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The insured owned Pier 34 in Philadelphia. it was issued a first party Property Policy by the insurer that covered risks of direct physical loss to the pier and the building on it for up to $4.3 million.  It contained certain exclusions for different causes of loss, including collapse, but collapses would be covered by the policy if caused by hidden decay.

In May 2000, a portion of Pier 34 collapsed, killing three individuals and injuring others.  The insured quickly filed an insurance claim with the insurer, and the insured hired a public adjuster and another consulting company to handle the claim and investigate the cause of the collapse, respectively.  Five months later, the insured submitted a Sworn Proof of Loss seeking over $15 million, and it identified the cause of loss as hidden decay.

The insurer informed the insured that first party property coverage was available for certain property damage and other expenses, and it eventually paid the insured $2.7 million to settle claims for the loss of structure on the pier, costs of debris removal, and lost income.  It then made a payment of $200,000 for the actual cash value of the pier.

The insured was not satisfied with the amount paid for the pier’s actual cash value, and it demanded an appraisal.  Despite the policy stating that either party can demand an appraisal if it disagrees with the other party over the value of the property, the insurer never selected an appraiser.  The insured proceeded to file a suit against the insurer for breach of contract and bad faith.

The case went to trial, and the jury awarded the insured over $1.4 million as the actual cash value of the pier at the time of collapse.  While it increased the award to the insured for actual cash value by over $1.2 million, the court found that the insurer’s conduct did not amount to bad faith under Pennsylvania’s bad faith statute, 42 Pa. C.S.A. § 8371.  The insured then filed a motion for post-trial relief regarding its bad faith claim, and the court denied the motion.  The insured filed an appeal of the court’s decision.  The trial court issued an opinion for the appellate court’s review as required by the Pennsylvania Rules of Civil Procedure.

After discussing bad faith statue, the court analyzed the facts of the case in light of the necessary standards in finding bad faith on the part of an insurer.  In this case, the insured alleged that the insurer acted in bad faith when it requested an examination under oath, after it had paid some of the claims to the insured and after the insured made a request for an appraisal to determine the pier’s actual cash value.

The court noted several facts and events that led to a belief that the insured knew of the pier’s physical decline prior to its collapse.  Both principals who were leasing the pier from the insured had learned of the deteriorating conditions in the year leading up to the incident.

The insurer requested an examination under oath of one of the principals to determine his knowledge of the pier’s decay, and the court determined that this request, even after the insured demanded an appraisal, “was not made in and did not constitute bad faith.”  In fact, in addition to failing to take any action to compel the insurer to appoint an appraiser, the insured did not seek to appoint an appraiser itself.  Because it found no bad faith on the part of the insurer, the Court opined that it had appropriately found in favor of the insurer on the statutory bad faith claim.

Date of Decision:  January 5, 2011

Portside Investors, L.P. v. Northern Ins. Co., No. 889, Common Pleas Court of Philadelphia County, Pennsylvania, Civil Trial Division, 2011 Phila. Ct. Com. Pl. LEXIS 19 (Jan. 5, 2011) (Bernstein, J.)

In a later decision on January 13, 2011, the Court recommended a reversal of the jury verdict with respect to the awarding of $1.4 million based on the breach of contract claim.  This opinion did not address the bad faith claim.  This later proceeding can be found at Portside Investors, L.P. v. Northern Ins. Co., 2011 Phila. Ct. Com. Pl. LEXIS 22,

20 Pa. D. & C.5th 497 (Jan. 13, 2011) (Bernstein, J.).