The Genuine Dispute Doctrine
The genuine dispute doctrine is being raised as a defense to bad faith claims in most individual disability cases. The disability carriers argue that even if their decision to deny disability payments is ultimately proved wrong, there was a genuine basis for the claims decision. This genuine basis (such as a report from an "independent medical examiner") created a "genuine dispute" between the carrier and the policy holder. The carriers argue that their denial of benefits can not be considered a breach of the covenant of good faith and fair dealing.
Under diversity of citizenship rules, many individual disability bad faith lawsuits are removed to Federal Court for determination. The Ninth Circuit has held that the genuine dispute doctrine can support a summary judgment ruling in cases involving purely factual disputes, it has avoided applying the doctrine to all factual disputes, "...we hold that the genuine dispute doctrine should be applied on a case-by-case basis. In some cases, the application of the rule to purely factual disputes will be inappropriate." Guebara v. Allstate Ins. Co., 237 F.3d 987, 994 (9th Cir. 2001) While the genuine dispute doctrine was found to support a summary judgment ruling in Guebara, the factual dispute in that case was significantly different than in a disability case. In Guebara, the insurer disputed the plaintiff's fire loss claim based upon three independent fire investigations and other suspicious factors including the plaintiff's inconsistent statements. Guebara v. Allstate Ins. Co., supra, 237 F.3d at 995.
Similarly, the other authorities usually relied upon by disability carriers for application of the genuine dispute doctrine are based on disputes of a vastly different type than the disagreement between independent medical evaluators and policy holders attending physician. See, Lundford v. American Guarantee & Liability Ins. Co., 18 F.3d 653 (9th Cir. 1994), [dispute over coverage based on reasonable interpretation of policy language]; Franceschi v. American Motorists Ins. Co., 852 F.2d 1217 (9th Cir. 1988, [insurer's interpretation of terms in the policy not arbitrary or unreasonable]; ], Chateaux Chamberay Homeowners Assoc. v. Associated International Insurance Co., 90 Cal.App.4th 335 (2001), [insurer's dispute over the value of a claim for damages to the common area was not unreasonable where plaintiff attempted to get insurer to pay for substantial amount of repairs not covered under the policy. Plaintiff's only evidence of bad faith offered in response to motion for summary judgment was a two page declaration from its expert expressing a conclusory opinion that insurer acted in bad faith.] In each of the case law citations usually relied upon by disability carriers the relevant opinions were made by persons equally qualified as those who made the contrary opinions in favor of the insured's. In contrast, in disability cases the carrier is usually comparing the treating physician with an independent medical examiner. The treating physician is typically vastly more qualified to opine on policy holder's condition and ability to handle the usual and customary duties of their own occupation than the disability carriers independent medical evaluators. Under these circumstances, a strong argument can be made that the carrier should not be able to rely upon the genuine dispute doctrine to support the reasonableness of its decision to terminate policy holders benefits as a matter of law.Moreover, the genuine dispute doctrine is inapplicable to cases where there is evidence that the carrier's investigation of policy holder's claim was biased. As the court stated in Guebara, "[o]ur decision does not eliminate bad faith claims based on an insurer's allegedly biased investigations. Expert testimony does not automatically insulate insurers from bad faith claims based on biased investigations." Guebara v. Allstate Ins. Co., supra, 237 F.3d at 996. The Ninth circuit then identified a non-exhaustive list of circumstances where bad faith claims based on biased investigations could only be decided by a jury, including situations wherein: a) the insurer dishonestly selected its experts; b) the insurer's experts were unreasonable; and c) the insurer failed to conduct a thorough investigation. Id