AUGUST 2011 BAD FAITH CASES COURT FINDS ABSENCE OF BAD FAITH WHERE REASONABLE INVESTIGATION, EVEN AFTER FINDING INSURER’S COVERAGE POSITION WAS CORRECT TO BEGIN WITH (Philadelphia Federal)
The insured brought a claim alleging that the insurer acted in bad faith by breaching its duty to pay benefits for a loss covered under the insured’s policy. The policy covered “damaged [parts]” of the insured’s property with “materials commonly used by the building trades in standard new construction.” After a storm, the insured’s roof sustained damage. Following a series of revisions to the estimate, the insurer sent a check to the insured for $4,548.67. The insured filed a complaint seeking compensatory damages, alleging the entire roof required repair.
The court ruled that the insured’s breach of contract claim was unsupported because the insurer complied with the policy. As the policy explicitly provided coverage for only the “damaged part” of the roof, or the broken shingles, the court held that the insured was not entitled to coverage for its entire roof. The court relied upon Greene v. United Services Automobile Association, holding that such a policy only requires the insurer to pay the replacement cost of “the part of the building damaged.”
The court also rejected the insured’s claim that the insurer was mandated to pay for materials “sufficiently similar to the materials on the [insured’s] home.” Distinguishing this case from Collins v. Allstate Insurance Co., where a policy called for using replacement materials of “like kind and quality,” the court held that the insured’s policy merely required the use of materials found in the “common construction” of standard new homes. Consequently, the court ruled that the insured was not required to replace the roof using material akin to that used when the home was built in 1920.
Thus, the insurer was not in breach of contract because it properly acted within the scope of the policy that the insured had purchased.
Therefore, the court also rejected the insured’s bad faith claim. Applying the Pennsylvania bad faith statute, the court found that the insurer did not engage in a frivolous or unfounded refusal to pay the proceeds of the insured’s policy. Specifically, the court ruled that “[c]onducting a thorough investigation of a claim demonstrates the insurer’s reasonable behavior.” The court concluded that boilerplate and conclusory allegations of bad faith would not suffice to establish that an insurer acted with reckless indifference toward the insured.