COVERAGE DUE, BUT NO BAD FAITH WHERE (1) REASONABLE INVESTIGATION AND (2) REASONABLY DEBATABLE BASIS TO DECLINE COVERAGE (Philadelphia Federal)
The case centered on a dispute over whether the plaintiff had an insurable interest in its tenant’s property improvements. The carrier denied coverage for damage to those improvements, asserting the policy did not cover tenant improvements. The insured sued for breach of contract and bad faith.
The court found the policy did provide coverage, and ruled for the insured on its breach of contract claim.
On bad faith, the insured alleged the insurer both failed to investigate and that it unreasonably denied coverage. Magistrate Judge Rice disagreed, finding the insured “lacks clear and convincing evidence that [the insurer] investigated and handled the claim in bad faith or denied coverage without a reasonable basis.”
First, a seven-month delay in the claim handling process was reasonable in light of the insurer’s very detailed and active investigation into the claim.
Second, even though the insurer incorrectly denied coverage, “[b]ecause Pennsylvania courts have held that insurable interest is generally decided by the jury … and there was testimony … contradicting [the insured’] expectation of benefit from the improvements, [the insurer] had sufficient reasonable basis to support its coverage decision.” The court’s own “analysis demonstrates … the existence of an insurable interest as a matter of law is a close question subject to reasonable debate.”