MARCH 2011 BAD FAITH CASES
BAD FAITH CLAIM DISMISSED AFTER INSURER AND INSURED PROVIDE SIGNIFICANTLY DIFFERENT ESTIMATES OF COST OF REPAIRS & INSURER ACTED DILIGENTLY IN CONDUCTING INVESTIGATION (Philadelphia Federal)

The insured suffered losses to her house in a bad storm, and she had a homeowner’s insurance policy with the insurer.  The insurer’s representative inspected the house shortly after the storm and initially estimated the cost of repairs to be around $3,000, the insured hired a public adjuster who estimated that repairs would cost almost $40,000.

The insurer’s representative had concluded that the storm was not the cause of many claimed areas of damage around the house, while the insured’s public adjuster attributed nearly all of the damage in the house to the storm.  After a second inspection, the insurer’s representative adjusted his estimate to about $10,000, and the insurer paid that amount, but it was still significantly less than the insured sought.

The insured then filed suit in state court, alleging breach of contract and bad faith.  After the case was removed to federal court on diversity jurisdiction, the insurer filed a motion for summary judgment to dismiss both counts.  The court first refused to dismiss the breach of contract count, as there was a “fundamental dispute over whether the claimed damage in certain areas . . . [could] be attributed to the storm or to other causes,” and the public adjuster submitted an affidavit stating that he made no material misrepresentations.  It was therefore the fact-finder’s job to determine whether a breach of contract occurred, as the judge could not rule on the issue as a matter of law.

While the breach of contract claim survived summary judgment, the bad faith claim did not.  The insurer’s representative inspected the house twice and revised his estimate after the second inspection.  Additionally, he kept open lines of communication with the public adjuster and responded to all letters and phone calls.  The court therefore could not find any clear and convincing evidence that the insurer acted in bad faith when it denied coverage, and it granted summary judgment to the insurer on the bad faith count.

Date of Decision:  March 3, 2011

Kling v. State Farm Fire & Cas., Civil Action No. 10-101, United States District Court for the Eastern District of Pennsylvania, 2011 U.S. Dist. LEXIS 21835, (Mar. 3, 2011) (Fullam, J.)