June 12, 2020

Fadeeff v. State Farm General Insurance Co. (2020) 50 Cal.App.5th 94

Homeowners filed an insurance claim to cover smoke damage to their home and property after the 2015 Valley Fire. The insurer made initial payments after the original adjuster found the house was “well maintained” and the damage was caused by the fire. The insurer denied supplemental claims, however, based on a recommendation by a third party, unlicensed adjuster and two experts, who concluded the damage was caused by wear and tear, not smoke and soot. The homeowners sued for insurance bad faith. The trial court granted summary judgment to the insurer based on the “genuine dispute” doctrine.

The California Court of Appeal, First District, Division Two, reversed, holding issues of material fact precluded granting summary judgment based on the genuine dispute doctrine. The court noted that the doctrine can be applied to factual disputes between insurer and policyholder at the summary judgment stage only if the insurer can show the existence of a genuine dispute after a “full, fair and thorough” investigation. Here, the court held, the insurer failed to demonstrate as a matter of law that there was a good faith dispute over some of the claims because its denial of coverage was based solely on the conclusions of its unlicensed adjuster, rather than the experts. Moreover, the insurer’s own adjusters disagreed about the cause of the damage—i.e., whether it had been caused by smoke and soot or by normal wear and tear—undermining the insurer’s contention that its denial of coverage was indisputably reasonable.

Second, the insurer failed to show it was indisputably reasonable to rely on experts to deny the remaining claims. The court noted evidence that the adjuster failed to properly direct the experts to investigate the owner’s specific claims and admitted to taking no steps to determine the accuracy of their conclusions. Additionally, it concluded that a jury could infer the investigation was unreliable because of its limited scope.