JULY 2018 BAD FAITH CASES: (1) RELIANCE ON INADEQUATE EXPERT REPORT CAN BE BAD FAITH; (2) COURT REFUSES TO STRIKE REFERENCE TO CARRIER’S PRIOR ATTEMPT TO TERMINATE POLICY AFTER A DIFFERENT LOSS (Philadelphia Federal)

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In this case, the insured argued that the carrier’s reliance on its expert (an unidentified plumber) was unreasonable. The insurer took the position that reliance on an expert makes a decision reasonable as a matter of course. The court found that bad faith could be found if the plaintiff could prove unreasonable reliance on an inadequate expert report.

In this case, the plaintiff alleged the report did not name the expert, was unsigned, and provided no factual basis to support its conclusions. While the court did find there was some factual support in the report, the report was still inadequate because the expert did not go beyond the surface in inspecting the damage at issue, and “offered quite a thin analysis of the potential evidence available for determining the cause of the damage.”

Thus, a plausible claim was stated that the carrier’s reliance on this expert report was unreasonable. By contrast, the court reviewed other cases where there was “a much more comprehensive investigation process and more detail relied upon than is alleged here.”

The carrier also sought to strike references to its prior efforts to terminate the insured’s policy which arose out of a different loss. The carrier’s termination effort was overturned by the insurance department. The insured argued this was “relevant to the question of whether [the carrier] had knowledge of, or recklessly disregarded its lack of any reasonable basis for denying Plaintiffs’ coverage claim for the [claim now at issue].”

The court refused to strike this language from the complaint.

More generally, the Court provided an overview of the law on analyzing what constitutes a reasonable basis to deny coverage: “An insurer need not demonstrate that their evaluation of an insured’s claim was correct in order to show that they had a reasonable basis for a coverage decision, and thereby prevail against a statutory bad faith claim. … ‘Bad faith cannot be found where the insurer’s conduct is in accordance with a reasonable but incorrect interpretation of the insurance policy and the law.’ … Rather, an insurer simply must show that it had a reasonable basis for a coverage decision based on the information available at the time the decision was made. … ‘In deciding whether an insurer had a reasonable basis for denying benefits, a court should examine what factors the insurer considered in evaluating a claim.’ The reasonable basis standard imposes a requirement ‘that the insurer properly investigate claims prior to refusing to pay the proceeds of the policy to its insured.’ … Ultimately, ‘[b]ad faith claims are fact-specific and depend on the conduct of the insurer vis-à-vis its insured.’ … Courts must analyze the facts at hand to determine whether an insurer’s decision process on a particular insurance claim was sufficient such that it cannot be said to constitute bad faith as a matter of law.”

Date of Decision: July 18, 2018

Overbrook Properties, LLC v. Allstate Indem. Co., U. S. District Court Eastern District of Pennsylvania, CIVIL ACTION NO. 18-630, 2018 U.S. Dist. LEXIS 118766 (E.D. Pa. July 17, 2018) (Baylson, J.)

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