NO BAD FAITH WHERE REFUSAL TO MEET INSURED’S PAYMENT DEMAND IS JUSTIFIED BY EXPRESS POLICY LANGUAGE (Philadelphia Federal)
The insurer successfully obtained summary judgment despite its continued refusal to reimburse its insured the sum actually paid to repair property damage.
The policy covered fire damage to the insured’s motel. However, coverage was limited to the least expensive of the following three options: “(1) the applicable insurance limit; (2) the cost to replace with property ‘[o]f comparable material and quality’ and ‘used for the same purpose;’ or, (3) ‘[t]he amount actually spent that is necessary to repair or replace the lost or damaged property.’” The building’s coverage limit was $2.25 Million.
Fire damaged the hotel, and the insurer paid approximately $1.6 Million. The insured claimed the loss exceeded $2.25 million, and that the insurer acted in bad faith by not reimbursing sums actually paid to repair the motel. The insured’s argument boiled down to: (a) the loss was covered; (b) the insured actually paid more than $2.25 Million to contractors, which could be proven through invoices, etc.; (c) and the insurer only paid $1.6 Million to the insured even though the insured demonstrably paid more than $2.25 Million.
The insurer offered evidence from third party contractors that the repair work could have been done at less expense, and used that as its basis to pay less than what the insured actually paid. The court found that the insurer’s payment theory comported with one of the three permissible options in the policy, i.e., the cost to replace with property of comparable material and quality. The insured’s unqualified demand for full reimbursement misread the policy.
Thus, “the Policy allows room for disagreement between the parties as to whether the invoices Plaintiff submitted were more than the ‘cost to replace’ with property of ‘comparable material and quality’—and as a result [the insurer’s] failure to fully compensate the claimed loss is not evidence of bad faith.”
Further, the insured failed to present any evidence beyond the payment invoices. Those invoices did not create any issues of material fact as to the insurer’s bad faith. Simply failing to pay what an insured demands is not bad faith where express policy language allows for a different standard of payment.