JANUARY 2018 BAD FAITH CASES: NO BAD FAITH WHERE THE INSURED FAILS TO SHOW ANY BREACH OF THE POLICY TERMS (Third Circuit, New Jersey)
The insureds purchased a homeowners policy that provided up to $10,000 in coverage for mold-related damage. The policy did not cover water damage. The insureds’ roof was damaged, causing a leak in the master bedroom. The insurer paid this claim. Shortly thereafter, Hurricane Sandy made landfall, and the insured testified the house was damaged from subsurface water “[coming] up” from the crawl space beneath the house.
Just before Hurricane Sandy hit, the insureds noticed mold damage in the master bathroom and closet. The insureds engaged air quality specialists to test the rest of the home, who found mold in the crawl space beneath the house. On medical and engineering advice, the insureds demolished and rebuilt the home. They submitted a $282,000 claim for renovations. The insurer paid $12,158 for the roof repairs and various other items listed in the engineering report, and the $10,000 policy limit for mold.
The insured sued for breach of contract and breach of the duty of good faith and fair dealing. The trial court granted summary judgment to the insurer, finding the insurer fully performed under the policy, and insufficient evidence to support a claim of bad faith.
The Third Circuit likewise ruled for the insurer. The insurer paid the policy limit for mold damage, and the insureds’ own experts reported the other damages resulted from the water in the crawl space, and water damage was excluded under the policy.
As to the bad faith claim, the Third Circuit stated, “‘[a]n insurance company owes a duty of good faith to its insured in processing a first-party claim,’ but no liability arises if a decision concerning a claim is ‘fairly debatable.’” Because the insureds were unable to prevail on the breach of contract claim, they could not prevail on a bad faith claim for refusal to pay benefits owed under the policy. As such, the Third Circuit affirmed the District Court.