In Becker v. Farmington Casualty Company, the insured’s husband sexually molested her grandchild while the grandchild was being babysat by the insured at her house.  The only claim against the insured was a claim of negligence, with the allegation being that her negligent acts or omissions allowed her husband to commit the acts of molestation.

The insured contacted the insurer, asking it to defend and indemnify her under her homeowner’s policy, which generally covered personal liabilities sounding in negligence.  The insurer denied coverage, citing three reasons for denial under the contract:  (1) the heart of the suit was intentional harm committed by one of the insureds, (2) claims linked to sexual molestation were specifically excluded from coverage, and (3) the nature of the victim’s injury was emotional or psychological.  The insured then filed suit, alleging breach of contract and bad faith by the insurer in denying coverage.

The court only had to find in favor of the insurer for one of its three stated reasons for denial, and it focused on the exclusion of coverage for intentional injuries caused by an insured.  After discussing precedent, the court determined that insurance contract unambiguously excluded the insureds from coverage for intentional harm committed by any of the insureds under a policy, and therefore the female insured was not entitled to coverage as a matter of contract law.  Therefore, the court granted the insurer’s motion to dismiss the breach of contract and bad faith claims.

Date of Decision:  July 22, 2010

Becker v. Farmington Cas. Co., Civil Action No. 1:08-CV-2228, United States District Court for the Middle District of Pennsylvania, 2010 U.S. Dist. LEXIS 73902 (M.D. Pa. July 22, 2010) (Conner, J.)

In Spector v. Fireman’s Fund Insurance Company, the insureds noticed that the paint on many of the windows in their house was peeling.  They hired a construction consultant to inspect their house, and he concluded that there were problems with the window and door frames, as well as signs of leakage in the master bedroom on the ceiling.  He recommended that the insureds hire an expert to inspect the area between the stucco walls and internal drywalls, and they did that.  The stucco inspector told them that moisture levels in different areas of the house revealed potential problems, but only a deconstruction of the walls would reveal the true condition of the substrate.

The insureds proceeded to hire a plastering company, the owner of which notified them that the house’s roof was incorrectly installed.  The insureds decided to have their roof redone and windows replaced before the stucco was removed for inspection.

Once the stucco was removed, the insureds learned the extent of the water damages, and they gave notice to the insurer by filing a claim.  The insurer sent a claims adjuster to evaluate the property, but upon his arrival, about 90% of the work had already been completed.

The insureds’ homeowner’s insurance policy specifically provided a coverage exclusion for water damage resulting from “continuous or repeated seepage or leakage of water or stream from any source over a period of weeks, months, or years.”  There was an exception to this exclusion, as the insurer would provide coverage if, due to water damage, loss was sudden and accidental and the insured reported the loss no later than 30 days after the date the loss was detected or should have been detected.  The policy also included an exclusion for “faulty, inadequate, or defective…workmanship, repair, construction,” or the materials used therein.

After inspecting the house, the claims adjuster notified the insureds that the insurer was denying their claim, citing the policy’s exclusion for defective construction and the thirty day notice provision for water damage.  The insureds filed a complaint, alleging both breach of contract and bad faith on the part of the insurer.

The court ruled in favor of the insureds on the breach of contract claim, holding that a contract existed and that the insureds complied with the rolling 30 day requirement that accompanied the exception to the water damage exclusion.  Because the insureds did not learn of the damage until less than a month before filing the insurance claim, the insurer incorrectly denied coverage.  However, the court also ruled that the insureds did not establish that the insurer lacked a reasonable basis for denying the claim and knew or recklessly disregarded the reasonable basis.  Therefore, the insurer prevailed on the bad faith claim against it.

Date of Decision:  July 15, 2010

Spector v. Fireman's Fund Ins. Co., Civil Action No. 09-1311, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 71072 (E.D. Pa. July 15, 2010) (Tucker, J.)

In Kelly v. National Liability & Fire Insurance Company, an employee of the insured company and another person were involved in an auto accident.  The employee was traveling in his personal vehicle in the scope of his employment, and he was insured at the time by an insurance company separate from the defendant insurer in this case.  The woman filed a suit against the employee, and the employee placed the insured employer on notice of the action four months later.  The employer proceeded to notify its insurer, the defendant in the current case.

After a lengthy review of possible coverage under the business auto policy issued to the employer, the insurer determined that no coverage was available for the employee under the policy, and that while coverage would be available for the employer if it were added as a defendant in the pending litigation, the statute of limitations had expired so the employer could no longer be added.  The other person, an injured assignee of the employee as to any claims against the carrier, was eventually awarded $375,000 in a binding ADR proceeding.  The injured assignee commenced the current action against the insurer for breach of contract and bad faith in denying coverage to the employee who owed her money as a result of the accident and award.

The Business Auto Coverage Form provided that the employer, and not its employees, was the only covered entity under the policy.  The court in a prior federal court case had determined that an employee of the insured company who owns his/her own covered automobile is excluded from the definition of an insured with respect to the business auto coverage, and the court here followed that precedent.

Because the employee was not an “insured” under the policy, the insurer owed no duty to provide him coverage in the action against him, and therefore the court granted the insurer’s motion to dismiss the breach of contract claim.  It also granted the motion to dismiss the bad faith claim for the same reason, as it is impossible for an insurer exhibit bad faith when correctly denying coverage under a policy.

Date of Decision:  July 9, 2010

Kelly v. Nat'l Liab. & Fire Ins. Co., Civil Action No. 09-1641, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 68959 (E.D. Pa. July 9, 2010) (Ludwig, J.).