In Borden v. Amica Mutual Insurance Company, Plaintiff insureds filed suit against Defendant insurer alleging that Defendant acted in bad faith during the adjustment and settlement of a building loss claim resulting from an accidental fire that destroyed Plaintiffs’ home.  Specifically, Plaintiffs contended that Defendant acted in bad faith by offering an unreasonably low figure to resolve the building loss claim and in requesting appraisal to resolve the dispute.  The United States District Court for the Western District of Pennsylvania looked to case law that held there could be no bad faith in the absence of a denial of benefits.  The Court determined that this case did not involve a denial of benefits or unreasonable delay in the payment of benefits; rather, it was Plaintiffs’ contention that Defendant acted in bad faith by offering an unreasonably low figure to resolve the claim and in requesting arbitration to resolve the dispute.  The Court held that the bad faith claim failed because Defendant had never adopted a final position relative to the loss estimate in general and the appropriateness of two alternatives:  smoke remediation as opposed to gutting and rebuilding in particular.  The Court also held that a request for appraisal, which was a dispute resolution mechanism specifically provided for in the insurance contract, followed within days by an agreement on the part of the carrier to hire an expert to provide a second opinion, was not the “stuff” of which bad faith was made.  Finally, the Court found that the bad faith claim failed because Plaintiffs failed to demonstrate by the heightened “clear and convincing” standard that the smoke remediation approach initially propounded by the carrier was objectively unreasonable under the circumstances.  After reviewing the evidence, the Court held that Defendant did not breach its duty of good faith in handling of this fire loss claim and was not motivated by self interest or ill will against Plaintiffs.  The Court accordingly entered judgment in favor of Defendant.

Date of Decision:  September 30, 2006

Borden v. Amica Mut. Ins. Co., United States District Court for the Western District of Pennsylvania, Civil Action No. 04-175, 2006 U.S. Dist. LEXIS 75069 (W.D.Pa. September 30, 2006) (McLaughlin, J.).

In T.H.E. Insurance Company v. Charles Boyer Children’s Trust, Plaintiff insurer sought a declaratory judgment that the insurance policy it issued to Defendant insured did not cover the mud and water damage to the insured’s bowling alley following a heavy rainstorm.  Plaintiff contended that it was not obligated to cover the loss by reason of the policy’s exclusions; specifically, that the damage at issue was not covered by the policy because it was cause at least in part, by earth movement and water within the meaning of the policy exclusions.  Defendant countered by arguing that coverage remained available if the damage was proximately caused by a non-excluded event or factor, even if an excluded event or factor contributed to the damage.  However, the United States District Court for the Middle District of Pennsylvania held that Defendant insured’s argument conflicted with the “lead-in” clause to the policy’s exclusions section, which stated, “[w]e will not pay for loss or damage cause directly or indirectly by any of the following [enumerated exclusions].  Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.”  Because there were no Pennsylvania cases directly on point, the Court looked to other jurisdictions that have held that the efficient proximate cause doctrine does not apply in the face of an expansive qualifying lead-in clause, like the one found in this case.  With regards to the policy’s exclusions, the Court held that although there was a jury question concerning the applicability of the earth movement exclusion, the surface water exclusion and the lead-in clause unambiguously combined to exclude the loss at issue from coverage under the policy.  In any case, the Court held that this ruling necessarily meant that Defendant could not recover on its contractual and statutory bad faith counterclaims.

Date of Decision:  October 11, 2006

T.H.E. Ins. Co. v. Charles Boyer Children’s Trust, United States District Court for the Middle District of Pennsylvania, No. 3:CV-04-1652, 455 F.Supp. 2d 284, 2006 U.S. Dist. LEXIS 73983 (M.D.Pa. October 11, 2006) (Vanaskie, J.).

This decision was affirmed in T.H.E. Ins. Co. v. Charles Boyer Childrens Trust, 269 Fed. Appx. 220, 2008 U.S. App. LEXIS 5729 (3d. Cir. Pa. 2008) (Ambro, J.), which is included in the August 2008 summaries in this blog.

In Miller Pools, Inc. v. Nationwide Mutual Insurance Company, Defendant insurer moved to dismiss Plaintiff insured’s bad faith allegations, arguing that Plaintiff’s bad faith Count failed to state a claim upon which relief could be granted.  The United States District Court for the Western District of Pennsylvania determined that the insured had alleged the type of conduct that would support a bad faith claim pursuant to Pennsylvania’s bad faith statute.  Among other things, Plaintiff’s Complaint alleged that the insurer:  (1) conducted an unfair, unreasonable and inadequate investigation of Plaintiff’s claims related to a fire; (2) failed to fairly negotiate the amount of the loss sustained by Plaintiff; and (3) knowingly and/or recklessly denied the balance of Plaintiff’s claims without having a reasonable basis for doing so.  The Court looked to Pennsylvania’s case law, which clearly held that to support a finding of bad faith, the insurer’s conduct must be such as to import a dishonest purpose, and bad faith would be shown where an insurer has for a frivolous or unfounded reason refused to pay the proceeds of a policy to its insured.  Accordingly, the Court held that the allegations contained in Plaintiff’s Complaint, which are assumed to be true for purposes of Defendant’s Motion to Dismiss, clearly include averments sufficient to surmount dismissal. 

Defendant further argued that Plaintiff’s purported claim for lost business income or business reputation must be dismissed insofar as it was incorporated within the bad faith Count.  However, though compensatory damages are not recoverable under Pennsylvania’s bad faith statute, the Court held that said Counts appeared to allege not only a cause of action under Pennsylvania’s bad faith statute, but also a violation of the covenant of good faith and fair dealing.  Thus, although the bad faith statute does not allow recovery of compensatory damages, such damages would still be available under Pennsylvania’s common law of contracts, even where the action was brought under a bad faith theory.

Date of Decision:  September 29, 2006

Miller Pools, Inc. v. Nationwide Mut. Ins. Co., United States District Court for the Western District of Pennsylvania, Civil Action No. 2006-366J, 2006 U.S. Dist. LEXIS 70859 (W.D. Pa.) (Gibson, J.)