FEBRUARY 2012 BAD FAITH CASES: COURT DISMISSES INSURED’S BAD FAITH CLAIM WITHOUT PREJUDICE, BUT ALLOWS SUIT TO PROCEED TO DISCOVERY ON BREACH OF CONTRACT COUNT (Philadelphia Federal)
The court ruled upon a carrier’s motion for judgment on the pleadings in an action for breach of contract and bad faith. The suit stemmed from the carrier’s denial of insurance benefits under the insureds’ homeowner’s policy, after the insureds’ home sustained storm damages. Prior to alerting the carrier of their loss, the insureds had the damages repaired. Under their policy, the insureds were required to promptly give the carrier notice of their claim and provide the carrier with all relevant evidence of damages and repairs.
In March 2011, the insureds first apprised the carrier of their loss. In April, the carrier submitted a reservation of rights letter, requesting an opportunity to inspect the repairs. The insureds’ adjuster sent the carrier a letter shortly thereafter, explaining that it needed time for photographs. The insureds never submitted the photographs to the carrier. Instead, the insureds’ adjuster requested a settlement offer in May 2011. The carrier subsequently denied coverage.
The insureds filed suit in state court in October 2011 and the carrier removed to federal court in November, filing its motion for judgment on the pleadings.
First, the court examined the insureds’ breach of contract claim. The carrier argued that the claim should be dismissed because the insured never satisfied their obligations under the contract by failing to provide documentation of the loss, such as the requested photographs. However, the insureds claimed that such an argument assumes that the photographs were available but withheld. The court ruled that this argument was sufficient to defeat the carrier’s motion.
The carrier also claimed that the insureds failed to promptly report their loss within five months of the date of the occurrence. However, the policy did not state a specific timeframe within which the insureds were required to submit claims after a loss. As such, the court found that the insureds’ breach of contract claim should survive the carrier’s motion and proceed to discovery.
Second, the court ruled upon the insureds’ bad faith claims. The court dismissed the insureds’ claim, because the carrier did not possess the requisite wrongful state of mind to have acted in bad faith. The court reasoned that the insureds’ allegations were conclusory and improperly argued that the carrier’s denial of benefits alone constitutes bad faith. The court dismissed the claim without prejudice so that the insureds might amend their complaint if facts sufficient to allege bad faith arise during discovery.