The genuine-dispute doctrine after Wilson v. 21st Century Ins. Co.
In early 2007, I wrote an article for the Consumer Attorneys of California’s Forum magazine, in which I compared the growth of the so-called genuine-dispute or genuine-issue doctrine to barnacles attaching themselves to the hull of a ship. I borrowed this metaphor from Professor Arthur Miller, who likened the development of common-law doctrines to a ship becoming weighted down with barnacles. He explained that, from time to time, it became necessary for a high court to haul the ship out of the water and scrape the barnacles away. I wrote that I hoped that the Supreme Court of California would take the opportunity to scrape away the genuine-issue doctrine when it decided Wilson v. 21st Century Insurance Co., which was then pending before it.
The Supreme Court issued its opinion in Wilson in November 2007. (Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 714 [68 Cal.Rptr.3d 746].) When I first read the decision, I was disappointed because the Court did not completely do away with the doctrine. But on further review of the decision, I came to believe that most of the barnacles had, in fact, been scraped away, and that the genuine-issue doctrine after Wilson was a far more limited, less potent defense for insurers, and that many bad-faith cases that might formerly have been disposed of on summary judgment would now go to a jury.
The birth of the genuine-dispute doctrine
The genuine-issue defense was first announced in Safeco Ins. Co. of America v. Guyton (9th Cir. 1982) 692 F.2d 551, an appeal from a judgment awarding declaratory relief to the insurer, finding that it owed no coverage for property damage caused by heavy rains. The Ninth Circuit found that the district court had misapplied the doctrine of concurrent causation, and reversed its finding of no coverage. But the court affirmed summary judgment of the insured’s counterclaim for bad faith, explaining:
Although the district court did not specify the grounds on which it entered judgment for Safeco on this cause of action, it may have concluded that since the policy in dispute involved a genuine issue concerning legal liability, Safeco could not, as a matter of law, have been acting in bad faith by refusing to pay on the Policyholders’ claims. Although we conclude that the Policyholders’ losses are covered by the policy if third-party negligence is established, we agree that there existed a genuine issue as to Safeco’s liability under California law. We therefore affirm the dismissal of the Policy-holders’ claims of bad faith.
(692 F.2d at 551, emphasis added.)
The doctrine was first applied by a California court in 1991, in Opsal v. United Services Auto. Assoc. (1991) 2 Cal.App.4th 1197 [10 Cal.Rptr.2d 352]. Opsal was also a concurrent-cause case arising out of a claim for earth movement. The carrier denied coverage based on its reading of a footnote in Garvey v. State Farm Fire & Cas. Co. (1989) 48 Cal.3d 395 [257 Cal.Rptr. 292]. The Opsal court rejected the carrier’s view of the law, but held that it was reasonable for the carrier to deny coverage based on its construction of Garvey. Citing Guyton, the court held, “clearly there was a genuine issue . . . under California law” until the meaning of the footnote in Garvey was resolved. (Opsal, 2 Cal.App.4th at 1206.)
The doctrine went unmentioned in the California cases for the next eight years, until Filippo Industries, Inc. v. Sun Ins. Co. (1999) 74 Cal.App.4th 1429 [88 Cal.Rptr.2d 881], where the court declined to apply the doctrine to overturn a bad-faith verdict.
The growth years: 2000 through 2007
The genuine-issue defense became firmly established in California after the decisions in Fraley v. Allstate Ins. Co. (2000) 81 Cal.App.4th 1282 [97 Cal.Rptr.2d 386], Guebara v. Allstate Ins. Co. (9th Cir. 2001) 237 F.3d 987, and Chateau Chamberay Homeowners Association v. Assoc. International Ins. Co (2001) 90 Cal.App.4th 335 [108 Cal.Rptr.2d 776]. As of April 2008, Fraley’s discussion of the genuine-issue doctrine has been cited by 17 California appellate decisions, and in 29 federal decisions. Chateau Chamberay’s discussion of the doctrine has been cited in 24 California appellate decisions and 25 federal decisions.
Guebara was the first decision to take a hard look at the doctrine. There, the Ninth Circuit held (over a dissent by Judge Betty Fletcher), that the doctrine could be applied to both legal and factual disputes. But the court provided a non-exhaustive list of factors that could preclude operation of the doctrine in a given case: (1) the insurer was guilty of misrepresenting the nature of investigatory proceedings, (2) the insurer’s employees lied during the depositions, or to the insured, (3) the insurer selected its experts dishonestly, (4) the experts were unreasonable, or (5) the insurer failed to conduct a thorough investigation. Guebera, 237 F.3d at 987.)
Chateau Chamberay was the California appellate equivalent to Guebara, also finding that the doctrine was applicable to both factual and legal disputes, and adopting the list of factors that would allow a court not to apply the doctrine in a particular case.
Courts continued to apply the doctrine with increasing frequency and more broadly. In Rappaport-Scott v. Interinsurance Exchange of the Automobile Club (2007) 146 Cal.App.4th 831 [53 Cal.Rptr.3d 245], the court applied the doctrine at the pleading stage, affirming a demurrer to a bad-faith action because the complaint (supposedly) showed that, as a matter of law, there was a genuine dispute.
In CalFarm Ins. Co. v. Krusiewicz (2005) 131 Cal.App.4th 273, 287 [31 Cal.Rptr.3d 619] and in Morris v. Paul Revere Life Ins. Co. (2003) 109 Cal.App.4th 966, 973-974 [135 Cal.Rptr.2d 718], the same court held that, under the genuine-dispute doctrine, “If the conduct of the insurer in denying coverage was objectively reasonable, its subjective intent is irrelevant.”
Relying on this rule, in Starr-Gordon v. Massachusetts Mutual Life Ins. Co. (E.D. Cal. 2006) 2006 WL 3218778, a district court held that the genuine-issue doctrine compelled it to grant summary adjudication against the policyholder on her bad-faith claim, even though the record would support a jury finding that the carrier fraudulently terminated her benefits with knowledge that she was entitled to these benefits.
Not all of the genuine-issue decisions during this period applied the rule broadly. Perhaps the first case to affirmatively limit the scope of the doctrine was Amadeo v. Principal Mut. Life Ins. Co. 1161 (9th Cir. 2002) 290 F.3d 1152, which held that the genuine-issue defense does not apply in a case where a reasonable jury could find that the insurer’s conduct was unreasonable. The court explained:
The genuine issue rule in the context of bad faith claims allows a district court to grant summary judgment when it is undisputed or indisputable that the basis for the insurer’s denial of benefits was reasonable — for example, where even under the plaintiff ’s version of the facts there is a genuine issue as to the insurer’s liability under California law. (Safeco Ins. Co. of Am. v. Guyton (9th Cir. 1982) 692 F.2d 551, 557.) In such a case, because a bad faith claim can succeed only if the insurer’s conduct was unreasonable, the insurer is entitled to judgment as a matter of law. On the other hand, an insurer is not entitled to judgment as a matter of law where, viewing the facts in the light most favorable to the plaintiff, a jury could conclude that the insurer acted unreasonably. [Citation omitted.] . . . . Although summary judgment may be awarded under the genuine-issue rule where the insurer reasonably construes ambiguous language in its policy, see, Guebara, 237 F.3d at 993 (discussing cases), summary judgment is not appropriate when the insurer’s interpretation of the policy is sufficiently “arbitrary or unreasonable” that a jury could conclude it was adopted in bad faith. [Citations.]
(Amadeo, 290 F.3d at 1161-1162.)
Zangarter v. Provident Life and Acc. Ins. Co. (9th Cir. 2004) 373 F.3d 998, 1010, cites this language with approval and adds that, “Though the existence of a ‘genuine dispute’ will generally immunize an insurer from liability, a jury’s finding that an insurer’s investigation of a claim was biased may preclude a finding that the insurer was engaged in a genuine dispute, even if the insurer advances expert opinions concerning its conduct.” (Id. at 1010.)