JULY 2013 BAD FAITH CASES: CARRIER’S LETTER INDICATING IT WOULD CONSIDER AMENDED CLAIMS DID NOT REQUIRE CARRIER TO APPROVE CLAIM; FOLLOWING PRIOR PRECEDENT UIPA VIOLATIONS CANNOT BE CONSIDERED AS EVIDENCE (Philadelphia Federal)
Plaintiffs brought suit claiming breach of contract and bad faith when the carrier denied coverage on an amended claim after providing plaintiffs with a payment and letter indicating future amendments to the claim would be considered.
Plaintiffs’ policy covered “direct loss caused by rain, snow, sleet, sand or dust driven through roof or wall openings made by direct action of wind, hail, or other insured peril.” The policy excluded losses resulting directly or indirectly from: (1) “wear and tear, marring and deterioration,” and (2) biological deterioration or damage, “even if another peril or event contributed concurrently or in any sequence to cause the loss.” The policy also excluded loss resulting from “a fault, weakness, defect or inadequacy in the… design, workmanship, construction, or materials” if another excluded peril also contributed to the loss.
On June 11, 2012, plaintiff reported to the carrier his house has suffered damage due to a wind or rainstorm which occurred on April 14, 2010. Plaintiffs reported water was seeping into the home and there was water damage in “the garage and family room, around the kitchen window, and on the window dressings” as well as “the walls of the residence and vinyl siding” and “to the stucco on the front exterior of the property.”
When the carrier’s adjuster inspected the property, he was unsure whether coverage existed due to the possibility the water was seeping in for reasons besides the storm. Plaintiffs hired a separate contractor to evaluate the damages. When plaintiffs’ contractor spoke with the adjuster, he informed the adjuster of “a neighborhood class action suit” against the builder of the homes in plaintiffs’ neighborhoods for issues of “workmanship, including water seeping into the home through the stucco and windows.”
The carrier denied coverage for the damage to the interior of the property, but provided plaintiffs a check for the value of the exterior damage based on its adjuster’s estimate in the amount of $2,116.40. Furthermore, the carrier indicated it would be willing to review any estimates from plaintiffs’ contractor and possibly adjust the payment based on any such estimate. However, when plaintiffs’ contractor provided an estimate to the adjuster, the adjuster did not respond. Plaintiffs continued to contact the adjuster with little response.
Ultimately, the adjuster reaffirmed the carrier’s denial of coverage, and attached a formal denial letter explaining the policy did not provide coverage for damage “caused by faulty or inadequate design, workmanship, or construction materials, as well as wear and tear, aging, or deterioration.” Based on the conversation with plaintiffs’ contractor regarding the pending neighborhood lawsuit, the carrier believed the water seepage was due to “improper installation, workmanship, and construction error, which occurred when the home was originally built.” Plaintiffs’ total cost of repair for the interior and exterior damage totaled $50,000.
Plaintiffs allege three actions constitute bad faith: (1) the carrier’s illusory promise that plaintiffs would be able to submit amended claims for their loss; (2) the carrier’s failure to properly investigate plaintiffs’ claims; and (3) the carrier’s actions violated the Uniform Insurance Practices Act.
The court found plaintiffs’ claim the carrier broke its promise regarding the amended claims was not supported by the record and plaintiffs failed to demonstrate the carrier did not consider the additional claims. Rather, the carrier allowed plaintiff to submit additional claims, but did not promise those claims would be covered.
The court also found plaintiffs failed to demonstrate the carrier did not conduct a full investigation of the claims. The carrier visited plaintiff’s home, provided plaintiffs with a payment, and when it was informed of additional damage, an adjuster investigated that claim but denied it. Furthermore, the carrier explained in its denial letter why the damage was not covered.
Finally, the court stated the UIPA does not provide a private cause of action, and that violations of the UIPA cannot be considered evidence of bad faith. Therefore, plaintiffs’ reliance was inapposite to its statutory bad faith claim. Based on these findings, the court granted the carrier’s motion for summary judgment.