Wilson v. 21st Century Insurance Co. (2007) 42 Cal.4th 713

In this this important insurance bad faith decision, the California Supreme Court confirmed the validity of the "genuine dispute" doctrine, including the doctrine's application to factual disputes between insurer and insured. The Court also confirmed that an insurer who relies on the doctrine is entitled summary judgment in proper cases.

This was 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. Even though 21st Century was not successful in persuading the Supreme Court to uphold the trial court's summary judgment ruling, the decision included some significant favorable holdings for the insurance industry. For example, the Court confirmed that 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 also confirmed that an insurer may properly obtain summary judgment based on this "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."

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