OCTOBER 2010 BAD FAITH CASES
NO BAD FAITH WHEN INSURER CONDUCTS REASONABLE INVESTIGATION BEFORE PAYING PROPERTY DAMAGE, EVEN WHEN PARTIES ESTIMATES THAT ARE FAR APART (Middle District)

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In Fitzmartin v. Allstate Property & Casualty Company, the insureds owned a house that was insured under a homeowners policy with the insurer.  One day while the plaintiffs were not home, a pipe burst in the second floor laundry room, causing water damage to the property.  The insureds reported the claim the insurer the day after the incident.  The insurer then contacted an emergency water remediation company to dispatch a team to undertake emergency repairs to the house.

After the company performed a tear out and remediation of the affected areas, the insurer remitted payment to the company for their services.  After four more days of drying the property, the water remediation company finished its work, but there was still significant damage to the property.  After multiple estimates by representatives of the insured, representatives of the insurer, and other contractors, the insureds attempted to use their own hired contractor for repairs instead of having the insurer help them find one.  The insureds’ contractor’s estimate was $147,444.12, compared to the insurer’s estimate of $67,739.45.  The insurer had paid the insureds the full $67,739.45 of its estimate when the insureds filed suit.

The insureds filed a Complaint for breach of contract and bad faith, and the insurer then filed a Motion to Dismiss the bad faith count. The insureds asserted that the insurer acted in bad faith when it did not agree to pay the extent of damages estimated by the insureds’ contractor, but instead paid the insureds based on its own estimate.

The court, citing a prior case, stated that to avoid acting in bad faith, “an insurance company simply must show it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action.”  Cantor v. Equitable Life Assurance Soc’y, 1999 U.S. Dist. LEXIS 4805, 1999 WL 219786, *3 (E.D. Pa. 1999).  Here, the insurer sent its final payment to the insureds after viewing numerous estimates for the value of repairs.

Additionally, the court noted that insureds’ second contractor’s estimate was only $5,375.55 greater than the insurer’s estimate, demonstrating that the insurer’s estimate was at least reasonable.  The undisputed facts showed that the insurer conducted a thorough investigation before determining that $67,739.45 was the proper amount to pay the insureds.  None of the insureds’ allegations, even if true, amounted to bad faith, and therefore the court granted the insurer’s Motion to Dismiss the bad faith claim.

Date of Decision:  September 13, 2010

Fitzmartin v. Allstate Prop. & Cas. Co., Civil Action No. 4:CV-09-00605, United States District Court for the Middle District of Pennsylvania, 2010 U.S. Dist. LEXIS 98299 (Sept. 20, 2010) (Blewitt, U.S.M.J.)

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NO BAD FAITH WHEN INSURER CONDUCTS REASONABLE INVESTIGATION BEFORE PAYING PROPERTY DAMAGE, EVEN WHEN PARTIES ESTIMATES THAT ARE FAR APART (Middle District)”


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