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In Boulware v. Liberty Insurance Corp., the insurer denied a claim for a damaged deck, under a homeowners policy, on the basis of exclusions for faulty workmanship, wear and tear and/or rot.  The insurer’s adjuster came to the scene and investigated, but did not bring an engineer.  He determined the cause was poor work or rot, and looking to a generic version of the homeowners policy at issue, not the specific policy, when he drafted a denial letter.  His supervisor, who had experience and training with such construction issues, also only referring to the generic policy, approved the denial letter.

The insured brought a bad faith claim, based in large part on the fact that the only on-site inspection was done by the adjuster, in under an hour; and that the insurer “did not retain any contractor experts or engineers to inspect her damage despite the fact that its adjusters and supervisors had authority to do so.” Rather, the insured argued that “during the entire claims process, [the insurer] failed to utilize a contractor expert or engineer to assist it to properly evaluate [the insured’s] claim and examine the cause of … loss, and that [it] should have retained such experts before it issued the two denial letters.”

The insurer responded that based on the construction background of its personnel handling the claim, and the adjuster’s actual investigation, “it can hardly be said that their decisions were unreasonable or that they knew an expert or engineer was required to properly evaluate plaintiff’s claim yet recklessly disregarded this in denying her claim.”

The court further focused on the adjuster’s detailed determinations at the actual inspection, where the adjuster concluded “that there was ‘improper, inadequate, defective workmanship or construction’ of the deck, and he stated that the method of attachment of the deck to plaintiff’s home was ‘with nails, instead of lag screws’ and that there ‘was no Z flashing present.’”

He had also “concluded that there was defective construction of plaintiff’s deck since there was rot in the deck boards caused by the lack of Z flashing which allowed snow and water to rot out the boards over time.” The adjuster had “personally viewed the areas of rot and took photos of the areas, and his photos substantiated his findings regarding the use of nails and the deteriorating boards. … [and his] findings were entirely consistent with the opinions of the engineer expert defendant retained after this case was filed in court….”

Moreover, “the retention of an expert by the insurer after denying a claim is not bad faith and, that even if the insurer erred by not retaining an expert to examine the damage prior to the initial denial of a claim, this amounts to only negligence or poor judgment and not bad faith.” In any event, the court found that the denial was reasonable, even without first having retained an expert. That during litigation the two experts differed on causation, and thus coverage, only created a dispute of fact over contract coverage, not bad faith.

The court found that the insurer “performed a reasonably detailed investigation of plaintiff’s claim notwithstanding the lack of an expert, and it supplied a reasonable basis to bolster its denial of her claim on two occasions.”

As to the adjusters’ not reviewing the insured’s specific policy, rather than a generic policy, this was not evidence of bad faith, as the adjuster “was well aware of the provisions in a standard … policy as well as the exclusions in the … standard policy when he inspected plaintiff’s property and drafted his first denial of coverage letter for plaintiff’s claim.”  The adjuster had even discussed the nuances of the policy exclusions with the insured at the time of his inspection. The supervisor’s review using the same general knowledge supported the adjuster’s conclusion.

Finally, when a third employee of the insurer, a team manager, got involved,  “he had all of the documents regarding [the] claim, including the original denial letter, the notes, the photographs, the log notes, all correspondence and [the] actual policy.” He reviewed the claim with the adjuster, “and he reviewed the definition of collapse in [the actual] policy and, they both agreed that the cause of her loss was ‘wear/tear/deterioration’ and that her loss ‘[did] not fit [the policy] definition of collapse.’”

Thus there was no bad faith because the court found that the insurer conducted a prompt and reasonably thorough investigation of the claimed loss, and provided a reasonable basis to deny the claim, and summary judgment was granted to the insurer.

Date of Decision: March 17, 2015

Boulware v. Liberty Ins. Corp., CIVIL ACTION NO. 3:13-CV-1541, 2015 U.S. Dist. LEXIS 32223 (M.D. Pa. March 17, 2015) (Mannion, J.)