A California Court of Appeal has upheld a bad faith verdict against an insurer, finding no error in the trial court’s refusal to give certain jury instructions. McCoy v. Progressive West Ins. Co. (2009) (publication pending).
The parties agreed that the jury would be given certain form instructions regarding the insured’s bad faith claim. The court instructed the jury with CACI 2331-32, which state that the insured must prove that the insurer “unreasonably failed to pay policy benefits” and “unreasonably failed to properly investigate the loss and denied coverage/failed to pay insurance benefits.”
The insurer also asked the trial judge to give certain special instructions patterned after statements in the case law concerning the “genuine dispute” doctrine. Specifically, the insurer proposed an instruction that read, “When an insurer denies or delays payment of policy benefits due to the existence of a genuine dispute with its insured as to the existence of coverage liability, the insurance company will not be liable in bad faith even though it may be liable for breach of contract.”
The insurer also asked for an instruction that read, “In determining whether or not an insurance company had a genuine dispute as to whether or not a loss was covered, you may consider among the following: (1) Whether the insurance company was guilty of misrepresenting the nature of the investigation; (2) Whether the insurance company adjusters and investigators lied during their depositions or to the insured; (3) Whether the insurance company dishonestly selected its experts; (4) Whether the insurance company experts were unreasonable; and, (5) Whether the insurance company failed to conduct a thorough investigation.”
The trial court refused to give the special instructions, and the Court of Appeal affirmed. The appellate court determined that while the “genuine dispute” doctrine has often been employed by courts as an analytical aid when determining whether a bad faith claim may fail as a matter of law, there was no known precedent for instructing a jury on what constitutes a “genuine dispute” and the consequence of a “genuine dispute” to an insured’s bad faith claim. The court held that the requested special instructions were “subsumed within the concept of what is reasonable and unreasonable” and that once the court gave the form instructions “on the issue of reasonableness…no further instruction in this regard was necessary.”
A “genuine dispute” is simply the opposite of an unreasonable withholding of policy benefits. Thus, the court was correct that when a jury is asked to make a finding as to whether the insurer unreasonably withheld policy benefits, the answer to that question will subsume the question of whether there was a genuine dispute. However, form instructions are not always adequate to guide the jury on what constitutes unreasonableness. Because the courts have often defined unreasonableness by contrast to what is reasonable (i.e., by contrast to what constitutes a genuine dispute), the case law concerning the genuine dispute doctrine provides a wealth of guidance that should not be restricted to judges. Juries should have the benefit of that guidance too.
In the wake of McCoy, however, it will be important for insurers to fashion special instructions that present the issue as “unreasonableness” rather than “genuine dispute.” The instruction rejected in McCoy might have passed muster had it begun, “In determining whether or not an insurance company unreasonably failed to pay policy benefits, you may consider….” So long as the issue to be decided is not confused, special instructions regarding bad faith claims should not be foreclosed by McCoy.