DECEMBER 2010 BAD FAITH CASES BAD FAITH CANNOT OCCUR WHEN AN INSURER PROPERLY DENIES COVERAGE UNDER AN EXPLICIT EXCLUSION OF THE INSURANCE POLICY (Middle District)
In Amitie One Condominium Association v. Nationwide Property & Casualty Insurance Company, the insured was a non-profit homeowner’s association for a condominium complex that suffered damage from subsidence of the underlying land.
One of the properties in the complex began to suffer damages in 1992. Between then and 1994, portions of the building suffered from vast structural damage, including a large vertical crack in a wall, movement of the building due to the foundation of the land below changing, and other structural damages. A dispute existed over whether the structural problems persisted between 1994 and 2006, but in 2005-2006, the same problems existed that first arose more than a decade earlier. The damages to the building present in 2006 led to the lawsuit.
In 2006, the insured hired a geotechnical and structural engineering consultant to evaluate the property. It discovered sinkhole activity, and it concluded that the sinkhole caused the damages to the property. It determined that it would be necessary to “stabilize the condition to prevent further damage” and recommended that the insured stabilize the rear foundation and the soil upon which it bears.”
The insurer covered the insured under a Business Provider Insurance Policy, which provided insurance against the risks of direct physical loss and losses or damages caused by collapse of a building or any part of a building in the complex. There was an explicit exclusion in the policy for any damage caused by “earth movement.” The insured filed a claim for coverage under the insurance policy to pay for the necessary and recommended repairs to the property, but the insurer denied the claim after investigating and determining that this situation fell within the policy’s “earth movement” exclusion.
In late 2006, the insured filed a complaint against the insurer that included claims for breach of contract and bad faith denial of coverage. The main issue was whether the damages caused by the sinkhole actually fell within the policy’s exclusion. The United States Magistrate Judge first addressed the issues in a report and recommendation in 2007.
In this R&R, the magistrate judge concluded that the policy at issue was not an “all risks” policy, which meant that it did not cover all damages to the property unless specifically excluded, but instead only covered the specific damages mentioned in the policy. The magistrate judge also determined that the ongoing and gradual increase in damages resulting from sinkholes fell within the policy’s exclusion for damages caused by “earth movement,” and therefore recommended that the insurer’s motion for summary judgment be granted on all counts.
The district judge’s subsequent opinion differed in some aspects, but eventually reached the same result. The court held that the policy was in fact an “all risks” policy, determining that the language of the policy suggested that it covered all losses to the property unless the contract explicitly limited or excluded them. The district judge did not sway from the magistrate judge’s overall recommendation, however, concluding that the “earth movement” exception to the coverage clearly applied to this dispute.
The court thus granted the insurer’s motion for summary judgment, determining that the insurer did not breach its insurance contact with the insured and therefore could not have acted in bad faith.
Date of Decisions: December 7, 2010 (District Judge opinion) and August 31, 2010 (U.S.M.J. report and recommendation)
Amitie One Condo. Ass’n v. Nationwide Prop. & Cas. Ins. Co., Civil Action No. 1:07-CV-1756, United States District Court for the Middle District of Pennsylvania, 2010 U.S. Dist. LEXIS 129077, (Aug. 31, 2010) (Prince, U.S.M.J.)