MARCH 2014 BAD FAITH CASES: SUMMARY JUDGMENT GRANTED ON BAD FAITH CLAIM WHERE INVESTIGATION WAS REASONABLE, DELAYS ATTRIBUTABLE TO BOTH PARTIES, AND WHERE INSURER ENGAGED EXPERTS THAT RESOLVED ANY CONTRADICTION BY ITS PRIOR EXPERT ON NEED FOR REPLACMENT OVER REPAIR (Middle District)
Moran Industries v. The Netherlands Insurance Company involved numerous disputes between the insured and the insurer over the extent of fire damage to a building and the terms of an insurance policy. The carrier claimed there was a contractual two year limitations period for bringing a claim, and the insured denied ever receiving that endorsement, and so denied it was part of the contract. There were additional disputes between experts over whether the fire requirement roof repair or replacement. The carrier sought summary judgment on the breach of contract and bad faith counts.
The court found an issue of fact existed as to the actual insurance policy between the parties, including the contractual limitations endorsement. However, the court found that if such a term did exist it would be enforceable as it was not unconscionable or in violation of public policy; was not barred by estoppel; and did not require a prior showing of prejudice.
The court did grant summary judgment on the bad faith claim. It observed that an insurer may defeat a bad faith claim by showing it had a reasonable basis for its actions, and may do so by demonstrating it conducted a sufficiently thorough review or investigation, which it used as a foundation for its subsequent decisions. The insurer need not show that its investigation “yielded the correct conclusion or even that its conclusion more likely than not was accurate,” only that its actions were reasonable.
The insured presented no evidence that a reasonable jury could find the insurer acted in bad faith by a clear and convincing standard. The insured alleged delay in investigating the claim and finalizing its position; the carrier’s communications failures; and that the insurer’s expert expressed the opinion the roof may need to be replaced, rather than repaired—a fact the insurer disputed.
The court found that the insurer demonstrated that it had a reasonable basis for its actions with respect to each of these allegations. It started its investigation within two days of the formal claim and acted with reasonable diligence throughout the investigation of the claim. It also made payment on the claim and gave the insured notice of its final position on the claim with reasonable diligence and well before the limitations period expired.
Second, regarding communication failures, the record did demonstrate some lapses in communication between the parties. The most significant communication difficulties occurred during the two-month period in which the parties attempted to arrange a meeting of their roofing consultants. The record further demonstrates, however, that the communication lapses were due to failures by both parties.
Moreover, the record shows that the insurer acted with reasonable diligence following up missed communications and was conscious of the relative urgency. The insured offered no evidence demonstrating an ill-will, self-interest, or dishonest purpose on this point, and did not provide other evidence with which a reasonable jury could find bad faith by the clear and convincing standard.
Third, the insured’s allegation that the insurer disregarded its own expert’s alleged belief that the roof needed to be replaced does not establish bad faith by clear and convincing evidence, because the insurer demonstrated other reasonable bases for its actions. Even taking the facts in the light most favorable to the non-moving party and assuming the expert did manifest that the roof needed to be replaced, the insurer followed up on it expert’s assessment with a second assessment by an architect and engineer, whose report indicated an opinion that only a subsection of the roof needed to be repaired or replaced, not the entire portion of the roof as Moran contends.