Failure of Genuine Dispute Doctrine or Just Poor Adjusting

Summary Judgment Improper When Evidence Disputes Good Faith Investigation

The insurance industry often finds itself a defendant in breach of contract and bad faith lawsuits because they use inadequate, incompetent or poorly trained insurance adjusters and by the failure to properly instruct experts retained to help in the evaluation of a claim that requires expert advice. State Farm found itself in such a situation in a claim that resulted from a single claim of smoke damage from a wildfire event.

Leonard and Patricia Fadeeff’s home and personal property were damaged by the 2015 Valley Fire that swept across a wide swath of northern California. The trial court granted State Farm’s motion for summary judgment. The California Court of Appeal reversed the summary judgment in Leonard Fadeeff, et al. v. State Farm General Insurance Co., A155691, Court Of Appeal Of The State Of California First Appellate District Division Two (June 8, 2020)


Their insurer, State Farm General Insurance Company (State Farm), paid for cleaning, repairs and some living expenses, but denied the Fadeeffs’ supplemental demand for policy benefits for additional repairs and contents replacement.

The Fadeeffs sued State Farm for breaching the implied covenant of good faith and fair dealing in their property policy, commonly known as insurance bad faith, and sought punitive damages.

The Fadeeffs’ home in Hidden Valley Lake, California was insured under a State Farm homeowners’ policy that covered building loss and personal property. In September 2015, the Valley Fire in Lake County caused smoke damage to the Fadeeffs’ property, which they timely reported. With State Farm’s approval, the Fadeeffs retained ServPro to assist with smoke and soot mitigation and cleaning. State Farm “call[ed] the shots” with respect to what ServPro could do in connection with the Fadeeffs’ claim. ServPro power washed the exterior siding of the home to clean smoke, soot and ash.

State Farm’s file notes from its independent adjuster Greg Gannaway state that the home was “well maintained with no apparent deferred maintenance” and that “[a]ll damage is related to smoke and soot.” State Farm found smoke and soot on the interior walls, ceilings and carpeting, and on all exterior elevations including on the very large deck and handrail.

The Fadeeffs hired a public adjuster and submitted supplemental claims for further dwelling repairs and additional contents replacement in January 2016, totaling approximately $75,000. State Farm used a different independent adjuster (James Carpenter) to investigate the supplemental claims. Carpenter is not a licensed adjuster in California, nor is he licensed in any building trade. He inspected the Fadeeffs’ property in March 2016 and stated he could not find smoke damage.

In connection with the supplemental claims, State Farm retained Forensic Analytical Consulting Services (FACS) to inspect the Fadeeffs’ home and a company called HVACi to inspect the Fadeeffs’ HVAC system. State Farm has an internal “Operations Guide” for the use of third-party experts in handling first party claims. It requires that adjusters prepare a written referral letter to the third-party expert that “provide[s] clear and concise instructions, and list[s] the specific question(s) to be addressed by the independent expert.” The Operations Guide was not followed.

FACS took only surface samples from the Fadeeffs’ home. The FACS report noted other “sources of combustion” at the Fadeeffs’ property. Brinkerhoff testified that he never asked the Fadeeffs when they had last used any of these sources of combustion. The FACS and HVACi reports supported Carpenter’s conclusion to deny those portions of the supplemental claims they addressed. State Farm sent a letter dated April 25, 2016, to the Fadeeffs’ public adjuster denying all of the supplemental claims and included copies of the two reports.


For a defendant to prevail on a motion for summary judgment, it must show that at least one element of plaintiff’s cause of action cannot be established, or the defendant has an affirmative defense.

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. Ordinarily, reasonableness is a factual issue to be decided by a jury.

An insurer is only entitled to summary judgment based on a genuine dispute over coverage or the value of the insured’s claim only 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.

In Guebara v. Allstate Ins. Co. [(9th Cir. 2001)] 237 F.3d [987,] 994) the Ninth Circuit issued a caveat that an expert’s testimony will not automatically” insulate an insurer from a bad faith claim based on a biased investigation. It suggested several circumstances where a biased investigation claim should go to jury: (1) the insurer was guilty of misrepresenting the nature of the investigatory proceedings . . .; (2) the insurer’s employee’s lied during the depositions or to the insured; (3) the insurer dishonestly selected its experts; (4) the insurer’s experts were unreasonable; and (5) the insurer failed to conduct a thorough investigation. In essence, the dispute must be genuine. An insurer cannot claim the benefit of the genuine dispute doctrine based on an investigation or evaluation of the insured’s claim that is not full, fair and thorough.

State Farm did not dispute that it denied coverage for the exterior paint based on its unlicensed adjuster, Mr. Carpenter’s conclusion that the damage was due to wear, tear and deterioration. State Farm’s reliance on Carpenter undermined its argument that it reasonably relied on experts in denying the Fadeeffs’ claim. State Farm’s argument is unavailing because nothing in the FACS report or Brinkerhoff’s declaration refers to peeling or chipped exterior paint or wear, tear or deterioration.

There are other disputed facts that make summary judgment inappropriate on similar grounds. State Farm denied coverage for the “wallpaper and . . . carpet” aspect of the supplemental claim based on adjuster Carpenter’s conclusion that the damage was due to wear, tear and deterioration. Although Carpenter had no special expert qualifications to make a judgment about wear and tear of the linen wall covering, State Farm denied coverage for the wall covering based on the conclusion of its unlicensed adjuster.

Adjuster Carpenter retained FACS as a third-party expert. He was unaware of State Farm’s operational guide regarding the use of third party experts, and issued a retention letter to FACS that did not (contrary to the guide) provide clear and concise instructions and list the specific questions to be addressed.


Although the opinion, on the surface, appears to weaken the effect of the genuine dispute doctrine by reversing the trial court, it does no such thing. It reversed the summary judgment because the second adjuster working on the file who worked without a California license, was not trained about State Farm’s Operations Guide,  and had no specific expertise on property damage, was relied upon by State Farm to deny, at least part of,  the Fadeeff’s supplemental claim on the adjuster’s opinion and not the opinions of the experts.  In addition, the experts relied upon were not properly instructed in accordance with State Farm’s own requirements. Use of, and reliance upon, an unlicensed independent adjuster who contradicted the work of a licensed independent adjuster resulted in a claim denial that probably should never have happened. A catastrophic fire coupled with an inadequate adjuster, inadequately instructed experts and inadequate investigation relied upon by State Farm deprived State Farm of its genuine dispute defense and reflected a failure to thoroughly and fairly adjust the claim.

© 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 and

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.

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