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August 2016

Bad Faith and Elder Abuse Claims Barred by Genuine Dispute Over Cause of Damage

On June 27, 2016, in Paslay v. State Farm General Ins. Co. (2016) 2016 Cal.App. LEXIS 511, the California Court of Appeal, Second Appellate District, affirmed judgment for an insurer on claims of bad faith and elder abuse under the genuine dispute doctrine. The court found there was a genuine dispute as to the extent of covered damage and required repairs.

The insureds’ home had sustained damage when a roof drain failed during heavy rain allowing water to enter through the master bedroom ceiling and damage other parts of the house. State Farm arranged for the insureds to live in a rented residence, retained a general contractor to assist with its investigation, promptly paid the undisputed portion of the claim with respect to repairs, and continued to evaluate submissions from the insureds and made additional payments. State Farm paid more than $248,000 to the insureds, including $122,770.98 for repairs to the house based on its general contractor’s estimates.

State Farm’s adjuster and general contractor conducted an initial inspection of the insureds' residence during which the adjuster noted some wallpaper separating from a master bathroom wall. The insured raised concerns of possible mold development and advised that his contractor wanted to remove drywall ceilings throughout the house to abate asbestos. The insureds retained an asbestos abatement subcontractor to do so without submitting an estimate or proposal to State Farm for approval.

State Farm’s general contractor estimated the cost of water damage repairs at approximately $83,000, which included the repair of peeling wallpaper in the master bathroom, the damage noted before the insured reduced the master bathroom to its studs. State Farm’s general contractor also allowed an additional $4,200 to install hard-wired smoke detectors under the building code upgrade coverage.

The insureds submitted a repair estimate of $262,234 (which was later revised to $349,589) that included a scope of repair determined by the insureds, not a licensed general contractor. State Farm disputed that additional repairs to the master bathroom, replacement of certain drywall ceilings and a new electrical panel were necessary and/or required due to the water intrusion in the master bedroom.

The insureds sued State Farm for breach of contract, bad faith and elder abuse alleging State Farm’s refusal to pay for all repairs was in bad faith. The insureds also alleged that, by forcing them to move back into their house while still under construction, State Farm committed elder abuse because one of the insureds was 80 years old.

State Farm moved for summary judgment arguing there were no triable issues of whether it provided all policy benefits due to the insureds. State Farm contended the bad faith claim failed under the genuine dispute doctrine. Based on the lack of breach of contract or bad faith, State Farm sought summary adjudication on the elder abuse and punitive damages claims. The trial court granted summary judgment to State Farm. The insureds appealed.

The Court of Appeal reversed the breach of contract outcome but affirmed the trial court’s rulings for State Farm on the bad faith and elder abuse claims. As to covered repairs, the Court of Appeal stated “the record discloses only a genuine dispute regarding the extent of the damage and required repairs [and] ‘[w]here the parties rely on expert opinions, even a substantial disparity in estimates for the scope and cost of repairs does not, by itself, suggest the insurer acted in bad faith’.” (Citing Farley v. Allstate Ins. Co. (2008) 81 Cal.App.4th 1282, 1293.)

The Court of Appeal concluded State Farm’s expert promptly examined the master bathroom and drywall ceilings, assessed the extent and type of damage and estimated the costs of appropriate repairs. The Court of Appeal found no triable issue because the insureds prevented State Farm from investigating the damage in the master bathroom and to the ceilings by removing them before State Farm could conduct a full assessment of the insureds’ claim. Even if State Farm’s positions were incorrect, the Court of Appeal found that “nothing suggests that State Farm acted in bad faith”.

The Court of Appeal rejected the elder abuse claim because there was no triable issue whether State Farm’s incorrect denial of policy funds constituted a “wrongful use” within the meaning of the elder abuse statue. There was no evidence “State Farm acted in subjective bad faith or unreasonably in denying additional benefits.”

Click here for the opinion.

This opinion is not final. It may be withdrawn from publication, modified on rehearing, or review may be granted by the California Supreme Court. These events would render the opinion unavailable for use as legal authority in California state courts.

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Jennifer J. Kellar