Karen E. Adelman
In 501 East 51st Street, etc. v. Kookmin Best Ins. Co., Ltd. (2020) 47 Cal.App.5th 924, the Court of Appeal for the Second District affirmed summary adjudication and dismissal of a bad faith claim based on the “genuine dispute” doctrine. The appellate court agreed with the trial court that there was no material dispute as to whether defendants denied plaintiff’s insurance claim in good faith based on an expert report which concluded that the damage to plaintiff’s building was not caused by a broken water main. The full opinion can be read HERE.
The owners of an apartment complex tendered a property loss claim for damage sustained to a 10-unit, two-building apartment complex in connection with an underground water main that allegedly ruptured. The owners sued their insurers for bad faith after coverage was denied on the ground that the damage was caused by long-term settlement and earth movement, which was not a covered loss under the policy. The trial court granted summary adjudication for the insurers on the bad-faith claim, the owners dismissed their remaining claims without prejudice, judgment was entered in the insurers’ favor, and the owners subsequently appealed.
The Court of Appeal affirmed the granting of summary adjudication and held, among other things, that the “genuine dispute” doctrine shielded the insurers from liability. The court explained that under the “genuine dispute” doctrine, an insurer does not act in bad faith if a genuine dispute exists as to the insurer’s liability under the policy. The court reasoned that in the situation before it, the insurers’ reliance on expert reports to deny coverage was reasonable in connection with “advancing its side of that dispute” and there was no showing that “the insurer dishonestly selected its experts, the insurer’s experts were unreasonable, or the insurer failed to conduct a thorough investigation.” (Id. at 937.)
The Court of Appeal held there was a “genuine dispute” as to the cause of the damage to the complex and that the insurers properly relied on their expert’s final report to deny coverage. The court rejected plaintiff’s argument that the insurers’ investigations were compromised because their expert first opined the damage might be covered and the insurers sought additional expert opinions after learning the cost of repair would be substantial. (Id. at 938.) The court also rejected plaintiff’s argument that notes in an insurer’s claim file referring to potential litigation were evidence of bad faith, rather than normal business practice. (Id.)
The attorneys at Berman, Berman, Berman, Schneider & Lowary LLP will continue to monitor these developments and can address any questions you have regarding the above. They are uniquely qualified to provide additional insight and guidance.