastello, in January 2010, a retaining wall close to his property designed and constructed by Poss failed and caused soil to collapse and damage a perimeter wall on Guastello’s property.
Continue Reading Continuous and Progressive Damage Raised Factual Question as to the Timing of “Occurrence”