NO BAD FAITH POSSIBLE WHEN CARRIER CONDUCTS A REASONABLE REVIEW, AND MAKES ITS DETERMINATION BASED UPON AN EXPERT REPORT (Philadelphia Federal)

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Like yesterday’s post, an insurer’s reliance on an expert report precluded bad faith.

The case involved first party coverage for a home heating oil spill.  The coverage issues involved whether the leak was caused by ongoing corrosion or was sudden and accidental, and/or or was subject to a pollution exclusion. The carrier denied coverage, and the insured brought breach of contract and bad faith claims. The insurer successfully moved for summary judgment on all counts.

No Coverage Due for Ongoing Corrosion and Under Pollution Exclusion

As to the corrosion issue, the insurer provided an unrefuted expert engineering report stating that long-term corrosion caused the leak. Thus, there were no dispute of fact on this coverage issue, warranting summary judgment for the insurer.

As to the pollution exclusion, the court did an exhaustive analysis of the case law on pollution exclusions and home heating oil.  Magistrate Judge Hey found, under the circumstances of this case, home heating oil qualified as a pollutant. “Here, Plaintiff contacted an environmental services firm about remediation and provided the court with the soil analysis identifying the same chemicals as were present in the soil in [prior precedent], and provided ample evidence that those chemicals were considered hazardous or pollutants.” Thus, “the record here presents more than sufficient evidence to allow the Court to apply the pollution exclusion to the facts of this case.”

No Bad Faith in Light of Expert Report

The court did not address the issue of whether the statutory bad faith claim had to be denied as a matter of law because no coverage was due. Rather, the court analyzed bad faith solely based on the quality of the insurer’s investigation.

Magistrate Judge Hey states, “[i]n order to determine whether an insurer acted in bad faith in conducting an investigation into whether an insured was entitled to benefits, courts have looked to the following: Judges of this court have held that an insurance company’s substantial and thorough investigation of an insurance claim, forming the basis of a company’s refusal to make or continue making benefit payments, establishes a reasonable basis that defeats a bad faith claim …. To defeat a bad faith claim, the insurance company need not show that the process used to reach its conclusion was flawless or that its investigatory methods eliminated possibilities at odds with its conclusion. Rather, an insurance company simply must show that it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action.”

In this case, the court found the carrier “had a reasonable basis for its decision to deny Plaintiff’s claim based on the engineering report finding that the leak was caused by long-term corrosion, excluded by the policy, and that the heating oil was a pollutant based on environmental testing, government regulations and prior caselaw. Plaintiff has presented no evidence presenting a genuine issue of material fact in this regard.”

Thus, the insurer had a reasonable basis to deny the claim.

Biela v. Westfield Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 19-4383, 2021 WL 181432 (E.D. Pa. Jan. 19, 2021) (Hey, M.J.)

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