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This case involves first party property damage claims under a homeowners policy, arising from water damage after a hurricane. Ultimately, the insurer did not dispute the loss was covered under its policy, but there were delays and denials along the way. Further, the insured alleges full payment never was made, additionally resulting in other consequential damages.

She sues for breach of contract and bad faith. The insurer moved to dismiss the bad faith claim only.  Eastern District Judge Padova denied that motion.  He looked at the complaint in its totality, and after drawing all reasonable inferences in the plaintiff’s favor, found the complaint adequately alleged the insurer was unresponsive and dilatory, failed to carry out a proper investigation, and made unsubstantiated coverage denials.

The complaint alleges:

  1. The insurer “failed to fairly and adequately evaluate Plaintiff’s claim or make a reasonable effort to negotiate a timely settlement of the claim.”
  2. The insurer “assigned multiple claim representatives who were unaware of the history of Plaintiff’s claim, refused to acknowledge receipt of engineering reports submitted by Plaintiff and Ridley Township, and failed to acknowledge or respond to proofs of loss that Plaintiff submitted.”
  3. The insurer denied the “claim without engaging its own engineering expert.”
  4. “Plaintiff was forced to retain the services of a public insurance adjuster and obtain an Appraisal, which proved that Allstate had grossly undervalued her claim.
  5. The insurer “[e]ventually … reversed its coverage determination and provided coverage, admitting that its denials of the claim had been unsubstantiated, but this was not until 5 months after Plaintiff submitted her claim.”
  6. “In the meantime, [the insurer] refused to issue any substantial advance payment to permit Plaintiff to seek alternative shelter, and ‘Ridley Township compelled the demolition of the [P]roperty.’”
  7. “In addition, Plaintiff lost her job as a medical insurance biller because her alternative living arrangements lacked a dedicated, HIPAA-compliant workspace, and she had to sell personal property and use personal funds from her deceased husband’s insurance policy for her living expenses.”
  8. The insurer continued to refuse the insured full compensation and refused to pay fully for the insured’s losses.

While finding some allegations conclusory, Judge Padova found “others assert factual matter that gives rise to a reasonable inference that [the insurer] denied Plaintiff the benefits of her Policy in bad faith. For instance, while the Complaint alleges generally that [the insurer] ‘fail[ed] to make a reasonable effort to negotiate the timely settlement of the claim,’ it also alleges more specifically that [the insurer] refused to acknowledge receipt of Plaintiff’s and Ridley Township’s engineering reports, as well as receipt of Plaintiff’s proofs of loss, and failed to engage its own third-party engineering expert to counter Plaintiff’s engineering reports.”

The court cites Eastern District Judge Surrick’s 2017 Mitchell decision, summarized here, for the principle an insurer’s ignoring an insured’s expert reports supports a bad faith claim. “Similarly, the general allegation that [the insurer] ‘act[ed] unreasonabl[y] and unfairly in response to Plaintiff’s claim’ is supported by additional factual allegations that [the insurer] assigned multiple claim representatives to Plaintiff’s claim, none of whom were aware of the history of the claim and all of whom refused to respond properly to Plaintiff …, did not make any offer to tender a policy benefit for five months …, and ‘grossly undervalued’ Plaintiff’s claim as was subsequently proven by an appraisal….”

Date of Decision:  May 9, 2022

Smith v. Allstate Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 21-5048, 2022 WL 1460331 (E.D. Pa. May 9, 2022) (Padova, J.)