MARCH 2011 BAD FAITH CASES
SUMMARY JUDGMENT FOR INSURER ON BAD FAITH CLAIM AS IT HAD REASONABLY DENIED COVERAGE BECAUSE INSURED AND VICTIMS FAILED TO PROVIDE TIMELY NOTICE OF THE INCIDENT (Philadelphia Federal)

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In Nationwide Mutual Fire Insurance Company v. Nova Real Estate LLC, a fire occurred at a property in Philadelphia.  At the time, a woman and her family occupied the house, and her son died in the fire.  The woman initially filed a lawsuit against various defendants from whom she alleged that she leased the property, and she claimed that the fire was caused by a faulty electrical system that the property owner negligently failed to repair.  The defendants in that action asserted, however, that the woman and her family never signed a lease and were living at the property illegally as squatters at the time.  They also claimed that the woman and her family caused the fire themselves.  Despite the defendants’ initial claims, the parties in the initial suit eventually settled for $3 million.  The realty company paid $50,000 directly to the family, and it assigned its rights to proceed against its insurers for the remaining balance.

For various reasons, the family did not notify the insurer in the current action of the fire, lawsuit, and settlement until three and one-half years after the fire occurred.  The policy with the insurer initially entered into by the realty company was a business owner’s policy with limits of $500,000 on any one occurrence.  The insurer denied coverage under an exclusion in the policy exempting “bodily injury due to rendering or failure to render any professional service.”  It also claimed that it did not consent to the payment made or expenses incurred by the realty company.

The insurer then filed the current action, seeking declaratory judgment.  It asserted that it had no obligations to cover losses sustained by the family or the realty company.  The court first concluded that neither the realty company nor the family, who eventually became the beneficiary of the policy, provided timely notice of the claims, clearly violating the policy.  The policy stated that a claim must be submitted “as soon as possible,” and the insurer was not notified of the incident until three and one-half years after the fire.  Attorneys for the family even requested about two years after the fire that the realty company notify the insurer, but it provided no notice at that time and the attorneys took no initiative to provide notice on their own.

The court then determined that insurer was prejudiced by untimely notice of the claims.  It noted that the insurer’s interests were not considered in the settlement negotiations, and the insurer was deprived of any opportunity to involve its own counsel in the matter.  Additionally, it concluded that the untimely notice was not excused by extenuating circumstances, as the family and realtor both had many opportunities to easily notify the insurer throughout the process and simply failed to do so.

Finally, the realty company had filed a claim for bad faith after the insurer denied coverage.  The court quickly dismissed that claim at the end of its opinion, as it had determined that the insurer had no obligation to provide coverage for the initial settlement and therefore could not have acted in bad faith in denying coverage.  The court therefore granted the insurer’s Motion for Summary Judgment and gave the insurer a declaratory judgment, stating that the insurer was not legally obligated to cover the remaining balance of the settlement.

Date of Decision:  March 1, 2011

Nationwide Mut. Fire Ins. Co. v. Nova Real Estate LLC, Civil Action No. 09-0303, States District Court for the Eastern District of Pennsylvania, 2011 U.S. Dist. LEXIS 20601, (Mar. 1, 2011) (Surrick, J.)

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SUMMARY JUDGMENT FOR INSURER ON BAD FAITH CLAIM AS IT HAD REASONABLY DENIED COVERAGE BECAUSE INSURED AND VICTIMS FAILED TO PROVIDE TIMELY NOTICE OF THE INCIDENT (Philadelphia Federal)”


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