SEPTEMBER 2012 BAD FAITH CASES: COURT GRANTS SUMMARY JUDGMENT TO CARRIER BECAUSE CONDUCTING AN IN PERSON INSPECTION OF DAMAGED HOME IS SUFFICIENT GROUNDS TO DENY INSURED’S CLAIM (Philadelphia Federal)

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In Capriotti v. Allstate Prop. & Cas. Ins. Co., the court heard a motion for summary judgment filed by a carrier against its insureds’ claims for breach of contract and bad faith. The insureds possessed a homeowner’s policy with the carrier that covered “sudden and accidental direct physical loss to property.” However, the policy excluded coverage for “seepage” and “wear and tear, aging, marring” and “deterioration.”

In September of 2011, the insureds noticed that their basement carpeting was covered in water. They contacted a basement waterproofing company a few days later and apprised the carrier of the damage. A plumber who conducted an inspection on the home discovered a “break” in a pipe under the insureds’ home. Soon after, the carrier had a claims adjuster inspect the insureds’ home.

The adjuster concluded that a sewer line under the insureds’ home was broken for some time, causing continuous damage to the basement. He also concluded that the basement showed damage from long term deterioration, such as rot in the basement walls and discoloration on the carpet tack slips. On the basis of these conclusions, the carrier denied coverage, citing policy exclusions for “seepage” and “rust or other corrosion.”

The insureds disagreed, arguing that the damage was caused by a “sudden break in the pipe.” They filed a claim for breach of contract and bad faith on these grounds. The carrier moved for summary judgment on both counts.

With respect to the breach of contract claim, the carrier argued that the rot and discoloration show that the insureds’ loss was gradual, not “sudden.” Yet, the insureds claimed to have used the basement daily, meaning that the discovery of the loss could in fact have been “sudden.” Additionally, the insureds argue, the carrier’s adjuster did not notice the discoloration until a month after the flooding was first discovered. The court therefore denied the carrier’s motion on the insureds’ breach of contract count because of factual discrepancies existing in the record.

However, the court granted the carrier’s motion for summary judgment on the bad faith claim. The court was brief in its analysis, but reasoned that the carrier only denied coverage after visiting the insureds’ home. Such an inspection is a reasonable basis for denying coverage.

Date of Decision: September 6, 2012

Capriotti v. Allstate Prop. & Cas. Ins. Co., No. 11-7779, 2012 U.S. Dist. LEXIS 126540, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. Sept. 6, 2012) (O’Neill, J.)

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