The Genuine Dispute Doctrine
Insurers in states where the tort of bad faith exists deny fraudulent insurance claims with fear and trembling. The specter of punitive damages has worked to make multi-millionaires of many insurance criminals who convince insurers to settle rather than take a chance on trial. Insurers pay claims they believe they do not owe because they are fearful—regardless of the merits of their position—of being assessed punitive damages in a bad faith action.
The fear is not well placed if the suspected fraudulent claim or non-covered loss is denied based upon a fair and thorough investigation, an intelligent review of the facts as they relate to the policy wording, and a reasonable application of the law of the jurisdiction. If, after a fair and thorough investigation, an insurer believes that a fraud is being attempted or that the loss is not covered by the policy wording, the dispute between the insurer and the insured is one of fact not tort and the insured is limited to recovery of contract damages.
If the insurer has done its work properly before denying a claim it should never be held liable for breach of the covenant of good faith and fair dealing. Tort and punitive damages allegations should be eliminated as a matter of law.
In Guebara v. Allstate Insurance Co., 237 F. 3d 987 (9th Cir. 2001), Allstate believed, from its investigation that Guebara had attempted fraud. The Ninth Circuit Court of Appeal held:
The genuine dispute in this case was not purely factual. The genuine dispute as to the contents claims was based on factual evidence—three expert opinions, inconsistent testimony by Guebara and her witnesses, and desperate financial circumstances. The genuine dispute as to the structure claim, however, was based on the fraud language in the policy and on an unsettled issue in California insurance law.
© 2020 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.
Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts