Professional Negligence Law Reporter

A federal district court held that an insurer was not liable for bad faith where a genuine dispute existed regarding the value of an insured’s claim.

Esai Diaz, who had an automobile insurance policy with Allstate Northbrook Indemnity Co., was involved in a rear-end collision. Diaz hired an attorney and made a claim to the other driver’s liability insurer. Additionally, Diaz submitted medical records and bills to Allstate for payment under his medical payment coverage. Allstate retained a physician to perform an independent medical examination and, based on the report, paid Diaz $1,450 for three months of conservative treatment. Diaz, who settled with the driver’s insurer for $15,000, then demanded $150,000 in underinsured (UIM) benefits from Allstate. After an evaluation, Allstate concluded that Diaz had been fully compensated and was not entitled to UIM benefits. The parties went to arbitration, and the arbitrator awarded Diaz $23,500, which Allstate paid.

Diaz sued Allstate, alleging breach of contract and breach of the implied covenant of good faith and fair dealing. The defendant moved for summary judgment.

Granting the motion, the district court found that under California law, there is no breach of contract when an insurer pays an arbitration award or the relevant policy limit. Here, the court said, the defendant paid the full arbitration award and cannot therefore be liable for breach of contract.

Turning to the bad faith issue, the court found that the determinative factor under applicable case law is whether the refusal to pay policy benefits was unreasonable. The defendant here has established there was a genuine issue regarding the value of the plaintiff’s UIM claim, particularly the nature and extent of the claimed injuries. Thus, the court held that the defendant’s delay in payment was justified, and summary judgment on this issue was warranted.

Citation: Diaz v. Allstate Northbrook Indem. Co., 2023 WL 5242505 (S.D. Cal. Aug. 15, 2023).