JUNE 2018 BAD FAITH CASES: IN AN OPINION THAT BRINGS OUT THE VALUE OF KEEPING A THOROUGH AND DETAILED CLAIMS FILE, THE INSURED FAILED TO PRESENT CLEAR AND CONVINCING EVIDENCE THAT (1) THE INSURER LACKED A REASONABLE BASIS FOR ITS ESTIMATES, AND (2) THAT DELAY AMOUNTED TO BAD FAITH (Philadelphia Federal)

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After a fire damaged insured’s property, six inspections of the property occurred due to the adjusters’ differing opinions on demolition and construction costs. Time also passed to address the tenant insurance carrier’s payment responsibilities. The insured sued for breach of contract and bad faith, alleging that the insurer improperly delayed in claims handling and payment, and refused to pay “sufficient insurance benefits” under the policy.

Under Pennsylvania law, a bad faith claim can be asserted if the insurer lacks a reasonable basis for denying coverage or in causing improper delay of payment. The insured alleged “that [the insurer] acted without a reasonable basis by (1) only releasing funds far below the amount due and owed under the policy, and (2) purposely delaying payment.” At the core of a delay bad faith claim, “[t]he plaintiff bears the burden of establishing delay by clear and convincing evidence.”

BAD FAITH DENIAL OF FUNDS

The insured argued that the insurer lacked a reasonable basis for the sum it chose to pay because the insurer waivered from its initial damage estimate, questioned the insured’s damage estimates, inspected the property six times, and relied on the tenant’s insurance carrier to determine final damage estimates.

The court ruled the insured’s evidence “fails, as a matter of Pennsylvania law, to reach the clear and convincing standard required for bad faith claims.” The evidence was not clear and convincing because it did not reflect a “frivolous or unfounded refusal to pay proceeds of the policy,” and because the evidence was “likely immaterial to whether [the insurer] lacked a reasonable basis for the eventual insurance payment.”

BAD FAITH DELAY OF PAYMENT

The court further ruled that the insurer did not exhibit bad faith in delaying payment, because the insured failed “as a matter of law to reach the clear and convincing standard.” The insured relied on the evidence referenced above, and “the undisputed fact that the time between the initial claim and the filing of the lawsuit was more than eleven months.”

First, the court concluded that the insurer provided the final payment four months after the initial claim. Next, the court determined that “continuous questioning” concerning the claim was not clear and convincing evidence of delay because the insured’s “submissions to [the insurer] always received a timely response, and the ‘questioning’ was consistent throughout.”

The court then concluded that when “delay is attributable to the need to investigate further . . . no bad faith has occurred.” The court found that “[e]ach of the six inspections had a reasonable basis,” as represented in “[e]xtensive, contemporaneous documentation, attached to [insurer’s] undisputed statement of facts.” The court ruled that the statement of facts reflected the necessity of the six inspections. Finally, the court concluded the insured did not provide sufficient evidence to prove “that [insurer’s] ‘obligations [to pay insured] are not contingent on the policy of insurance between [the tenant] and [tenant’s insurer] or payments made thereunder.’”

Summary judgment was granted for the insurer.

Date of Decision: June 29, 2018

LMT Associates, LLC v. Ohio Casualty Insurance Co., U. S. District Court, Eastern District of Pennsylvania NO. 17-3565, 2018 U.S. Dist. LEXIS 109643 (E.D. Pa. June 29, 2018) (Baylson, J.)

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