DURATION OF INVESTIGATION ALONE CANNOT ESTABLISH BAD FAITH; BAD FAITH CLAIM POSSIBLE EVEN WHERE COVERAGE IS EXCLUDED UNDER THE POLICY (Western District)
The carrier denied the insured homeowners’ property damage claim. They sued for breach of contract and bad faith, and the carrier moved to dismiss.
First, the court found the insureds failed to plead their losses were covered under the policy at issue, and dismissed the breach of contract claim because no coverage was due under the policy.
Moving to the bad faith claim, Western District Judge Hardy found there are two general kinds of statutory bad faith in Pennsylvania: (i) coverage denial bad faith and (ii) poor claim handling bad faith beyond coverage denial. The court states: “However, if bad faith is asserted as to conduct beyond a denial of coverage, the bad faith claim is actionable as to that conduct regardless of whether the contract claim survives.”
[As stated on this Blog again and again over the years, this second point is questionable. The Supreme Court’s 2007 decision in Toy v. Metropolitan Life indicates that cognizable statutory bad faith claims require denial of a benefit, i.e., denial of coverage in a first party claim or refusal to defend and cover in a third party claim are the sine qua non for section 8371 clams. Under this theory, complaints about poor claim handling practices, where no coverage is due or benefit denied, go to the insurance commissioner. Examples of such Blog posts can be found on January 28, 2020, March 25, 2020, July 16, 2020, August 10, 2020, August 27, 2020, September 24, 2020, January 19, 2021, March 25, 2021, and this article detailing our reasoning.]
The court readily found no bad faith claim based on a benefit denial, since the court ruled that no coverage was due under the policy. The bad faith analysis does not stop there, per the position that poor conduct, even where no benefit is or can be due, might constitute section 8371 bad faith.
Even under that standard, however, these plaintiffs’ claim failed for failing to plead a plausible claim. Thus, the court states, “to the extent that Plaintiffs’ bad faith claim is based on [the insurer’s] alleged failure to conduct an adequate investigation, Plaintiffs simply do not assert sufficient factual allegations in their Amended Complaint to support such a cognizable bad faith claim.”
The court recites the plaintiffs’ conclusory bad faith pleading, that simply recite elements of the cause of action, rather than facts, as examples of inadequate pleading. The factual allegation that the insurer’s inspection lasted only ten minutes, and did not include testing or measurement taking, still did not cut the mustard. “Although the duration of an adjuster’s inspection might be relevant to a claim of bad faith, it does not itself demonstrate bad faith.” Judge Hardy relied upon Western District Judge Wiegand’s 2020 Palek decision, summarized here, and Eastern District Judge McLaughlin’s 2012 Gold decision, summarized here, for the principle that the duration of an investigation or review, by itself, cannot establish a plausible bad faith claim.
Judge Hardy also observed, “since Plaintiffs allege that the damage at issue was visible to the naked eye from the interior of the basement and was not obstructed or concealed from view,” it is not clear that [the] visual inspection of the wall was unreasonable under the circumstances that Plaintiffs describe.”
In sum, “even accepting the cited allegations as true, Plaintiffs have not pled sufficient facts in their Amended Complaint to support a cognizable claim of bad faith for … failure to conduct an adequate investigation.”