• Cummins & White successfully defended an insurance company (representing it through the claim process, appraisal, trial, and appeal) charged with bad faith in a dispute over losses claimed by a condominium HOA following the Northridge earthquake.
  • The trial court agreed that the insurer was not liable for bad faith due to its reliance on expert opinion and the existence of a “genuine dispute” about what losses were covered.
  • Mr. Arnold and Ms. Harris then successfully navigated the case through the appeals process, emerging victorious when the California Court of Appeals affirmed entry of summary adjudication in favor of the insurance company.
  • This landmark insurance decision expanded the “legitimate dispute doctrine” in bad faith cases to factual disputes—or differences only in the amount to be paid. This doctrine has become a first line of defense relied on by insurance companies that have been sued for insurance bad faith in California (cited more than 100 times).

Case Study

Larry Arnold and Annabelle Harris of Cummins & White, LLP, successfully defended an insurance company in trial court and a subsequent appeal in a bad faith case arising out of the manner in which the insurer handled a claim following the Northridge earthquake. A condominium homeowners association brought action because it could not agree with the insurance company about what damages were covered under its policy—a difference of more than $3.8 million.

Background/Legal Strategy

Larry Arnold and Annabelle Harris of Cummins & White, LLP, represented the insurance company throughout the process, including the claims investigation, appraisal, trial, and appeal.

In trial court, Mr. Arnold and Ms. Harris submitted substantial evidence and brought a motion for summary judgment on the insured’s bad faith claim, citing its work with experts who provided opinions about the earthquake damage and cost of repair. They argued that the company acted in good faith and that there was a “genuine dispute” about the damages that were covered.

Based on this evidence, the trial court determined that the insurance company could not be found liable in bad faith for its adjustment activities and the resulting delayed payment of the claim and granted the motion for summary judgment.

The HOA appealed, charging it had been improperly denied a jury trial, and that the opinions expressed by its expert about the losses were sufficient evidence to raise triable issues of fact that could not be resolved on a motion for summary judgment.

As part of the appeals process, Mr. Arnold and Ms. Harris argued that the essential or underlying facts were not in dispute, and that the insurance company’s position about coverage under the policy, as well as its estimate of the value of HOA’s covered losses, was reasonable. They contended that, at the very least, there was a legitimate dispute between the parties as to these issues and therefore the insurance company could not be held liable for bad faith.

Appellate Court Opinion

In June 2001, the Court of Appeal for the Fourth District issued an opinion rejecting the HOA’s claim that the trial court had erred in its decision, and issued an opinion supporting the doctrine of genuine dispute. (The opinion—Chateau Chamberay Homeowners Association vs. Associated International Insurance Company (2001) 90 Cal.App.4th 335, 108 Cal.Rptr.2d 776.)

Key points of the decision included:

  • Summary judgment is granted when no triable issue exists as to any material fact and the moving party is entitled to judgment as a matter of law.
  • The insurance company presented evidence showing that there was a genuine dispute with the HOA as to what was covered under the policy.
  • To establish bad faith it must be shown that the insurer acted unreasonably or without proper cause.


According to Mr. Arnold, the victory confirmed the notion that an insurance company’s erroneous failure to pay as long as it had a legitimate basis upon which it based its decision—does not constitute bad faith on the part of the company.

“This landmark decision confirms the position that if there is a genuine dispute, the insurance company can not be held liable for bad faith,” he said. “As a leader in insurance law, Cummins & White has been involved with many cases that have impacted the insurance industry.”