Opinion ID: 2674882
Heading Depth: 3
Heading Rank: 4

Heading: Pyramid’s Claim of Good Faith and Fair Dealing

Text: “The covenant of good faith and fair dealing has ‘particular application’ to insurers because they are ‘invested with a discretionary power affecting the rights of another.’” Amadeo v. Principal Mut. Life Ins. Co., 290 F.3d 1152, 1161 (9th Cir. 2002) (quoting Carma Developers (Cal.), Inc. v. Marathon Dev. Cal., Inc., 826 P.2d 710, 726 (Cal. 1992)). Under California law, to establish a breach of the implied PYRAMID TECH. V. ALLIED PUBLIC ADJUSTERS 29 covenant of good faith and fair dealing, “a plaintiff must show: (1) benefits due under the policy were withheld; and (2) the reason for withholding benefits was unreasonable or without proper cause.” Guebara v. Allstate Ins. Co., 237 F.3d 987, 992 (9th Cir. 2001) (citing Love v. Fire Ins. Exch., 271 Cal. Rptr. 246, 255 (Cal. Ct. App. 1990)). The reasonableness of an insurer’s conduct is ordinarily a question of fact. Amadeo, 290 F.3d at 1161. An insured’s claim of breach of the implied covenant of good faith and fair dealing may be dismissed on summary judgment if the defendant insurer can show that there was a “genuine dispute” as to liability. Guebara, 237 F.3d at 992. This genuine dispute doctrine should be applied on a case-bycase basis and does not protect allegedly biased investigations. Id. at 994, 996. Biased investigation claims include circumstances where: (1) the insurer misrepresents the nature of the investigatory proceedings; (2) the insurer’s employees lie during depositions or to an insured; (3) the insurer dishonestly selects experts; (4) the insurer’s experts were unreasonable; or (5) the insurer fails to conduct a thorough investigation. Id. at 996. Pyramid argues that Hartford breached the implied covenant of good faith and fair dealing by: (1) improperly refusing to test Pyramid’s inventory for more than two years and conducting inadequate testing; (2) denying coverage on Pyramid’s claim of inventory loss; (3) making a “low-ball” building restoration estimate and delaying payment on the agreed-upon supplemental building restoration amount for four months; and (4) conducting a biased investigation through dishonestly selecting unreasonable experts and an inadequate investigation. Hartford argues that it did not act unreasonably because there was a genuine dispute as to 30 PYRAMID TECH. V. ALLIED PUBLIC ADJUSTERS coverage, its investigation was proper, its coverage denial was based on expert opinions, and it ultimately paid all of the building restoration amounts making any delay harmless. There is evidence in the record supporting an inference that Hartford acted unreasonably or with bias. Pyramid submitted testimony stating that a Hartford representative, while visiting Pyramid’s premises to assess damages, said that it is Pyramid’s job to try to collect under the insurance policy and Hartford’s job to make sure Pyramid does not collect. Pyramid also provided evidence that Hartford’s adjuster Todd Klingaman “downplayed” the flood damage during his site visit by comparing it to a “bucket of water” and suggesting to Pyramid that it did not need to tell its customers about it. Pyramid’s employees also testified that at the conclusion of Hartford’s site visit, before Helms had completed his report, Hartford jumped to an early conclusion that no damage had occurred and thus refused to test any inventory. Additionally, Hartford relied on Helms’ conclusion that humidity could not have caused damage, even though Helms conducted only a cursory investigation, relied on readings taken after the drying operation had largely concluded and under different conditions, and was not familiar with many of the electronic components or how moisture affected them.4 Moreover, Hartford did not test any 4 Although courts have found reliance on experts can trigger the genuine dispute doctrine, these cases generally involve multiple experts that are clearly independent. See, e.g., Guebara, 237 F.3d at 994–95 (holding that the conclusions of three independent investigators and suspicious conduct by the insured provide a sufficient basis for applying genuine dispute doctrine); Fraley v. Allstate Ins. Co., 97 Cal. Rptr. 2d 386, 391 (Cal. Ct. App. 2000) (“The ‘genuine dispute’ doctrine may be applied where the insurer denies a claim based on the opinions of experts.”); Phelps v. Provident Life & Accident Ins. Co., 60 F. Supp. 2d 1014, 1021 (C.D. Cal. PYRAMID TECH. V. ALLIED PUBLIC ADJUSTERS 31 of Pyramid’s inventory until two years after the flood and only after Pyramid had engaged its own expert and after Helms supplemented his report to suggest testing a representative sample might be appropriate. Finally, Hartford’s initial estimate of building damage was very low, $6,640.34, and Hartford did not agree to additional sums for eight months and then delayed for another four months before paying the additional $88,480.01. To the extent a jury finds coverage was required for the inventory loss claim, this evidence further supports an inference that Hartford’s conduct was unreasonable and not entitled to protection under the genuine dispute doctrine. Further, the admitted portions of the declaration and report of Gene Irizarry, Pyramid’s insurance claim expert, support an inference that Hartford did not handle the claim in good faith. Irizarry opined that Hartford could not have reasonably concluded that Pyramid’s inventory was not damaged in the absence of any testing or investigation and should have conducted testing under the adjustment expense that accompanies every claim. Irizarry also concluded that Hartford was not responsive to the needs of Pyramid and failed to assist Pyramid as Hartford was obligated to do and that Hartford forced Pyramid to engage experts and conduct an investigation that should have been done by Hartford. Irizarry further stated that Hartford made an unreasonable, “low-ball” estimate for the building repairs and unreasonably delayed in investigating and finalizing the building restoration claim. 1999) (surveillance film and reports from three independent doctors gave rise to genuine dispute concerning whether insured was entitled to benefits). 32 PYRAMID TECH. V. ALLIED PUBLIC ADJUSTERS Hartford also relied on Dr. Kumar’s report, issued two years after the flood, to deny Pyramid’s claim. An expert report alone, however, does not demonstrate a “genuine dispute.” See Guebera, 237 F.3d at 996. Further, even if Dr. Kumar’s report provides Hartford with a “genuine dispute” as of August 2007, the two-year delay and the lack of a thorough investigation during the time period between the August 2005 flood and the August 2007 Kumar report supports Pyramid’s claim for breach of the implied covenant of good faith and fair dealing. See, e.g., Amadeo, 290 F.3d at 1163 (good faith decisions based on an inadequate investigation can support a claim for breach of good faith and fair dealing) . “[W]hether an insurer’s denial of a claim is unreasonable is dependent upon the facts in each case. The issue remains a question of fact unless only one inference may be drawn from the evidence.” Paulfrey v. Blue Chip Stamps, 197 Cal. Rptr. 501, 504 (Cal. Ct. App. 1983) (emphasis in original) (citations omitted). Summary judgment cannot be granted under the genuine dispute doctrine in a bad faith claim unless “it is undisputed or indisputable that the basis for the insurer’s denial of benefits was reasonable—for example, where even under the plaintiff’s version of the facts there is a genuine issue as to the insurer’s liability under California law.” Amadeo, 290 F.3d at 1161 (citation omitted). Pyramid produced evidence from which a reasonable jury could draw more than one inference concerning Hartford’s conduct. Thus, summary judgment against Pyramid’s claim for breach of the implied covenant of good faith is inappropriate.