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INSURANCE NOTES

Jury Instruction on "Genuine Dispute" Doctrine Was Not Necessary Where Jury Was Properly Instructed on Reasonableness of Insurer's Conduct

04.17.2009

In McCoy v. Progressive West Ins. Co., 171 Cal.App.4th 785 (2009), the Court of Appeal held that the “genuine dispute” doctrine – which states that an insurer’s denial of an insured’s claim is not in bad faith if there was a genuine issue as to the insurer’s liability under the policy – was subsumed within the concept of whether the insurer’s denial was reasonable or unreasonable, and therefore, the trial court did not commit prejudicial error when it refused the insurer’s request for a separate jury instruction on the “genuine dispute” doctrine.

The insured alleged that the theft of his car was a covered loss under his policy. The insurer denied the claim on suspicions of insurance fraud. The insured sued for bad faith.

At trial, the court denied the insurer's request that the jury be given the following two proposed special instructions based on the “genuine dispute” doctrine:

When an insurer denies or delays payment of policy benefits due to the existence of a genuine dispute with its insured as to the existence of coverage liability, the insurance company will not be liable in bad faith even though it may be liable for breach of contract.

In determining whether or not an insurance company had a genuine dispute as to whether or not a loss was covered, you may consider among the following: (1) Whether the insurance company was guilty of misrepresenting the nature of the investigation; (2) Whether the insurance company adjusters and investigators lied during their depositions or to the insured; (3) Whether the insurance company dishonestly selected its experts; (4) Whether the insurance company experts were unreasonable; and, (5) Whether the insurance company failed to conduct a thorough investigation.

The Court of Appeal held that the trial court’s denial of the instructions was not prejudicial error because "[t]he linchpin of a bad faith claim is that the denial of coverage was unreasonable." The Court stated that "[b]efore an insurer can be found to have acted in bad faith for its delay or denial in the payment of benefits, it must be shown that the insurer acted unreasonably or without proper cause." The Court held that because the jury was properly instructed on the issue of reasonableness, no further instruction on the "genuine dispute" doctrine was necessary.

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