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The homeowners insurer denied coverage for water damage that it asserted was from excluded foundation seepage.  The insureds brought breach of contract and bad faith claims.  The insurer moved for summary judgment on both, arguing no coverage was due under the policy, and thus there could be no bad faith as any coverage denial was reasonable.

The court found there could be coverage for most of the insureds’ losses, and denied the bulk of the insurer’s breach of contract summary judgment motion. Turning to the bad faith claim, Western District Judge Flowers Conti observed that the carrier’s “motion for summary judgment on the bad faith claim was dependent on [its] obtaining summary judgment on the breach of contract claim.” The insurer had specifically argued that where “’there is no coverage pursuant to a plain meaning of a policy and relevant exclusions and definitions, then the insurer could not have acted in bad faith in denying coverage.’” Thus, “[b]ecause [the insurer] is not entitled to summary judgment on the breach of contract claim, except with respect to the ALE claim, its motion for summary judgment on the bad faith claim, for the reasons set forth above, will also be denied.”

While the insurer did not rely on an inadequacy of bad faith facts to support its summary judgment motion, Judge Flowers Conti included a footnote, observing “that the [insureds] pointed to circumstances from which bad faith might be inferred: (1) [the insurer] denied coverage for the November 6, 2017 incident without performing an inspection and [the insurer] investigator asked a leading question to set up the “seepage” exclusion; (2) there was a lengthy delay before [the insurer] provided any payment; (3) [the insurer’s] initial payment omitted the overhead and profit line item (which represented about 20% of the claim); and (4) [the insurer] was not proactive in arranging an emergency service vendor or other mitigation assistance.”

Date of Decision:  April 7, 2022

MICHALEK v. NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, U.S. District Court Western District of Pennsylvania No. CV 19-351, 2022 WL 1046440 (W.D. Pa. Apr. 7, 2022) (Flowers Conti, J.)