SEPTEMBER 2012 BAD FAITH CASES: CARRIER MAY ASSERT SUIT LIMITATION CLAUSE AS A DEFENSE TO BAD FAITH CLAIM WHERE SUIT IS NOT BASED ON CARRIER’S DECEPTION AS TO THE APPLICABILITY OF THOSE LIMITATIONS; USE OF EXPERT NOT BAD FAITH (Western District)

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In Palmisano v. State Farm Fire & Cas. Co., the court heard a carrier’s motion to dismiss the insureds’ complaint alleging breach of contract and bad faith damages. The claim stemmed from the carrier’s refusal to cover damages sustained to the foundation of the insureds’ home.

In October of 2010, the insureds noticed damage to their home, including buckling and cracking of the floor in their kitchen. A contractor identified several problems with the foundation of the insureds’ home. The contractor also found that a sewer pipe in the basement floor had separated, spilling water that pooled in the back of the house. The insureds’ believed that this was the cause of their home’s foundation failure.

The insureds submitted their claim to the carrier for coverage under their homeowner’s policy. A representative of the insured instructed the insureds to immediately complete the repairs to avoid any further damage. After the work was completed, the carrier retained an architectural engineer to investigate the loss. The resultant report detailed the engineer’s walk-through and examination of photographs of the home prior to the renovations. The engineer concluded that a “distressed I-beam,” caused by wear and tear, was the root of the foundation damage. He added that he would reserve further opinion until viewing physical measurements taken before the renovations were complete. These measurements were never provided by the insureds. As such, he recommended the denial of insurance coverage.

After being denied coverage by the carrier, the insureds sued. Their first claim was that the carrier breached the policy by denying coverage for their claim. They allege that the accumulated sewer water was the true cause of the damage and is covered under the policy. However, the defendant argued that any such claim was barred by the policy’s one-year contractual limitations period. Finding that this clause was reasonable, the court agreed with the carrier, holding that the suit was barred as untimely. The court also ruled that the carrier was not precluded from asserting this defense because the insureds’ bad faith claims did not allege deception with respect to the contractual limitations period.

With respect to the insureds’ bad faith claim, the court began by noting that the insureds were not precluded from recovery solely because the contractual limitations period has been enforced. However, the court characterized the insureds’ claim as a “laundry list” of generalized accusations that did not amount to an actionable bad faith suit. Specifically, they alleged that the carrier’s engineer was a litigation specialist, hired for the purpose of denying coverage.

The court disagreed with this claim, finding that the engineer’s firm advertises a variety of services worldwide. The court also held that the carrier’s reliance on the engineer’s report was wholly proper. Therefore, the court ruled that, the plaintiff’s claim is “reduced to a dispute about the conclusions reached” by the engineer’s report (specifically regarding the I-beam) and not an actionable suit for bad faith.

Lastly, the court denied the insureds’ request for leave to amend their complaint because the breach of contract claim was time-barred and the bad faith claim was insufficiently pled. As such, the court granted the carrier’s motion and dismissed the claim with prejudice.

Date of Decision: August 20, 2012

Palmisano v. State Farm Fire & Cas. Co., No. 12-886, 2012 U.S. Dist. LEXIS 116938, U.S. District Court for the Western District of Pennsylvania (W.D. Pa. Aug. 20, 2012) (Fischer, J.)

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