JULY 2017 BAD FAITH CASES: NO BAD FAITH WHERE INSURER’S DENIAL WAS BASED ON A REASONABLE INVESTIGATION (Middle District)

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The insured and insurer were in a dispute over what caused damage to the insured’s home. The insurer sent out an independent engineer for two inspections, with a third being cancelled due to disagreement over videotaping the inspection. This inspector’s analysis, which involved an invasive inspection by cutting holes, identified long standing structural problems as the cause of loss, rather than a specific weather event. There was no coverage for the former, but coverage for the later.

The insured brought breach of contract and bad faith claims. The court granted partial summary judgment on the bad faith claim.

The insurer alleged various biases on the inspector’s part and that the conclusion was in error, apparently because of these biases. The standard for proving bad faith requires clear and convincing evidence of conduct that goes beyond negligence or bad judgment; but the first hurdle is that the insurer’s denial must have been unreasonable.

In this case, the summary judgment record reflected the insurer’s prompt action once the claims were made, retention of an independent contractor, that contractor’s conducting multiple investigations into the cause of loss, and the insurer’s reliance on the independent inspector’s report in concluding there was no coverage. The court found that “[t]hese actions constitute a reasonable basis for denying coverage, notwithstanding any findings on the accuracy of the reports and interpretations of the insurance contract.”

Thus, summary judgment was granted on the bad faith claim.

Date of Decision: July 5, 2017

Souder v. Travelers, No. 15-CV-02223, 2017 U.S. Dist. LEXIS 103332 (M.D. Pa. July 5, 2017) (Mehalchick, M.J.)

The parties had agreed to allow the Magistrate Judge to rule on the motion.

 

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