The California Court of Appeal for the Second District recently affirmed a trial court’s refusal to include an insurer’s proposed jury instructions on the “genuine dispute” doctrine in a bad faith case. McCoy v. Progressive West Insurance Co., 171 Cal. App. 4th 785, 793-794 (2009). McCoy limited the “genuine dispute” doctrine to the summary judgment context, holding that a jury should be allowed to determine for itself what facts are relevant to the reasonableness of an insurer’s coverage denial.
Under the “genuine dispute” doctrine, an insurer may be entitled to summary judgment on a bad faith claim if “there is a genuine issue” as to existence of coverage. See Jordan v. Allstate Ins. Co., 148 Cal. App. 4th 1062, 1072 (2007); Chateau Chamberay Homeowners Ass’n v. Assoc. Int’l Ins. Co., 90 Cal. App. 4th 335 (2001). An insurer may demonstrate a “genuine issue” with evidence that it denied a claim based on expert opinion, unless the insurer dishonestly selected its experts, the experts were unreasonable, or the insurer failed to conduct a reasonable investigation. Jordan, 148 Cal. App. 4th at 1076-1077.
In McCoy, Progressive denied a vehicle theft claim on the ground that it was fraudulent. The insured, McCoy, sued Progressive for bad faith, alleging that it “unreasonably and without proper cause” denied coverage. At trial, Progressive requested that the court instruct the jury on the “genuine dispute” doctrine, which would have highlighted facts relating to Progressive’s reliance on experts to investigate and analyze coverage for the claim. The trial court refused to give Progressive’s proposed jury instructions, finding that the “genuine dispute” doctrine was subsumed within the definition of an unreasonable denial of coverage (i.e., bad faith) set forth in CACI Nos. 2331 and 2332. The jury returned a bad faith verdict and found Progressive liable for punitive damages. Progressive appealed.
The Court of Appeals affirmed, holding that the “genuine dispute” doctrine was not appropriate for a jury instruction. The court noted that an insurer can be held liable for bad faith only if it acted unreasonably in investigating or denying a claim. The “genuine dispute” doctrine was a tool for courts to determine whether a genuine issue of disputed fact existed on summary judgment as to the reasonableness of the insurer’s actions. A jury, however, should not consider the doctrine because “’a genuine dispute exists only where the insurer’s position is maintained in good faith and on reasonable grounds.’” McCoy, 171 Cal. App. 4th at 794 (quoting Wilson v. 21st Century Ins. Co., 42 Cal.4th 713, 723-724 (2007)). It was sufficient for the trial court to instruct the jury that the insurer must have acted “unreasonably” to be liable for bad faith and leave it to the jury to decide what facts were relevant to the reasonableness issue. Id.
The McCoy court was correct in holding that the “genuine dispute” doctrine is subsumed within the definition of reasonableness in the bad faith context. There cannot be a “genuine dispute” as to coverage unless the insurer’s coverage position is reasonable. Insurers likely will raise this issue again, although they will frame the issue with different language. Rather than requesting an express instruction on the “genuine dispute” doctrine, they may ask the court to further define reasonableness for the jury by identifying the facts courts consider under the “genuine dispute” doctrine, such as whether the insurer relied on experts. That would be contrary to the foundation of McCoy – a jury can and should sort out the facts for itself in determining whether an insurer acted “reasonably.”