Insurance companies often defend claim denials by arguing there was a legitimate and reasonable dispute over whether a policy covered the loss or whether benefits were owed. In California, that principle is commonly known as the Genuine Dispute Doctrine.
In other words, an insurance company generally cannot be held liable for bad faith if it reasonably disagreed about the claim. But that protection has limits.
A recent California Court of Appeal decision in Levon Nargizyan v. State Farm General Insurance Company (2026) examines the limits of the Genuine Dispute Doctrine and explains when an insurer may still face a bad faith lawsuit despite relying on an expert opinion.
Although the case involved a homeowners’ insurance policy, its reasoning provides valuable guidance for insurance bad faith litigation across many types of claims, including personal injury cases.
How the Insurance Dispute Began
The case began after a homeowner noticed unusually warm kitchen floor tiles. After investigating, he discovered that a hot water pipe beneath the home was actively spraying water into the crawl space, damaging the framing and subfloor.
The homeowner immediately documented the active leak with video, hired a plumber to stop the water, and retained a restoration company to begin drying the property. The homeowner then submitted a claim to State Farm under his homeowners insurance policy.
A State Farm claims specialist inspected the property, reviewed the video, and initially concluded that the damage appeared consistent with a sudden leak that would likely be covered under the policy.
The case, however, took a different direction.
How the Expert Report Changed the Claim Decision
State Farm later expanded its investigation by retaining an outside engineering firm to inspect the damaged pipe.
The engineer reported that a small pinhole leak had developed from an old screw puncture that gradually corroded over time. Relying largely on that opinion, State Farm denied the claim under its policy exclusion for continuous or repeated seepage or leakage.
The homeowner filed a lawsuit against State Farm, alleging both breach of contract and insurance bad faith.
State Farm argued that it could not be liable because its decision was protected by California’s Genuine Dispute Doctrine. According to the insurer, it reasonably relied on an independent engineering expert when denying coverage.
The trial court agreed and dismissed the homeowner’s bad faith claims.
Why the Court of Appeal Reversed
The California Court of Appeal reached a different conclusion.
The Court of Appeal explained that the Genuine Dispute Doctrine does not automatically protect an insurer simply because it obtained an expert opinion supporting its coverage position. Instead, insurers must still conduct a proper evaluation of evidence before denying a claim.
If there is evidence that the investigation was incomplete or unreasonable, bad faith claims may still be decided by a jury.
Why the Court Found Evidence of Possible Bad Faith
The Court of Appeal found there was enough evidence for a jury to decide whether State Farm acted reasonably. The court reached that conclusion for several reasons:
The Expert Could Not Determine Critical Facts
During his deposition, State Farm’s engineering expert acknowledged that he could not determine when the leak began, how long it had existed, or how quickly water had escaped from the pipe.
Despite those uncertainties, State Farm relied heavily on the engineer’s opinion when concluding that the damage resulted from long-term leakage excluded by the policy.
Other Evidence Potentially Points in a Different Direction
The court also noted evidence that could support a different conclusion.
During the trial court proceedings, the homeowner presented competing evidence challenging State Farm’s conclusions. Testimony suggested there was little or no mold, wood rot, or other damage commonly associated with a prolonged leak. The homeowner also offered evidence questioning whether a screw or nail actually caused the leak and presented an alternative explanation for the pinhole, raising additional factual questions about the insurer’s investigation.
The Court of Appeal also noted that State Farm retained the engineering firm only after its own claims specialist had initially concluded the loss appeared to be covered. A jury could consider that sequence of events, along with the competing evidence presented by the homeowner, when deciding whether the investigation was fair and reasonable.
Because reasonable jurors could disagree about whether State Farm conducted a complete investigation, the Court of Appeal held that summary judgment was improper.
The court also reinstated the homeowner’s punitive damages claim, allowing that issue to proceed with the bad faith lawsuit.
What This Decision Means for Insurance Bad Faith Cases
The Nargizyan decision reinforces two important principles: insurers may rely on expert opinions, but those opinions do not replace the obligation to conduct an objective investigation.
The Court of Appeal reinforced that insurers cannot satisfy their duty of good faith simply by hiring an expert whose opinion supports denying coverage. A retained expert is only one part of the investigation.
Insurance companies remain obligated to:
- Conduct a proper claims investigation.
- Consider all relevant evidence, including facts that may support coverage.
- Evaluate conflicting evidence rather than relying only on favorable opinions.
- Base claim decisions on evidence rather than unsupported assumptions or speculation.
The Genuine Dispute Doctrine protects reasonable claim decisions, but it does not excuse an insurer from conducting a fair and thorough investigation.
Why Personal Injury Lawyers Should Pay Attention
Although Nargizyan arose from a property damage claim, the court’s reasoning has broader implications for personal injury bad faith litigation.
Liability insurers frequently rely on physicians, accident reconstruction experts, engineers, and other specialists when evaluating injury claims. When a claim is denied or undervalued, attorneys should carefully examine not only the expert’s conclusions, but also whether the insurer fairly investigated conflicting medical records, treating physician opinions, and other available evidence.
When evaluating whether an insurer acted in bad faith, important questions may include:
- Did the insurer consider all available medical evidence?
- Did it investigate conflicting opinions before denying or minimizing the claim?
- Was the expert’s opinion supported by the underlying facts?
- Did the insurer objectively evaluate the entire record, or only the evidence supporting its preferred outcome?
These are the types of factual issues that may ultimately belong before a jury rather than being resolved through summary judgment.
The same concerns frequently arise in uninsured and underinsured motorist (UM/UIM) claims, where your own insurance company may deny or undervalue benefits based on its investigation. If you’ve received a denial from your insurer, our guide on How to Handle a Denied Uninsured or Underinsured Motorist Claim explains the steps you can take and how to recognize potential bad faith conduct.
The Bottom Line
The decision reminds insurers that the quality of their investigation—not simply the existence of expert support—may determine whether the Genuine Dispute Doctrine applies. It also reminds policyholders and their attorneys that bad faith claims often turn on the quality of the insurer’s investigation—not simply the conclusions reached by its retained experts.
When the evidence suggests an insurer ignored conflicting facts or relied on unsupported opinions, those issues may belong before a jury rather than being dismissed before trial.
