Plaintiffs, a law firm and the property owner of the firm’s office space, brought suit against the firm’s insurer (the “carrier”), when the carrier denied payments after a sump pump back-up at the firm’s office space.
The firm’s policy provided coverage for direct physical loss or damage plus debris removal up to the “Limit of Insurance applicable to the Covered Property that sustained loss or damage.” Subject to that allowance, the policy limited the amount it would pay for debris removal to “25% of the sum of the deductible plus the amount that we pay for direct physical loss or damage to the Covered Property.” In the next paragraph, the policy stated, “We will pay up to an additional $25,000 for debris removal expense… if one or both of the following circumstances apply: (a) The total of the actual debris removal expense plus the amount we pay for direct physical loss or damage exceeds the Limit of Insurance on the Covered Property… (b) The actual debris removal expense exceeds 25% of the sum of the deductible plus that amount that we pay for direct physical loss or damage to the Covered Property…”
The policy specified that if either provision (a) or (b) applied, the total payment for direct physical loss and debris removal could reach, but never exceed, the limit of Insurance on the property, plus $25,000.
The firm also purchased two “Coverage Extensions.” The first, entitled “Personal Effects” provided, “You may extend the insurance that applies to business personal Property to apply to personal effects” with a limit of $2,500. The second, a “Commercial Protector Extension Plus Endorsement” revised the limits on certain coverage to a “$100,000 Blanket Limit.” This provision included two lists of “Coverages included in the blanket limit” and “Coverages not included in the Blanket Limit.”
Included in the “Coverages included in the blanket limit” list were “Back-up of Sewers or Drains (including resultant Business loss or resultant Extra Expenses incurred.)” The language of the Extension Plus Endorsement specified the limits of insurance for those coverages included in the list were “deleted and replaced” with a limit of $100,000 “in any one occurrence.” Debris removal was not included on either list. Personal effects were not included in the blanket limit, but a revised limit increased the personal effects limit to $5,000.
After the pump failed, the carrier made an advance payment of $30,000. One month later, the carrier determined that the damage to the covered buildings and business personal property exceeded $100,000, and wrote a letter to the firm’s representative informing him an additional payment of $70,000 would be made, for a total of $100,000. In that letter, the carrier’s representative also wrote the $70,000 payment would end the carrier’s obligation under the policy, citing the blanket limit of $100,000 in the Extension Plus Endorsement.
That same day, the firm’s representative responded, stating the debris removal provision expressly contemplated additional coverage beyond the $100,000 blanket limit, and also asserted coverage remained for damaged personal effects. Over the next six months, correspondence continued between the parties with the firm continuing to assert it was owed additional payments under the policy, and the carrier denying any coverage remained.
Eventually, plaintiffs brought suit alleging breach of contract and bad faith for the carrier’s failure to pay the additional $25,000 for debris removal and $5,000 for personal effects. The adjuster testified at her deposition that she had discussed the policy extensively with other adjusters, they considered the firm’s stance, and ultimately decided the policy did not extend coverage beyond the blanket limit of $100,000.
On a motion for summary judgment, the court ruled in plaintiffs’ favor on the issue of liability for breach of contract. The court found the policy’s failure to include debris removal in the “Coverage included in the Blanket Limit” list indicated the debris removal coverage was not amended by the Coverage Extension Plus provision.
The court entered summary judgment in plaintiffs’ favor on the issue of Personal Effects. The court found the Extension Plus Endorsement specifically listed the Personal Effects coverage was not subject to the blanket limit, and therefore the coverage was not subject to it.
On the bad faith issue, the carrier advanced three defenses: (1) bad faith could not exist because the carrier properly denied the claims; (2) even if coverage existed, the carrier’s position there was no coverage was reasonable as evidenced by plaintiffs’ argument the policy language was ambiguous; and (3) the carrier engaged in a thorough investigation of the claims, and even re-opened the claim when plaintiffs requested it, thus negating a finding of bad faith.
The court dismissed the first argument based on finding summary judgment in plaintiffs’ favor. The court also disregarded the third argument, finding that the question of bad faith was not one of a failure to investigate, rather it was a failure to properly interpret the policy.
This left only the second defense for consideration. The court was “not convinced” the plaintiffs’ ambiguity argument was dispositive of a finding of bad faith, and believed it was only a rebuttal to defendant’s argument concerning coverage. As such, the court allowed the case to go to trial on the bad faith claim.
Date of Decision: May 16, 2013
Davis v. Peerless Indem. Ins. Co., CIVIL NO. 1:CV-12-1241, 2013 U.S. Dist. LEXIS 69812, (M.D. Pa. May 16, 2013) (Caldwell, J.)