Source: http://www.ehrlichfirm.com/news-stories/genuine-dispute-doctrine-3.html
Timestamp: 2019-04-18 20:17:13+00:00

Document:
Not all the news on the genuine-issue front is bad, however. There are two Ninth Circuit decisions that offer clear guidance to the district courts on the limits of the doctrine: Hangarter v. Provident Life and Acc. Ins. Co. (9th Cir. 2004) 373 F.3d 998, 1010, and Amadeo v. Principal Mut. Life Ins. Co., 290 F.3d 1152, 1161 (9th Cir.2002).
In addition, two recent decisions by Division 3 of the Second Appellate district also contain language and analysis that is favorable to policyholders and that should help rein-in overzealous application of the doctrine, Jordan v. Allstate Ins. Co. (2007) 148 Cal.App.4th 1062 [56 Cal.Rptr.3rd 312], rev. denied June 27, 2007, and Delgado v. Interinsurance Exchange, supra.
Jordan is actually Jordan II. In Jordan v. Allstate Ins. Co. (2004) 116 Cal.App.4th 1206 [11 Cal.Rptr.3d 169] (Jordan I), the court held that while the carrier’s construction of its policy to deny coverage was a reasonable construction, it was not the only reasonable construction. Since the policy was ambiguous, the court reversed a summary judgment for the carrier. The carrier then sought to leverage the court’s finding that its coverage position was reasonable into a summary adjudication of the bad-faith claim based on the genuine-dispute doctrine. The trial court granted the motion.
With respect to this third point, the court rejected the carrier’s assertion that consideration of these statutory and regulatory provisions somehow violated the holding in Moradi-Shalal v. Fireman’s Fund Ins. Co. (1988) 46 Cal.3rd 287, 305 [250 Cal.Rptr. 116], that these provisions did not grant policyholders a direct private right of action for their violation.
The trial court dismissed the bad-faith action on demurrer, and the plaintiff made the case appealable by dismissing his breach-of-contract claims. (Meaning that on remand, the only claim he could assert and recover on was for bad faith.) The appellate court reversed, finding that the trial court had no basis to sustain a demurrer to the bad-faith claim.
While many cases explain in clear terms how broad an insurer’s duty to defend is, Delgado is particularly helpful because it takes that analysis further and explains what the policyholder’s options are when the carrier breaches the duty to defend, as well as how those options play out in later litigation against the carrier. The last two sections of the opinion explain why Delgado’s complaint stated a cause of action against the Auto Club for bad faith arising out of the breach of its duty to defend. In particular, they explain why the genuine-dispute doctrine did not preclude the bad-faith claim.
Unfortunately, the court does appear to hold that the genuine-dispute doctrine does apply to third-party claims. More specifically, it holds that if the insurer’s refusal to defend is based on a “legal dispute;” that is, one where the coverage issue turns on a legal question and not on the resolution of disputed facts, the genuine- dispute doctrine would probably apply.
As we have shown, a potential for coverage establishes the duty to defend. Such a potential necessarily arises from the existence of a factual dispute as to coverage under the policy. Thus, an insurer faced with a pleading such as the one filed against the insured Reid in this case would have no reasonable basis for concluding that a defense obligation was not owed, at least until it could conclusively negate the possibility of coverage raised by such pleading.
Delgado was originally published in May 2007, but the opinion was withdrawn after the court granted the Auto Club’s petition for rehearing. The new opinion was issued on June 25, 2007, and is largely identical to the original version. The chief difference is the court’s response to the carrier’s assertion in the rehearing petition that it was justified in concluding that its policyholder had acted intentionally irrespective of the way the complaint was framed. More specifically, the court rejected the Auto Club’s claims that even if the policyholder had negligently believed he was acting in self defense, his punches to Delgado’s face were delivered intentionally, which negated coverage. The case is therefore also helpful for cases involving coverage for a claim of negligent self defense.

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