Court Opinion

ID: 9493726
Source: CourtListenerOpinion
Date Created: 2023-08-05 15:17:12.975265+00
Date Added: 2024-06-11T17:56:00.000161
License: Public Domain

BETTY B. FLETCHER, Circuit Judge,
dissenting in part:
I respectfully dissent from that portion of the majority’s opinion that upholds the district court’s grant of summary judgment to Allstate on Guebara’s bad faith claims. The critical issue is whether the “genuine issue as to coverage” rule (“genuine issue” rule) applies to factual disputes concerning coverage under an insurance policy or if the rule is limited to coverage disputes over the meaning of the policy. I conclude that the California Supreme Court would limit the rule to questions of law. Thus, I would reverse the district court’s grant of summary judgment to Allstate on Guebara’s bad faith claims and remand them for trial. Alternatively, I would certify whether the “genuine issue” rule applies to factual disputes concerning coverage under California law to the California Supreme Court.
What is at stake is not whether Guebara ultimately should prevail on her bad faith claims, but rather whether she has raised genuine issues that should be decided by the jury.1 Under the rule the majority *998would adopt as California law, whenever a factual dispute is advanced, whether real or debatable or even “manufactured” by the insurer, the insured is foreclosed from presenting to a jury her bad faith claim.
The facts in this case are admittedly messy, but all the more reason to let the jury decide. The record here contains evidence, when viewed in the light most favorable to Guebara, that is sufficient to withstand summary judgment. Allstate did almost nothing to investigate Gue-bara’s claim after August of 1995; Allstate did not deny Guebara’s claim until she filed suit, sixteen months after the fire; and Allstate paid Guebara’s sister for her share of the structure claim, despite refusing to pay Guebara and asserting that Guebara’s fraud voided the entire policy. Allstate had a duty to investigate fully Guebara’s claim in a timely manner, even if it believed that she had made a fraudulent claim. At a minimum, the evidence in the record at least presents a genuine question as to whether Allstate fulfilled its duty.2 Cf Tomaselli v. Transamerica Ins. Co., 25 Cal.App.4th 1269, 1282, 31 Cal. Rptr.2d 433, 441 (1994) (“Of course [the insurer] denies its investigation or claims handling were in bad faith, and posits innocent explanations for each of the indicia of bad faith cited by [the insured]. While these charges and counter-charges demonstrate that the evidence can be viewed differently, they also demonstrate that the issue was one for the jury to decide, and that either determination would find adequate evidentiary support.”) (upholding jury finding of bad faith as supported by substantial evidence).
Under California law, every contract contains an implied covenant of good faith and fair dealing that requires each party to the contract to act in a manner not to injure the rights of the other to receive the benefits of the agreement. Kransco v. Am. Empire Surplus Lines Ins. Co., 23 Cal.4th 390, -, 97 Cal.Rptr .2d 151, 158, 2 P.3d 1, 8 (2000). Since insurance policies are contracts, they contain the implied covenant. Id. Central to the inquiry for determining whether an insurer has violated the implied covenant is whether the insurer has processed an insured’s claim under a policy in a reasonable manner. See, e.g., Gourley v. State Farm Mut. Auto. Ins. Co., 53 Cal.3d 121, 127, 3 Cal.Rptr.2d 666, 669, 822 P.2d 374, 378 (1991) (in bank) (“The substance of a bad faith action in these first party matters is the insurer’s unreasonable refusal to pay benefits under the policy.”); Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 574, 108 Cal.Rptr. 480, 485, 510 P.2d 1032, 1038 (1973) (in bank) (holding that “when the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability” for violation of the implied covenant of good faith and fair dealing).
On an insurer’s motion for summary judgment seeking denial of an insured’s bad faith claim, the district court applying California law views the evidence in the light most favorable to the insured. If there are any genuine issues concerning the reasonableness of the insurer’s deal*999ings with the insured, summary judgment for the insurer is improper. See, e.g., Ward v. Allstate Ins. Co., 964 F.Supp. 307, 312-13 (C.D.Cal.1997); Bornstein v. J.C. Penney Life Ins. Co., 946 F.Supp. 814, 821 (C.D.Cal.1996). Cf. McCormick v. Sentinel Life Ins. Co., 153 Cal.App.3d 1030, 1037-50, 200 Cal.Rptr. 732, 735-5 (1984).
I agree that under the “genuine issue” rule, a district court “can conclude as a matter of law that an insurer’s denial of a claim is not unreasonable, so long as there existed a genuine issue as to the insurer’s liability.” Am. Cas. Co. v. Krieger, 181 F.3d 1113, 1123 (9th Cir.1999) (quoting Lunsford v. Am. Guar. & Liab. Ins. Co., 18 F.3d 653, 656 (9th Cir.1994)) (internal quotation marks omitted). We have always understood that to mean uncertainty as to applicable law. In all of the prior cases in which we- have applied the rule, we found the existence of a “genuine issue” only when there was a question concerning an insurer’s liability under California law. See, e.g., id.; Lunsford, 18 F.3d at 656; Brinderson-Newberg Joint Venture v. Pac. Erectors, Inc., 971 F.2d 272, 283 (9th Cir.1992); Franceschi v. Am. Motorists Ins. Co., 852 F.2d 1217, 1220 (9th Cir. 1988); Hanson v. Prudential Ins. Co., 783 F.2d 762, 766 (9th Cir.1985); Safeco Ins. Co. v. Guyton, 692 F.2d 551, 557 (9th Cir.1982). Similarly, California courts adopting and applying the “genuine issue” rule have applied it to coverage disputes arising from questions of law, see, e.g., Filippo Indus., Inc. v. Sun Ins. Co., 74 Cal.App.4th 1429, 1438, 88 Cal.Rptr.2d 881, 887 (1999); Tomaselli, 25 Cal.App.4th at 1282, 31 Cal.Rptr.2d at 440-441; Opsal v. United Servs. Auto. Assoc., 2 Cal.App.4th 1197, 1205, 10 Cal.Rptr .2d 352, 357 (1992).3
Here, the district court granted Allstate’s motion for summary judgment denying Guebara’s bad faith claim because it found “a ‘genuine issue’ as to whether Plaintiff made misrepresentations as to her contents claim.” Guebara v. Allstate Ins. Co., No. 96-1683-B (LSP), at 8 (S.D. Cal. June 4, 1997) (Order Granting in Part and Denying in Part Defendant Allstate’s Motion for Summary Judgment). Thus the district court’s grant of summary judgment was not premised on a dispute concerning a question of law, but rather on a factual dispute. The California Supreme Court has not addressed whether the “genuine issue” rule applies to cases in which the coverage dispute concerns a question of fact.4 Our task, therefore, is to predict how that court would decide this issue .or send it to the California Supreme Court to make the determination.
Although the majority recognizes that the proper focus of our inquiry is predicting how the California Supreme Court would rule on this matter, it relies on a single opinion from one of the California Courts of Appeal. The majority is correct that while we have applied the rule to coverage disputes that turn on questions of *1000California law, we have not explicitly held that the rule is limited to legal disputes. But we have never applied it to factual disputes. The majority relies on some lower federal court opinions that have applied the rule to fact-based coverage disputes. These cases are of limited use. Our inquiry must be what the California Supreme Court would hold.
In general, California law is very protective of the rights of the insured. Insurers are limited to contract remedies if the insured breaches the implied covenant of good faith and fair dealing, while the insured can recover in tort. Kransco, 23 Cal4th at-, 97 Cal.Rptr.2d 151, 158, 2 P.3d at 8. Allowing the insured access to the greater damage awards available in tort “advances the social policy of safeguarding an insured in an inferior bargaining position who contracts for calamity protection, not commercial advantage.” Id. Because the policies underlying an insurer’s duty of good faith and fair dealing are different from those underlying the insured’s correlative duty, the scope of the insurer’s duty and the remedies available to the insured for a breach of that duty are “fundamentally and conceptually distinct” from those of the insurer. Id. at 9, 97 Cal.Rptr.2d at 158. Thus even the insured’s breach of the insurance contract does not excuse the insurer’s duty of good faith and fair dealing. Id. (“[T]he insurer’s duty is unconditional and independent of the performance of [the insured’s] contractual obligations.” (quoting Gruenberg, 108 Cal.Rptr. 480, 510 P.2d at 1040) (emphasis and second alteration in original)).
The insurer’s duty is defined by reference to the terms and conditions of the insurance policy. Id. at 8, 97 Cal.Rptr.2d 151. What insureds seek is protection against risk. In the usual case, “the benefit contracted for by the insured is the availability of money promptly upon the happening of the event insured against, and when an insurer refuses unreasonably to make a payment of the benefits due under the terms of the policy, it deprives the insured of the essential benefit of the agreement.” Austero v. Nat’l Cas. Co., 84 Cal.App.3d 1, 29, 148 Cal.Rptr. 653, 672 (1978), overruled on other grounds by Egan v. Mut. of Omaha Ins. Co., 24 Cal.3d 809, 823 n. 7, 169 Cal.Rptr. 691, 698 n. 7, 620 P.2d 141, 149 n. 7 (1979) (in bank). When an insured makes a claim, the insurer has an affirmative duty to investigate objectively, “inquiring] into possible bases that might support the insured’s claim.... [A]n insurer cannot reasonably and in good faith deny payments to its insured without thoroughly investigating the foundation for its denial.” Egan, 169 Cal.Rptr. 691, 694, 620 P.2d at 145-6. Thus if an insurer fails to properly investigate its insured’s claim, it is subject to liability for breach of the implied covenant of good faith and fair dealing. Id. This is true even if the insurer suspects that the insured’s claim is fraudulent. Id. In addition, an undue delay in processing a claim can be a sufficient basis for a bad faith claim. See McCormick, 200 Cal.Rptr. at 744.
Under the “genuine issue” rule as it should be applied, Guebara’s claims withstand summary judgment: Guebara’s contents claim does not involve a dispute turning on a question of law.5 It is only by extending the “genuine issue” rule to include factual coverage disputes that the majority is able to conclude that Alstate’s investigation was reasonable as a matter of law. We should think seriously about the consequences that will follow from the majority opinion. So long as an insurer can point to disputed facts concerning cover*1001age, value, cause, or a myriad of other factual disputes, it can obtain summary judgment on an insured’s bad faith claim-even if the insured has raised genuine issues of material fact concerning the reasonableness of the insurer’s conduct in processing the claim.
It is essential to keep in mind what this case is and is not about. The case is about whether the existence of a fact-based dispute, real or debatable, is sufficient to support the conclusion that an insurer’s conduct in processing an insured’s claim is reasonable as a matter of law. The record contains evidence that raises genuine issues of material fact concerning the reasonableness of Allstate’s treatment of Gue-bara’s claim. She is entitled to have a jury decide these issues. I would reverse and remand for trial on Guebara’s bad faith claims.

. I note at the outset that the "genuine issue” rule is not well-named. Courts usually speak of "genuine issues” in the context of summary judgment: If a party raises a genuine issue of material fact, summary judgment is inappropriate. See, e.g., Lopez v. Smith, 203 F.3d 1122, 1131 (9th Cir.2000) (en banc). The "genuine issue” rule mandates the opposite result: If an insurer can demonstrate a “genuine issue” as to its liability, a district court *998"can conclude as a matter of law that an insurer’s denial of a claim is not unreasonable” and can grant summary judgment to the insurer. Am. Cas. Co. v. Krieger, 181 F.3d 1113, 1123 (9th Cir.1999) (quoting Lunsford v. Am. Guar. & Liab. Ins. Co., 18 F.3d 653, 656 (9th Cir.1994)). (internal quotation marks omitted). The name of the "genuine issue” rule thus invites confusion with the standard for granting summary judgment.

. The majority asserts that part of Allstate’s delay can be blamed on Guebara’s witnesses who gave statements to Allstate in 1996. Even assuming that this is so, the evidence in the record is still sufficient to raise a genuine issue as to whether Allstate’s handling of Gue-bara’s claim was unreasonable. See McCormick v. Sentinel Life Ins. Co., 153 Cal.App.3d 1030, 1038, 1045, 200 Cal.Rptr. 732, 736, 741 (1984) (denying insurer’s motion for summary judgment on insured's bad faith claim where some of the delay in processing insured's claim could be attributed to insurer, even if some of the delay could also be attributed to insured). It is also worth noting that Allstate took Guebara’s witness statements in 1996 only because Guebara’s attorney demanded that it do so.

. The majority relies on the one exception, a court of appeals decision, Fraley v. Allstate Ins. Co., 81 Cal.App.4th 1282, 97 Cal.Rptr.2d 386 (2000).

. Indeed, the California Supreme Court has not even considered whether the "genuine issue as to coverage” rule is an accurate statement of California law. The rule is of uncertain provenance. We announced the "genuine issue” rule in Safeco Ins. Co. v. Guyton, 692 F.2d 551, 557 (9th Cir.1982), without citing any California authority for the proposition that a genuine coverage dispute may be used as a proxy for reasonableness. There is some question as to whether the California Supreme Court would endorse the rule, even when restricted to coverage disputes arising out of questions of law. In at least one case, the California Supreme Court has held that an insurer's failure to pay a claim where an ambiguity in the insurance policy created a coverage dispute was a violation of the covenant of good faith and fair dealing. See Silberg v. Cal. Life Ins. Co., 11 Cal.3d 452, 460-64, 113 Cal.Rptr. 711, 716-19, 521 P.2d 1103, 1109-12 (1974) (in bank) (construing ambiguous policy language strictly against the insurer, court held that insurer must pay claim since it could obtain reimbursement if coverage was ultimately disproved). Nonetheless, as applied to coverage disputes arising from question of laws, the rule is clearly established in our circuit and is binding on this panel.

. Allstate does raise a genuine legal issue as to whether a fraudulent contents claim voids the entire contract, and thus whether Gue-bara’s alleged fraud voids her structure claim. However, this legal dispute as to coverage is derivative of the factual dispute. If factual disputes do not constitute "genuine issues,” then there is no cognizable legal dispute as to coverage in this case. The majority therefore begs the question when it states that "the dissent’s bright-line rule fails to account for cases such as this one where the genuine disputes are both legal and factual.”