MAY 2018 BAD FAITH CASES: CLAIM REPRESENTATIVE’S FAILURE TO CONSULT WITH COUNSEL ON SCOPE OF POLICY EXCLUSIONS UNDER UNFAMILIAR PENNSYLVANIA LAW BEFORE DENIAL MAY RESULT IN FINDING THAT DENIAL WAS UNREASONABLE FOR BAD FAITH PURPOSES (Western District)

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The insured owned two buildings that suffered failed retaining walls. The insurer denied coverage. The insurer’s claim representative relied on an expert who stated the loss was caused “by the lateral forces of the earth coupled with the walls’ inadequate design, construction, and maintenance,” which the claim representative concluded invoked various policy exclusions. However, he did not consult an attorney before denying coverage, and he was unfamiliar with Pennsylvania law governing any insurance coverage issues.

The insured sued for bad faith and breach of contract, and the insurer moved for summary judgment on both claims. As outlined below, the Court found issues with the policy exclusions applicability, which the claim representative had determined himself without the aid of counsel.  Thus, on the bad faith claim the Court denied the insurer’s motion, reasoning “there is a material question of fact as to whether [insurer’s] interpretation of the policy was reasonable given that [the claim representative] was unfamiliar with Pennsylvania law and did not consult legal counsel.”

The Court denied the insurer summary judgment on the breach of contract claim for the following reasons:

  1. The insurer’s interpretation of the policy’s earth movement exclusion was unreasonably broad;

  2. The applicability of the maintenance and ensuing loss exclusion was in doubt due to a question of fact as to whether collapse of the walls was foreseeable; and

  3. The insurer’s interpretation of the abrupt collapse exclusion under the policy was erroneous.

Date of Decision: May 11, 2018

Burgunder v. United Specialty Ins. Co., United States District Court, Western District of Pennsylvania, Civil Action No. 17-1295, 2018 U.S. Dist. LEXIS 79477 (W.D. Pa. May 11, 2018) (Schwab, J.)

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