A California Appellate Court has rejected the application of California's "genuine dispute rule" as a defense to Bad Faith Claims against a Liability Insurance Company, in Howard v. American Nat'l Fire Insurance Co., Download Howard v. American National Fire Insurance Co. (Cal.1st DCA Case No. A123187, Opinion Filed August 11, 2010) PUBLIC ACCESS also published as 2010 WL 3156851 (Cal. 1st DCA August 11, 2010).
California's "genuine dispute rule" operates to absolve an Insurance Company from Bad Faith liability for Bad Faith in settlement where the insurer refused to settle because it reasonably disputed the value of the Claim, not because it disputed Insurance Coverage for it. "Although an insurer may reasonably underestimate the value of a case, and thus refuse settlement, an insurer does not act reasonably in using its no-coverage position to refuse settlement altogether." Howard v. American Nat'l Fire Insurance Co., 2010 WL 3156851 at *18.
The Howard Court further noted that California's "genuine dispute rule" had previously been applied only in First-Party Bad Faith Cases. Id. at *19.
In any case, held the Court, California's genuine dispute rule would not be applied to absolve a Third-Party Insurance Company which allegedly refused to settle for its Insured because it wrongly took the position that it had no Coverage. Id. Parenthetically, the Insured in that case is a Catholic Bishop who was sued for negligent retention of a sexual predator-priest. The Jury in the underlying case returned a Verdict against the Bishop in the amount of $5,500,000.00, consisting of $2.5 Million in Compensatory Damages and $3 Million in Punitive Damages. Id. at *1.
The Defense in Bad Faith Cases of Fairly and Reasonably Debatable underlying Claims, known in California as the "genuine dispute rule," is addressed in Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 5:16 (Third-Party Settlement Claims), § 5:26 (Wrongful Refusal or Failure to Defend Claims), § 5:51 (Claims Based on Conduct of the Third-Party Insured's Defense), and § 11:17 (First-Party Bad Faith Claims) (Shepard's/McGraw-Hill First Edition; West Publishing Co. Second Edition and 2010 Supplement).
Please Read The Disclaimer.
Comments