AUGUST 2015 BAD FAITH CASES: DELAY IN PAYMENT OF CLAIM IS NOT A PER SE BASIS TO FIND BAD FAITH; INSURER HAS A RIGHT TO INVESTIGATE CLAIMS (Philadelphia Federal)

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In Great Lakes Reinsurance v. Stephens Gardens, the court addressed allegations of delayed payment, and specific denials of coverage, in granting the insurer’s motion for partial summary judgment.

The insured was in the business of selling aquatic flora and fauna, as well as aquatic designs.  There was a fire that destroyed certain real and personal property, and killed some of the insured’s fish. The insured also sought coverage for salaries paid because the policy covered ordinary payroll expenses for 60 days following the date of direct physical loss or damage, (unless a greater number of days is shown in the Declarations).

One aspect of the bad faith claim was for delay in payment of covered claims. The court stated that:  “An insurer’s delay in settling a claim ‘does not, on its own, necessarily constitute bad faith.’” Courts instead will review “the degree to which a defendant insurer knew that [it] had no reason to deny the [claim].” Thus, a “delay attributable to the uncertainty of the claim’s value or the insurer’s need to investigate further does not constitute bad faith.”

In this case, the insurer’s “delay stemmed from a dispute over the claimed damages and [its] need to investigate further, which does not evidence bad faith.”  There was a dramatic difference in damage estimates for the claimed loss, over $500,000,  andthe companies needed to ‘sort out an agreed scope and estimate’ before [the adjustor] would recommend payment to [the insurer].”Further, the adjustor “stated that she would not recommend payment for property damage until [the insurer] was able to ascertain whether there were liens on the property.”  Thus, the court found there was no evidence showing that the delay arose “from anything other than [the insurer’s] need to investigate further.”

In ruling on the bad faith counts for the insurer’s refusal to cover certain losses, the court focused on the reasonableness of the insurer’s various denials of coverage. It found in each instance of dispute that the insurer’s position was reasonable.  Under the well-established case law, if the insurer’s denial is reasonable, there can be no actionable bad faith.

Specifically, the court found that certain of the fish were not “stock”, which was the only type of fish that could have been covered; that the demands to cover salaries were for wages beyond the 60 day policy period; the insurer’s position rejecting the principal’s claim for his entire salary for a 10 month period as attributable to debris removal was reasonable; the insured did not meet its burden to show claims for shirts it purchased for its sales staff and for accounting fees in connection with the filing of sales tax returns were even covered by the policy; the insured did not provide the insurer with sufficient documentation on a plant loss claim; ambiguous testimony resulted in the court finding that a claimed loss for a shed had in fact been paid; that certain rocks remained salable after the fire; and there was no documentation to support the insured’s claim for loss of computer hardware.

Date of Decision: August 3, 2015

Great Lakes Reinsurance (UK) PLC v. Stephens Garden Creations, CIVIL ACTION NO. 14-539, 2015 U.S. Dist. LEXIS 100827 (E.D. Pa. August 3, 2015) (Dubois, J.)

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