MARCH 2017 BAD FAITH CASES: A DIFFERENCE BETWEEN THE INSURER’S AND INSURED’S LOSS VALUATION CANNOT BE A BASIS PER SE TO ESTABLISH BAD FAITH (Western District)

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This case involves a dispute over repair estimates. The insured’s estimate was over $100,000 greater than the insurer’s, and the insurer based its payment to the insured on its own estimate, less depreciation. The insured alleged a bad faith claim on the basis that the insurer’s estimate bearing “no reasonable relationship to [his] actual loss because it is more than $100,000.00 lower than the true replacement cost price quotation obtained by Plaintiff pursuant to the open market.”

The insured also argued that the insurer further lowered what it would pay by picking a depreciation percentage “out of the air”. The court rejected these bad faith claims, and granted the insurer’s motion to dismiss, with prejudice.

The court first looked at prior Western District case law, Seto v. State Farm, which had a similar issue concerning fire lost estimate differentials. “Pennsylvania law does not treat as bad faith an insurer’s low but reasonable estimate of an insured’s losses.”

“Rather, the insured must demonstrate that the insurer’s estimate bore no reasonable relationship to the actual damage loss, either because the insurer breached its duty of good faith through some motive of self-interest or ill-will or because the insurer failed to conduct[] a review or investigation sufficiently thorough to yield a reasonable foundation for its action.” The court also looked at the actual fact analysis in the leading Terletsky case for guidance.

In the case at hand, the insured failed to allege facts that the insurer’s “settlement offer lacked a reasonable basis or was not supported by a thorough and even-handed investigation.” There were no allegations that the insurer was dilatory, failed to communicate, performed an unsatisfactory or biased investigation or unreasonably delayed in considering his claim.

The insured’s argument was characterized as being a claim that the insurer “was per se unreasonable for no other reason than that it differed from [the insured’s] own” estimate. Absent discovery, the court could not “ascertain with any degree of accuracy whether there is any reasonable basis whatsoever for [the] alleged Replacement Cost.”

The court looked at depreciation similarly. The court originally states: “40% Depreciation sure is a nice round number, but why not 20%, or 60%? It appears to be an arbitrarily selected percentage. Again, [the insured] has not even been afforded the opportunity to question [the insurer], through discovery, as to the selection of this percentage amount. Was it a thorough and even-handed investigation by [the insurer]?”

However, this inability to decide on lack of information did not ultimately help the insured/plaintiff. The court rather concludes that absent “any supporting facts from which it might be inferred that the company’s investigation was biased or unreasonable, this type of disagreement in an insurance case is not unusual, and cannot, without more, amount to bad faith.” To the contrary, the court found the pleadings favored the view that the insurer did an adequate investigation, vitiating the bad faith claim.

Finally, in light of these failings, and the insured’s having been previously allowed to cure the pleading deficiencies in the original complaint, no further amendment was allowed and the amended complaint was dismissed with prejudice.

Gowton v. State Farm Fire & Cas. Co., No. 15-1164, 2017 U.S. Dist. LEXIS 29390 (W.D. Pa. Mar. 2, 2017) (Bissoon, J.)

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