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Allison initiated suit against the insurer for breach of contract and bad faith based on the insurer’s denial of her claim for water damage to her property. Allison had a Homeowner’s policy with the insurer. Allison filed a claim with her insurer for water damage to this property. The parties disputed the cause of the water damage.  The insurer’s log documented Allison stating that the her downspout and her neighbor’s downspouts were clogged and leaked as a result of a heavy rainstorm. The insurer denied the claim.

Allison contacted the insurer again. This time, she stated that the damage was caused by wind.  The insurer sent out an adjuster to evaluate the damage to Allison’s property. Allison  retained a public adjuster to inspect the property, who advised the insurer’s adjuster that wind blew a large tree limb onto the roof, which created an opening in the roof.

Then the insured hired a company to inspect the property.  This company prepared a report to the insurer which stated that the property had no damage from wind or tree branches.  The insurer again denied the claim.  The insurer’s adjuster conducted a re-inspection and, based on his report, the insurer again denied the claim.

Allison filed a breach of contract and bad faith claim against her insurer.  The insurer moved for summary judgment.  Allison responded with a counter motion for summary judgment.  Then, the insurer moved to strike Allison’s counter motion for summary judgment.

As to the breach of contract claim, the insurer alleged that Allison’s loss was not covered by the policy.  Allison claimed that the damages to her home were caused by wind and should have been covered under her policy.  Additionally, Allison claimed that even if the damage was caused by the gutters and downspouts as the insurer alleged, it is still covered under the Limited Water Damage Endorsement in her policy.

The Court found that, even though the endorsement provides coverage for the plumbing system, the plain and natural language of the Limited Water Damage Endorsement specifically precludes coverage for loss from water which backs up through sewers or drains and loss caused by rain without related wind damage.

Therefore, the Court found that Allison is precluded from seeking coverage under this theory.  However, the Court found that, since there is a factual dispute about whether wind caused the loss, a reasonable jury could find in Allison’s favor and, consequently, a genuine issue exists. Therefore the Court denied the insurer’s motion for summary judgment with regard to the breach of contract claim.

As to the bad faith claim, the Court found that when Allison first called and reported her claim, stating that the roof leak was caused by clogged downspouts, such a loss was not covered under her policy and therefore the insurer had a reasonable basis for denying her claim.  Additionally, when Allison called a second time to report that the loss was caused by wind, the insurer investigated the claim, and then reinvestigated it.

The insurer reasonably relied on an expert to make its determination and Allison failed to present clear and convincing evidence that the insurer did not have a reasonable basis for denying the claim under the policy;  or that it knew of or recklessly disregarded its lack of a reasonable basis in denying the claim.

The fact that the insurer’s conclusion might prove incorrect, fails to establish that the insurer had a dishonest purpose or disregard for the truth.  Therefore the Court granted the insurer’s motion for summary judgment with regard to the bad faith claim.

Date of Decision: June 30, 2008

Allison v. Allstate Indem. Co., U.S. District Court Eastern District of Pennsylvania No. 07-cv-4618, 2008 U.S. Dist. LEXIS 50684 (E.D. Pa. June 27, 2008) ( Rice, J.)