IN AN IMPORTANT INSURANCE BAD FAITH DECISION, CALIFORNIA SUPREME COURT CONFIRMS THE VALIDITY OF THE "GENUINE DISPUTE" DOCTRINE, INCLUDING APPLICATION TO FACTUAL DISPUTES AND THE AVAILABILITY OF SUMMARY JUDGMENT IN PROPER CASES.

On November 29, 2007, the California Supreme Court issued its opinion in Wilson v. 21st Century Insurance Company, an insurance bad faith action by an insured (Wilson) against her underinsured motorist (UIM) insurer.

Wilson was injured in a car accident. After settling with the other driver's insurer, she sought the UIM policy limits from her own insurer. The insurer, however, responded that information available to it showed she was not seriously injured and had been adequately compensated by the other driver's carrier, plus reimbursement of her medical costs. Wilson sued for bad faith, asserting unreasonable denial of policy benefits, and the trial court granted summary judgment for the insurer on the ground that a reasonable dispute existed regarding the scope of Wilson's injuries.

The Supreme Court granted review to address whether, as lower courts had held, an insurer does not act in bad faith when it disputes the existence or amount of coverage based on a genuine legal or factual disagreement with its insured. The Court confirmed that an insurer may properly obtain summary judgment based on the"genuine dispute" doctrine when, under all the circumstances, there is no triable issue as to the reasonableness of the insurer's conduct.

The Court also expressly disagreed with the Court of Appeal's assertion that an insurer adjusting a claim for bodily injuries must in all cases conduct an independent medical examination, or else consult the insured's treating physician, in order to avoid bad faith liability. The Supreme Court held that it is difficult to state "a general rule as to how much or what type of investigation is needed to meet the insurer's obligations under the implied covenant." "In some cases," the Court explained, "review of the insured's submitted medical records might reveal an indisputably reasonable basis to deny the claim without further investigation."

For more information about this case, contact Horvitz & Levy attorneys Barry Levy and Brad Pauley (818.995.0800; blevy@horvitzlevy.com; bpauley@horvitzlevy.com).

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