The Paslays sued State Farm for failing to pay a portion of the damage caused to their Pacific Palisades house by a heavy rainstorm and for forcing them to move back into the house while it was still under construction. The complaint asserted claims for breach of insurance contract, bad faith, punitive damages and financial elder abuse under California’s Welfare and Institutions Code. State Farm brought a motion for summary judgment, arguing that it paid all of the benefits due under the policy, and even if it did not, there was a genuine dispute regarding the benefits owed, and therefore State Farm’s conduct was reasonable.

The trial court agreed and granted summary judgment, dismissing the case. On appeal, the court reversed and remanded the claim for breach of contract, but otherwise affirmed the rulings on bad faith, punitive damages and elder abuse. The evidence was disputed regarding whether State Farm failed to do necessary repairs in the master bathroom and whether the drywall ceilings needed to be replaced. The court therefore found triable issues of fact concerning full payment of policy benefits.

Nevertheless, the court concluded that these disputed issues did not constitute bad faith. The undisputed evidence showed that State Farm’s estimator promptly examined the master bathroom and drywall ceilings, assessed the extent and the type of damage, and estimated the cost of appropriate repairs. The Paslays then ripped out the bedroom ceiling and took the bathroom walls down to the studs, preventing State Farm from conducting any further investigation. State Farm promptly paid the undisputed portion of the loss, but would not pay for additional repairs beyond the scope of repair determined by its estimator. The court found that the disputed items of damage qualified as a “genuine dispute” foreclosing bad faith. The court also found no basis for punitive damages under California’s higher evidentiary standard requiring “clear and convincing evidence.”

Mrs. Paslay also sued for elder abuse (she was 80 years old at the time of the loss, although Mr. Paslay was only 60). California prohibits financial abuse of a person over the age of 65. “Financial abuse” is broadly defined as when a person or entity “takes, secretes, appropriates, obtains or retains real or personal property of an elder” with an intent to defraud or for a wrongful use. The statute further requires that the party sued either knew or should have known that this conduct was likely to be harmful to the elder. Because there was a genuine dispute regarding the payment of additional policy benefits, the court concluded that the scienter or “knowledge” requirement in the statute could not be met.

The court’s opinion suggests that two additional facts may have played a part in the decision: First, Mr. Paslay had worked as a claims adjuster and appeared very knowledgeable about the claims process. Second, the Paslays ripped out the bathroom walls and bedroom ceiling before State Farm had any further opportunity to investigate. The court also commented on State Farm’s quick response and prompt payment of undisputed amounts. In fact-intensive first party property losses, these sorts of details can be pivotal in the court’s eventual determination that there is no bad faith or punitive damages.