JUNE 2013 BAD FAITH CASES: COURT FINDS CARRIER’S FAILURE TO FOLLOW-UP ON POTENTIAL CAUSES OF DAMAGE ALLOWS CLAIM TO ADVANCE BEYOND MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM (Western District)
The plaintiff limited liability company submitted a total of five claims for water damage caused by a leaky roof in the office the company leased. The first claim was for damage that occurred when soaked ceiling tiles fell onto plaintiff’s equipment and property. The second claim was for a second water intrusion on plaintiff’s property. The third claim was for water damage to electrical equipment. The fourth claim was for water damage to the ceiling tiles and carpet in the office, and the fifth and final claim was for damage caused by an unauthorized leak test conducted by the landlord. The defendant insurance carrier (the “carrier”) denied coverage on all five claims.
Plaintiff filed suit claiming breach of contract and statutory bad faith, leading the carrier to file a Motion to Dismiss.
Plaintiffs claimed that the carrier relied on insufficient investigation to deny plaintiff’s claims, and that if the carrier’s consultant had followed-up after the first claim, the future damage could have been prevented. Plaintiff also asserted that the carrier had denied coverage for reasons “which it knew to “have no basis in law or fact,”” and thereby demonstrated that the carrier had no reasonable basis on which to deny the claims. The court agreed with plaintiff and denied the Motion to Dismiss.
The carrier later filed a Motion for Reconsideration or Clarification of Order on grounds unrelated to the bad faith issue, which was denied.