INSURED SUCCESSFULLY PLEADS BAD FAITH CLAIM AFTER ORIGINAL COMPLAINT DISMISSED WITHOUT PREJUDICE (Philadelphia Federal)
In Lopez v. Selective Insurance Company of South Carolina, Eastern District Judge Schiller dismissed plaintiff’s bad faith claim, without prejudice, for only pleading conclusory allegations. Our summary of this June 2020 decision can be found here.
Plaintiff took the opportunity to file an amended complaint, and the carrier again moved to dismiss the bad faith claim. This time around, however, plaintiff defeated the motion to dismiss by alleging specific facts.
Judge Schiller relied on earlier case law for the principle that bad faith claims can stand if the “plaintiff’s factual allegations regarding the insurer’s intent, along with the chronology of events, support the inference that the defendant had no reasonable basis for denying the claim and knew or recklessly disregarded that lack of reasonable basis in denying the claim.”
In Lopez, plaintiff alleged the insured suffered a covered property loss and provided timely notice. The loss arose from a heating failure on the property.
Addressing the coverage issue, the complaint avers that under the controlling policy language, the insured only had to take reasonable steps to maintain heat on the property. The insured did so, but the heating system failed despite those reasonable steps.
The complaint further alleges the carrier initially took the position that it would cover a portion of the loss. Moreover, the carrier’s representative confirmed that the insured had taken reasonable steps to maintain heat at the property. Once the carrier realized the size of the loss, however, the complaint alleges the insurer retreated from its original position that a portion of the loss was covered.
Judge Schiller found the specific facts pleaded “would suggest” the carrier both “lacked a reasonable basis for denying the claim; and … knew or recklessly disregarded its lack of a reasonable basis for denying the claim.”The complaint “contains specific factual allegations regarding … intent, and it identifies what actions [the insurer] took that were unreasonable.”
More specifically, “[t]he allegation that Defendant acted in bad faith ‘by unreasonably claiming that heat was not maintained when the policy does not require that heat be maintained, but simply that reasonable steps to maintain heat be taken, all with the intent to deceive Plaintiff about what the policy requires and deny coverage’ is not conclusory.” Likewise, the allegation that the insurer accepted coverage and agreed to pay a portion of the loss, only changing its position when discovering the loss’s magnitude, is not conclusory. It was also significant that the insurer’s representative allegedly conceded that the insured took reasonable steps to maintain the heat.
Thus, “[t]hese specific allegations allow the Court to infer what [the insurer] did, why it was unreasonable, and how [the insurer] knew or should have known it was unreasonable.” [Judge Schiller’s emphases] In sum, “[b]y accepting these allegations as true, the Court can reasonably infer that [the insurer] knew Plaintiff’s claim was covered under the policy, indicated the claim would be covered, and then, once all of the damage was assessed, denied the claim because it was too expensive. Thus, Plaintiff’s Amended Complaint is well pleaded and survives a motion to dismiss.”