I was having lunch the other day with another attorney who litigates first-party property insurance cases, and we lamented the "genuine dispute" doctrine. (Okay, not the most scintillating lunch topic and perhaps lamented maybe too strong a word, but needless to say, we both disfavored the doctrine and its over use).

Since inception, the "genuine dispute" doctrine (known in some states as the "fairly debatable" doctrine) has been relied upon more and more by insurers as a defense to a bad faith action. By demonstrating the existence of a "genuine dispute" regarding coverage, amount or existence of loss, etc., an insurer can negate the "unreasonableness" element of a bad faith claim. The "genuine dispute" doctrine is frequently applied where the insurer denies a claim or disputes the amount of damage based on the opinions of experts.1 For instance, in a residential fire loss, if an insured’s contractor estimates the cost to repair the home at $300,000 and the estimate of the insurer’s expert comes in at $50,000, courts have held that the great disparity in estimates for the scope and cost of repairs does not by itself suggest the insurer acted in bad faith.2 Along the same lines, if an insurer denies a claim for property damage based on an expert’s report, the "genuine dispute" doctrine has been applied despite the existence of contrary reports from other experts so long as the report is thorough and based on scientific evidence and reasoning.3

It is important to note that reliance on an expert does not insulate an insurer from a bad faith claim based on a biased investigation. If the insurer dishonestly selects its experts (or if the insurer’s experts were unreasonable), misrepresents facts to the experts, or failed to conduct a thorough investigation, an insurer cannot hide behind the "genuine dispute" doctrine.4

1 McCoy v. Progressive West Ins. Co. (2009) 171 Cal. App. 4th 785.
2 Fraley v. Allstate Ins. Co. (2000) 81 Cal. App. 4th 1282.
3 Adams v. Allstate Ins. Co. (2002) 187 F. Supp. 2d 1207.
4 Brehm v. 21st Century Ins. Co. (2008) 166 Cal. App. 4th 1225; Chateau Chamberay Homeowners Ass’n v. Associated Int’l Ins. Co. (2001) 90 Cal. App. 4th 335.