Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_09-cv-00671/USCOURTS-caed-2_09-cv-00671-6/pdf.json

Parties Involved:
Robert D. Gentry
Plaintiff
State Farm Mutual Automobile Insurance Company
Defendant

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UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

ROBERT D. GENTRY,

NO. CIV. S-09-0671 LKK/GGH 

Plaintiff,

v.

O R D E R

STATE FARM MUTUAL AUTOMOBILE

INSURANCE COMPANY, and 

Does 1-100, 

Defendants.

 /

Plaintiff brings an action for breach of the implied covenant

of good faith and fair dealing and for breach of contract arising

from defendant’s handling of his underinsured motorist (“UIM”)

claim. Defendant moved for summary judgement on both claims. 

I. BACKGROUND

Plaintiff was injured in an automobile accident on August 24,

2004, when another driver ran a red light at an intersection in

Modesto, California. The police concluded that the other driver

caused the accident. Decl. of Andre Snowden filed in support of

Def.’s Mot. Summ. J. (“Snowden Decl.”) Ex. 1. Plaintiff filed a UIM

claim after sustaining knee injuries in an automobile accident. His

insurance policy provided a limit of $100,000 for UIM coverage,

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 The exhibit contains the report for the right knee. However, 1

because the material facts related to the left knee MRI are

undisputed (Pl.’s Statement of Undisputed Facts, 42), the court

accepts them as true and incorporates them herein.

 Prior to the accident, plaintiff had undergone arthroscopic 2

surgery on the left knee in January 2003, and for the right one in

March 2000.

2

minus the amount covered by the other driver’s insurance.

Plaintiff’s claim was settled more than four years after the date

of the accident.

A. Knee Injury

Plaintiff reported knee pain at the scene. On September 7,

2004, plaintiff sought treatment at Sutter Gold Medical Foundation

for bi-lateral knee pain. Plaintiff informed the physician that his

knees hit the dashboard in the accident. Decl. of Mathew Jaime

filed in support of Def.’s Mot. Summ. J. (“Jaime Decl.”) Ex. 1. The

physician’s report noted that internal derangement was suspected.

Id. On September 23, 2004, plaintiff consulted with an orthopedic

surgeon due to continuing pain in his knees. Id. Ex. 2. A 1

subsequent MRI of the left knee revealed changes to the horn and

body of the lateral meniscus. Id. 2

Dr. Robert Cash (“Dr. Cash”) performed a left knee arthroscopy

on December 22, 2005. Dr. Cash testified that the surgery would

likely have not been required if plaintiff’s knee had not been

injured in the accident. Dep. of Dr. Cash 31-32. Defendant’s

medical examiner, Dr. Peter Salamon (“Dr. Salamon”), concurred that

the torn meniscus and the resulting surgery was related to the

accident. Dep. of Dr. Salamon 18.

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 Plaintiff asserts that this second policy demand again 3

advised defendant of the medical specials totaling $27,476.50.

Pl.’s Sur-Reply at 3. However, an authenticated copy of the letter

was not provided by either party.

3

B. Defendant’s Processing of the UIM Claim

1. Plaintiff Submits UIM Claim

On November 16, 2006, plaintiff settled his claim with the

adverse driver’s insurer for $25,000, the policy limit,. On

December 23, 2006, plaintiff’s counsel made a formal demand to

defendant for UIM benefits of $75,000 for medical expenses and

loss of wages, and a $5,000 waiver of medical payment

reimbursement. Plaintiff’s counsel estimated the value of the

claim to be in excess of $105,000, but was willing to settle for

a total of $80,000. Snowden Decl. Ex. 4. The letter also

identified medical specials totaling $27,476.50. Id.

On December 28, 2006, defendant asked plaintiff’s counsel for

medical documentation and proof of the USAA settlement. Id. Ex. 5.

On January 30, 2007, defendant sent a second letter essentially

making the same request. Id. Ex. 6. On February 5, 2007, defendant

received plaintiff’s medical records and a renewed policy limit

demand (the second demand) from plaintiff’s counsel. Id. Ex. 7. 3

Snowden began processing the claim.

2. Snowden Evaluation and First Offer

On February 6, 2007, Snowden, the claims adjuster, sent

plaintiff’s counsel a letter requesting additional information

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 Defendant’s Reply asserts that it was only from the January 4

31, 2007 demand letter it learned about a loss of income claim.

However, the December 23, 2006 demand letter states “[i]n addition

to his medical expenses, Mr. Gentry has a wage loss claim.” Snowden

Decl. Ex. 4. 

4

regarding the loss of income claim. Snowden then evaluated the 4

claim and concluded the medical specials totaled $5,301.58,

despite the January 31, 2007 letter from plaintiff’s counsel

identifying over $27,000 in medical specials. Id. Ex. 9.

Plaintiff’s expert testified that the medical specials were

improperly reduced. Peterson Decl. filed in support Opp’n

(“Peterson Decl.”) ¶ 17 (D)(3). 

On February 28, 2007, defendant offered plaintiff $4,886.12

based on Snowden’s evaluation of the claim. Snowden Decl. Ex. 11.

Plaintiff’s expert opined that this offer was a “low-ball offer”

in violation of Insurance Code § 790.03(h)(13) because it failed

to provide a reasonable explanation of the basis in the policy for

the offer in relation to facts or applicable law. Id. (D)(3)(I)

(14:6-14). Plaintiff’s counsel rejected this offer on March 8,

2007, reiterating his settlement demand. Snowden Decl. Ex. 12.

Plaintiff’s counsel also requested the matter be forwarded to

defense counsel so it could proceed to arbitration. Id. The State

Farm Claims File indicates that on March 12, 2007, defendant

established a funding reserve in the amount of $7,886.12 and the

matter was referred to counsel. Swingle Decl. filed in support of

Sur-Reply (“Swingle Sur-Reply Decl.”) Ex. C CF 0102.

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C. Defendant Retains Counsel

On March 2007, defendant retained counsel, Matthew Jaime

(“Jaime”), who then began discovery. Jaime Decl. ¶ 5.

1. Jaime Initial Evaluation and Payment

On July 31, 2007, Jaime prepared his initial evaluation of

plaintiff's claim after reviewing medical records, interrogatories,

and depositions. Id. ¶ 23, Ex. 7. On August 9, 2007, defendant

issued payment to plaintiff in the amount of $4,886.12. Snowden

Decl. Ex. 14. This amount was exactly the same amount determined

by Snowden despite the fact that Snowden’s evaluation was conducted

without the benefit of medical records and other supporting

documentation. The August 9, 2007 letter failed to clarify the

medical payment reimbursement. On September 13, 2007, defendant’s

employee, Miguel Diaz, noted in the claim file that the medical

payment claim was concluded and reimbursement was waived. Swingle

Sur-Reply Decl. Ex. B CF 0096. Defendant provided no evidence that

the reimbursement waiver information was communicated to plaintiff.

2. Independent Medical Examination

On January 22, 2008, more than one year after plaintiff’s

counsel identified over $27,000 in medical specials, Dr. Salamon

conducted a medical examination of plaintiff. The first report

concluded that the accident resulted in a tear of plaintiff’s

meniscus, but that some of plaintiff’s symptoms “need to be

apportioned to the degenerative change already present in his left

knee.” Jaime Decl. Ex. 19. Two subsequent reports were issued in

response to queries from Jaime. The final one dated February 21,

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2008, asserted that plaintiff’s change in occupation was unrelated

to the accident. On February 26, 2008, Dr. Salamon’s deposition was

taken. He testified that plaintiff’s torn meniscus and need for

surgery was the result of the accident and that there was no

evidence in the medical records prior to the accident that

plaintiff was unable to work in his business because of knee pain.

Swingle Decl. Ex. C (Salamon Dep.). 

3. Evaluation Loss of Wages

On June 16, 2008, Jaime provided his re-evaluation of

plaintiff’s wage loss claims. Jaime Decl. Ex. 25. Jaime estimated

that the loss of wages had a value of $3,500. Id. Jaime concluded

that plaintiff’s decision to close the landscaping business was

unrelated to the accident. Id. Therefore, he determined the only

loss of wages was during the approximately one month recovery

period from the left knee arthroscopy. Id.

D. Arbitration

On August 16, 2007, Jaime proposed to plaintiff’s counsel that

the UIM claim be submitted to mediation. Van Egmond Decl. in

support of Sur-Reply (“Van Egmond Decl.”) Ex. A. On September 17,

2007, plaintiff’s counsel declined the offer of mediation. Id. Ex.

B. On September 19, 2007, plaintiff’s counsel filed an order

compelling arbitration. Jaime Decl. Ex. 8. On September 26, 2007,

defendant agreed to set the matter for arbitration, over six months

after plaintiff's initial demand for arbitration was made. Id. Ex.

9.

On November 5, 2007, plaintiff’s counsel for a third time

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 Plaintiff claims $27,476.50 in medical specials in its 5

December 23, 2006 letter. Jaime’s uses a total $24,892 in his

reports. The discrepancy is not explained by either party.

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offered to settle for $75,000 in new money and a $5,000 medical

payment reimbursement waiver. Id. Ex. 12. On November 7, 2007,

plaintiff served a Cal. Code Civ. P. § 998 offer in these amounts

upon defendant. Id. Ex. 13. 

On January 2, 2008 an arbitrator was selected. Id. Ex. 16. On

January 16, 2008, the hearing date was confirmed by plaintiff’s

counsel for March 19, 2008. Id. Ex. 18. The arbitration was

rescheduled to September 10, 2008. Id. Ex. 27.

1. Report and Increased Offer

On July 16, 2008, Jaime issued a pre-arbitration report. The

report incorporated a range of $3,500 to $7,000 for lost wages. Id.

Ex. 26. Further, it reduced the medical specials from $24,892

claimed by plaintiff to $7,555, without any explanation other than

“adjustments.” Id. On August 8, 2008, defendant increased its 5

offer to plaintiff to $12,500 in new money, without explanation as

to the increased figure. Id. ¶ 50. Plaintiff’s expert opined that

the August 8, 2008 letter violated Insurance Code § 790(h)(13)

because it failed to provide facts regarding how the settlement

figures were determined. Id. 14(g)-(h) (20:9-20).

2. Decision

On September 10, 2008, the matter was arbitrated. A decision

was issued on September 22, 2008. Plaintiff was awarded a total of

$101,794.44. Jaime Decl. Ex. 27. After crediting the $25,000 USAA

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settlement and $3,014 medical payment, plaintiff was awarded

$73,690.44. Id. On October 1, 2008, defendant filed a motion to

have the award reduced to $7,880.41 arguing that plaintiff was

entitled to the amount paid by plaintiff’s health insurer, not the

amount billed. Id. Ex. 28. Plaintiff objected and noted his concern

that the motion “is another way to delay the payment of the amount

owed.” Id. Ex. 30. The motion was denied. Id. Ex. 31. On October

22, 2008, defendant issued payment in the amount of the

arbitrator’s award. Id. Ex. 32. A check for $585.51 was issued for

interest, in response to a third request from plaintiff’s counsel.

Id. Ex. 33 and 34. More than four years had lapsed since the date

of the accident, August 27, 2004.

II. STANDARD FOR A FED. R. CIV. P. 56 MOTION FOR SUMMARY

JUDGMENT

Summary judgment is appropriate when there exists no

genuine issue as to any material fact. Such circumstances

entitle the moving party to judgment as a matter of law. Fed. R.

Civ. P. 56(c); see also Adickes v. S.H. Kress & Co., 398 U.S.

144, 157 (1970); Secor Ltd. v. Cetus Corp., 51 F.3d 848, 853

(9th Cir. 1995). Under summary judgment practice, the moving

party

always bears the initial responsibility of informing

the district court of the basis for its motion, and

identifying those portions of “the pleadings,

depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if

any,” which it believes demonstrate the absence of a

genuine issue of material fact.

Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (quoting Fed.

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R. Civ. P. 56(c)).

If the moving party meets its initial responsibility, the

burden then shifts to the opposing party to establish the

existence of a genuine issue of material fact. Matsushita Elec.

Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-86 (1986);

see also First Nat’l Bank of Ariz. v. Cities Serv. Co., 391 U.S.

253, 288-89 (1968); Secor Ltd., 51 F.3d at 853. In doing so, the

opposing party may not rely upon the denials of its pleadings,

but must tender evidence of specific facts in the form of

affidavits and/or other admissible materials in support of its

contention that the dispute exists. Fed. R. Civ. P. 56(e); see

also First Nat’l Bank, 391 U.S. at 289. In evaluating the

evidence, the court draws all reasonable inferences from the

facts before it in favor of the opposing party. Matsushita, 475

U.S. at 587-88 (citing United States v. Diebold, Inc., 369 U.S.

654, 655 (1962) (per curiam)); County of Tuolumme v. Sonora

Cmty. Hosp., 236 F.3d 1148, 1154 (9th Cir. 2001). Nevertheless,

it is the opposing party’s obligation to produce a factual

predicate as a basis for such inferences. See Richards v.

Nielsen Freight Lines, 810 F.2d 898, 902 (9th Cir. 1987). The

opposing party “must do more than simply show that there is some

metaphysical doubt as to the material facts . . . . Where the

record taken as a whole could not lead a rational trier of fact

to find for the nonmoving party, there is no ‘genuine issue for

trial.’” Matsushita, 475 U.S. at 586-87 (citations omitted).

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III. ANALYSIS

A. Breach of Implied Covenant of Good Faith and Fair

Dealing.

1. Summary of California Law on Insurance Bad Faith

Under California law, “insurance bad faith” refers to a

breach of the implied covenant of good faith and fair dealing as

that covenant applies to insurance policies. An insurer breaches

this covenant when it acts unreasonably in discharging its

obligations under the policy. Crisci v. Security Ins. Co. of New

Haven, Conn., 66 Cal. 2d 425, 430 (1967). Although a claim for

breach of the implied covenant of good faith and fair dealing

generally sounds in contract, in the insurance context, such a

claim also sounds in tort. Jonathan Neil & Assoc. v. Jones, 33

Cal. 4th 917, 932 (2004). 

The elements of a claim for tortious insurance bad faith

are that benefits due under the policy were withheld and that

the withholding was unreasonable. Wilson v. 21st Century Ins.

Co., 42 Cal. 4th 713, 720 (2007). Even where benefits are

ultimately found to be due, a withholding was reasonable, and

therefore not in bad faith, if the insurer conducted a “thorough

and fair” investigation, after which there remained a “genuine

dispute” as to coverage liability. Id. at 720, 723 (quoting

Chateau Chamberay Homeowners Ass’n v. Associated Internat. Ins.

Co., 90 Cal. App. 4th 335, 347 (2001)); see also Guebara v.

Allstate Insurance Company, 237 F.3d 987, 996 (9th Cir. 1999)

(applying California law)).

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Thus an insurer is not obligated to pay every claim made by

an insured. However, it cannot deny the claim “without fully

investigating the grounds for its denial.” Wilson at 720-21

(quoting Frommoethelydo v. Fire Ins. Exchange, 42 Cal. 3d 208,

215 (1986)). An insurer cannot just focus on facts that support

its position. Further, delayed payment because of “inadequate or

tardy investigations” and “oppressive conduct by claims

adjusters seeking to reduce the amounts legitimately payable”

may also breach the implied covenant. Brehm v. 21st Century

Insurance Co., 166 Cal. App. 4th 1225, 1236 (2008) (quoting

Waller v. Truck Ins. Exchange, Inc., 11 Cal. 4th 1, 36 (1995)).

Generally, an insurer who denies or delays payment of

policy benefits where there is a genuine dispute as to the

existence or amount of coverage will not be liable for bad faith

if there is a genuine dispute concern the facts or the

interpretation of the policy. Wilson, 42 Cal. 4th at 723.

However, the genuine dispute rule “does not relieve an insurer

from its obligation to thoroughly and fairly investigate,

process and evaluate the insured’s claim. A genuine dispute

exists only where the insurer's position is maintained in good

faith and on reasonable grounds.” Id. (emphasis in original).

The questions of whether an investigation was reasonable and

whether a genuine dispute existed are ordinarily questions for

the trier of fact. Id. at 724, Hangarter v. Provident Life &

Accident Ins. Co., 373 F.3d 998, 1010 (9th Cir. 2004) (citing

Amadeo v. Principal Mut. Life Ins. Co., 290 F.3d 1152, 1161 (9th

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 Under this rule, the insured must be “made whole” before the 6

insurer may enforce its reimbursement claim for medical expenses

paid on insured’s behalf. See Progressive West Ins. Co. v. Yolo

County Super. Ct., 135 Cal. App. 4th 263, 273 (2005).

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Cir. 2002)). 

2. Whether State Farm Conducted a Thorough

Investigation and Fair Evaluation of Plaintiff’s

Claim.

Defendant argues that its handling of plaintiff’s claim was

reasonable as a matter of law and that the conduct complained of

by plaintiff does not “reach the level of an unreasonable

withholding of policy benefits which is required to prevail in

an insurance bad faith claim.” Def.’s Mem. of P. & A. 17.

Defendant contends that it investigated the claim and retained

and relied on qualified experts in denying plaintiff's claim. 

As noted, an insurer has a duty to fully and timely investigate,

evaluate and process claims. Wilson, 42 Cal. 4th at 720-23. To

survive a motion for summary judgement on a bad faith claim,

plaintiff must present evidence of material issues of fact as to

the reasonableness of defendant’s handling of the claim.

Plaintiff argues that defendant failed to properly

investigate plaintiff’s claims and was unreasonably dilatory in

its investigations. Sur-Reply at 11. Specifically, defendant

failed to (1) obtain plaintiff’s medical records to evaluate his

claim; (2) advise plaintiff of the “Make Whole Rule;”6

(3)respond to multiple policy limit demands; (4) advise

plaintiff of the amount defendant could recover on its medical

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reimbursement claim; (5) promptly obtain medical and wage

records; and (6) have plaintiff submit to an IME.

Plaintiff presented evidence that he made policy limit

demands on December 23, 2006 and on January 31, 2007. However,

medical records were not obtained by defendant until the matter

was referred to Jaime in March 2007. This was so despite

plaintiff’s request for reimbursement of medical specials that

exceeded $27,000. These facts could lead a reasonable jury to

find that defendant’s unreasonably delayed in obtaining

plaintiff’s medical records. 

With respect to defendant's loss of income investigation,

defendant responds that it first learned that plaintiff was

bringing such a claim on February 5, 2007, when it received

plaintiff's January 31, 2007 demand. However, plaintiff’s

December 23, 2006 demand letter also included a claim for wage

losses. In the letter, plaintiff’s counsel communicated a belief

that plaintiff’s case had a value of over $105,000. Based on the

magnitude of the claim relative to policy limits, a medical

evaluation could reasonably be determined as warranted at that

time. Yet defendant waited until February 6, 2007 to begin an

investigation. Moreover, defendant's medical exam of plaintiff

occurred on January 22, 2008, more than one year after defendant

was notified of the wage loss claim. A reasonable jury could

find this investigation into the medical claims and extent of

plaintiff’s injury to constitute an unreasonable delay. 

Plaintiff also argues that defendant did not timely obtain

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 The arbitrator decision concluded there is no published 7

authority finding that contractual discounts provided by healthprovider contracts are “anything other than a collateral source

benefit.” Matthew Decl. Ex. 31. 

14

counsel’s opinion on the settlement. Plaintiff presented

evidence that the defendant’s first offer was made without the

advice of counsel, particularly as that advice related to the

amount of medical specials. Further, plaintiff contends that the

medical specials were improperly reduced by Jaime in his prearbitration report. The court has reviewed Jaime’s report and 7

there is no explanation as to why the medical specials were

reduced from the amount plaintiff claimed. The reduction in the

medical specials substantially reduced the settlement offers

made by defendant. 

In Wilson, the California Supreme Court found similar

conduct by an insurer to preclude summary judgment. 42 Cal. 4th

at 721-22. Specifically, the court held that “a jury could find

that nothing in the material the claims examiner had received

justified [his] conclusions. [The insurer] directs us to no

medical report or opinion on the basis of which the claims

examiner could reasonably have ignored or disbelieved.” Id. at

721. The court continued that an insurer could not, “consistent

with the implied covenant of good faith and fair dealing[,

ignore plaintiff’s physician’s] conclusions without any attempt

at adequate investigation, and reach contrary conclusions

lacking any discernable medical foundation.” Id. at 722

(citations omitted). Here too a reasonable jury could find this

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 Plaintiff cites to the defendant’s Claim Service Record 8

(Swingle Sur-Reply Decl. Ex. B) as evidence that it failed to

respond to plaintiff’s repeated requests for a waiver of the $5,000

medical payment reimbursement. As best the court can discern,

however, the activity log does not demonstrate requests which were

ignored. Given that the court finds that a reasonable jury could

determine that State Farms's conduct was unreasonable without

proving that defendant failed to respond to these alleged repeated

requests, the court need not address the sufficiency of plaintiff's

evidence as to this argument. 

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conduct to be unreasonable. 

Plaintiff also asserts that the insurer is liable in tort

if it fails to accept a reasonable settlement offer. However, it

is “well established that an insurer's tort liability for

failure to accept a reasonable settlement offer can arise only

with respect to third party, or liability, coverage.”

Rappaport-Scott v. Interinsurance Exchange of the Automobile

Club, 146 Cal. App. 4th 831, 836 (2007). Thus, defendant’s

failure to accept the multiple policy demands does not give rise

to a claim.8

 In sum, defendant’s motion is denied as to the

reasonableness of its investigation and evaluation of

plaintiff's claim. 

3. Whether there was a “Genuine Dispute” as to the

Value of Gentry’s UIM Claim

Defendant also argues that it is entitled to summary

judgment on plaintiff's bad faith claim because there is

evidence of a “genuine dispute” regarding the value and

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 Defendant specifically argues there was a genuine dispute 9

as to the nature and scope of plaintiff’s injury, highlighted by

the evidence that the arbitrator’s award were “more closely

aligned” with defendant’s evaluation. Def.’s Mem. of P. & A. at 21.

Such a conclusion, however, depends on how plaintiff’s offers

should be characterized. A reasonable jury could characterize these

offers in the manner described above. As such, defendant cannot

succeed as a matter of law on this theory.

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causation of plaintiff’s claimed injuries. The genuine dispute 9

rule allows for summary judgement “where the summary judgment

record demonstrates the absence of triable issues as to whether

the disputed position upon which the insurer denied the claim

was reached reasonably and in good faith." Wilson, 42 Cal. 4th

at 724. 

Wilson declined to grant summary judgment for the insurer

under the genuine dispute doctrine with facts very similar to

the case at bar. Id. at 724-26. Specifically, in Wilson, the

insurer paid the full policy limits on the plaintiff’s UIM

claim. Nonetheless, the court reasoned that a reasonable jury

could find for plaintiff because there was evidence of the

insurer’s initial denial of benefits and resulting two-year

delay in receipt of benefits. Id. The standard set forth in

Wilson was applied by the California Court of Appeals in Brehm

v. 21st Century Ins. Co., 166 Cal. App. 4th 1224, 1239 (2008),

where, unlike in Wilson, the insurer had plaintiff examined by a

physician. The court reasoned that plaintiff had stated a claim

despite this fact because he alleged that the examination was a

sham. Id. Defendant contends that here, where there is no

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evidence of a sham, Brehm should be distinguished. The court

cannot agree. Rather, the California Supreme Court explicitly

explained that, “An insurer’s good or bad faith must be

evaluated in light of the totality of the circumstances

surrounding its actions.” Wilson, 42 Cal. 4th at 723.

The facts described above could demonstrate to a reasonable

jury that defendant acted unreasonably. This is especially so

given that Dr. Salamon concurred with Dr. Cash, plaintiff’s

treating physician, as to the cause of plaintiff’s injury.

Further, with respect to the arbritrator’s award, plaintiff was

awarded $73,690.44 in new money as compared to the $75,000

policy limit demand, and the defendant’s highest settlement

offer was $12,500 in new money.

The court in Wilson affirmed that the genuine dispute rule

does not alter the standard for summary judgment, “[n]or does

the rule alter the standards for deciding and reviewing motions

for summary judgment.” Wilson at 724. Based on the evidence

presented relative to the medical injury and arbitrator award,

viewed in the light most favorable to the non-moving party, the

court finds that a jury could conclude that there was no genuine

dispute. Further, as discussed above, there are issues of

triable fact as to whether defendant acted reasonably and in

good faith with respect to plaintiff’s insurance claim.

Accordingly, defendant is not shielded from bad faith liability

based on the genuine dispute rule at this stage in the

litigation. Thus, the motion for summary judgment on the basis

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Defendant also argues that reliance on the defendant's 10

medical exam “precludes bad faith liability”. Def.’s Mem. of P. &

A. at 22. Assuming a jury would find such reliance, defendant

provides no case law in support of the contention that bad faith

liability is precluded because defendant relied on its paid expert.

This is not to say, however, that a jury could not weigh this

evidence when determining whether defendant’s conduct was in bad

faith.

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of a genuine dispute is denied.

4. Whether State Farm Reasonably Relied on the

Advice of Independent Legal Counsel.

Defendant asserts that it acted reasonably and with proper

cause for its actions because it relied in good faith on advice

of its legal counsel, Jaime. Reply at 7. Advice of counsel 10

serves as a defense where insurer reasonably relied on such

advice, even if ultimately the attorney’s judgment was mistaken.

State Farm Mut. Auto. Ins. Co. v. Super. Ct., 228 Cal. App. 3d

721 (1991). Defendant relies on State Farm to conclude that it

is entitled to judgment because it relied on advice from

counsel. State Farm, however, merely held that, “An insurer may

defend itself against allegations of bad faith and malice in

claims handling with evidence the insurer relied on the advice

of competent counsel.” Id. at 725. This case did not hold that

if an insurer relied on counsel that it cannot be liable for

insurance bad faith. Rather the question is whether such

reliance was reasonable. Accordingly, it is just one piece of

evidence that a jury can consider when determining whether the

insurer acted reasonably. 

Moreover, plaintiff has presented evidence from which a

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 Under this rule,“if an injured party receives some 11

compensation for his injuries from a source wholly independent of

the tortfeasor, such payment should not be deducted from the

damages which the plaintiff would otherwise collect from the

tortfeasor.” Olsen v. Reid, 164 Cal. App. 4th 200, 205 (2008)

(Moore,J. concurring)(quoting (Helfend v. Southern Cal. Rapid

Transit Dist., 2 Cal. 3d 1, 6, (1970)). 

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reasonable jury could also find that it was not reasonable for

defendant to rely on the advice of its counsel. This evidence

includes Jaime’s unexplained reduction of the medical specials

claimed by plaintiff. Plaintiff’s expert testified that a

reasonable insurer would have asked Jaime to explain the

reduction because it violated the collateral source rule. Jaime 11

used the lowered medical specials ($7,880 versus nearly $24,892

claimed by plaintiff), to arrive at an estimated jury award of

$30,000 to $45,000 (less USAA settlement and advance). Given the

significant difference in the figures and plaintiff’s repeated

statements as to the value of the medical specials, a trier of

fact could view defendant’s reliance on Jaime’s unexplained

opinion to be unreasonable. Thus, defendant is likewise not

entitled to summary judgment on plaintiff's bad faith claim

because of this defense.

B. Breach of Contract

Defendant moves for summary judgment on plaintiff’s breach

of contract claim. Under California law, a claim for breach of

contract includes four elements: that a contract exists between

the parties, that the plaintiff performed his contractual duties

or was excused from nonperformance, that the defendant breached

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 Defendant relies upon Paulson v. State Farm Mut. Auto. Ins. 12

Co., 867 F. Supp. 911, 917-18 (C.D. Cal. 1994) (J. Letts), in its

motion for summary judgment. There the district court expressed

policy reasons for his opposition to the “tortification of contract

law,” 867 F. Supp at 913-14. These concerns are irrelevant to this

court’s resolution of defendants motion - the court must follow the

law as set forth by the California Supreme Court regardless of the

court’s opinion as to the merits of that law.

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those contractual duties, and that plaintiff’s damages were a

result of the breach. Reichert v. General Ins. Co., 68 Cal. 2d

822, 830 (1968); First Commercial Mortgage Co. v. Reece, 89 Cal.

App. 4th 731, 745 (2001). Further, unreasonable delay in paying

policy benefits due “is an actionable withholding of benefits

which may constitute a breach of contract as well as bad faith

giving rise to damages in tort.” Intergulf Dev. LLC v. Super.

Ct., 83 Cal. App. 4th 16, 20 (2010); see also Kotler v.

PacifiCare of California, 126 Cal. App. 4th 950, 956 (2005)

(finding a triable fact as to whether defendant’s delay in

providing benefits to plaintiff constituted a breach of contract

because the delay was unreasonable); Schwartz v. State Farm &

Casualty Co., 88 Cal. App. 4th 1329, 1339 (2001) (“It is well

established that a breach of the implied covenant of good faith

is a breach of the contract . . . , and that a breach of a

specific provision of the contract is not a necessary

prerequisite to a claim for breach of the implied covenant of

food faith and fair dealing.”) (internal citations omitted).12

Finally, the state legislature has codified the requirement that

contracts must be performed at the time specified or within a

“reasonable time.” Cal. Civ. Code § 1657. 

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Plaintiff argues that defendant engaged in the following

conduct:

multiple acts which constitute a breach of its

insurance contract including (a) failing to reasonably

make a good faith offer of the benefit payments owed

to Gentry pursuant to the insurance contract; (b)

delaying payments lawfully owed to Gentry under the

insurance policy; (c) failing to reasonably, promptly

and completely investigate Gentry’s claim under the

insurance contract; (d) and failing to make a good

faith effort to obtain prompt, fair and equitable

settlement of Gentry’s claims for the benefit owed to

Gentry under the insurance contract.

Sur-Reply at 9.

Plaintiff’s breach of contract claim is essentially based

upon defendant’s breach of the implied covenant of good faith

and fair dealing and upon defendant’s unreasonable delay in

providing plaintiff with benefits under his insurance contract.

Breach of the implied covenant is a breach of contract.

Schwartz, 88 Cal. App. 4th at 1339. An unreasonable delay in

payment of benefits owed under a contract can support a claim

for a breach of contract. Intergulf Dev. LLC, 83 Cal. App. 4th

at 20. Plaintiff has presented evidence that a reasonable jury

could find that (1) defendant acted in bad faith and (2)

defendant unreasonably delayed in making payment under the

policy by not conducting a timely investigation of the claim and

delaying arbitration and settlement of the claim. Because there

are triable questions of fact as to these issues, defendant’s

motion for summary judgement on plaintiff's breach of contract

claim is denied.

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C. Punitive Damages

Defendant argues that plaintiff failed to produce any

evidence in support of his claim for punitive damages and, thus,

it is entitled to summary judgment on whether punitive damages

may be awarded. The standard for punitive damages is statutory.

The California Civil Code provides that the plaintiff has to

prove "by clear and convincing evidence that the defendant has

been guilty of oppression, fraud, or malice." Civ. Code § 3294.

(1) "Malice" means conduct which is intended by the defendant to

cause injury to the plaintiff or despicable conduct which is

carried on by the defendant with a willful and conscious

disregard of the rights or safety of others. (2) "Oppression"

means despicable conduct that subjects a person to cruel and

unjust hardship in conscious disregard of that person's rights.

(3) "Fraud" means an intentional misrepresentation, deceit, or

concealment of a material fact known to the defendant with the

intention on the part of the defendant of thereby depriving a

person of property or legal rights or otherwise causing injury.

Id. 

Plaintiff asserts that defendant’s conduct amounts to a

“conscious disregard” for plaintiff’s rights because defendant

“unreasonably delay[ed] the investigation,” creating an

investigation “‘not fair’ to plaintiff,” and failed to accord

plaintiff “interest at least equal weight to its own.” Sur-Reply

at 13. While a jury might conclude that plaintiff failed to make

a case for punitive damages the court cannot say that a

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reasonable jury could not find there was a conscious disregard

of plaintiff’s right to have his UIM claim resolved in a timely

manner.

First, plaintiff provided evidence that defendant waited

over six months to agree to arbitration, and evidence that

defendant delayed the arbitration. The request to proceed to

arbitration was made on March 8, 2007, and the matter was

finally arbitrated on September 10, 2008, more than one and onehalf years after the initial request was made. Other events that

a jury could determine constituted a conscious disregard include

the timeliness of the medical and wage loss investigation and

the defendant's medical examination. Thus, defendant's motion

for summary judgement on plaintiff's demand for punitive damage

claim is denied.

IV. CONCLUSION

For the foregoing reasons, defendant’s motion for summary

judgment, ECF No. 31, is DENIED in its entirety.

IT IS SO ORDERED.

DATED: July 26, 2010.

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