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A bad faith claim arose from the insurer’s denial of the insured’s claim after her home and personal belongings suffered water damage.  The insured had a homeowner’s policy with the insurer.  The policy provided for dwelling protection for “sudden and direct physical loss to the property” except as limited or excluded in the policy. The policy excluded losses to the property for flood, including but not limited to surface water……whether or not driven by wind.”

The policy also covered “sudden and accidental direct physical loss …except as limited or excluded in the policy” to personal property owned or used by the insured.  This personal property coverage included damage caused by windstorm or hail, except for “loss to covered property inside a building structure…..unless the wind or hail first damaged the roof or walls and the wind forces the rain, snow, sleet, sand, or dust through the damaged roof or wall.”

The insured suffered a covered loss to her home and personal property.  She hired a public adjuster to assist her in filing a claim under her policy.  The adjuster sent a letter to the insurer filing a claim and asserting that a windstorm caused the insured’s loss.  The insurer assigned the claim to a representative who went out and inspected the property with the insured’s adjuster.

At the inspection the insured’s adjuster told the representative that water had run off the roof on the spa cover and then splashed through a window that was left partially open.  The adjuster also told him that water had run off the roof settled on top of the spa and then wind blew it or it ran over and hit the ground and went through the window that was left open.  The insurer later denied the claim based on the exclusion in the policy for flood, including, but not limited to, surface water whether or not driven by wind.

The insured filed a complaint against the insurer for breach of contract and bad faith in the Philadelphia Court of Common Pleas.  The insurer removed the case to the United States District Court for the Eastern District of Pennsylvania.  The parties filed cross motions for summary judgment.

The insured claims that the insurer’s representative did not believe the explanation of the loss given by her adjuster yet failed to use an expert to determine the cause of the loss.  She also argued that the insurer’s representative lacked evidence to confirm what he believed caused the damage, and denied coverage based on the policy’s exclusion, although he had no basis for his stated conclusion regarding the definition of surface water.

The court found the insured’s evidence was lacking and insufficient to show bad faith.  The insurer’s representative investigated the claim by going to the insured’s home and spoke with the adjuster hired by the insured to determine the cause of the loss.  He accepted the representation of the loss given to him by the insured’s adjuster in an effort to find coverage for the insured. The insurer’s representative even discussed his investigation with his supervisor, who agreed with him that the facts did not allow for coverage.

It is not bad faith to conduct a thorough investigation into a questionable claim.  Further, the insured provided no evidence that the insurer’s failure to employ an expert to determine the cause of loss rises to the level of bad faith.  At most, the insurer erred in not engaging an expert to further examine the damage, but that mistake in judgment falls short of bad faith.

Therefore, since the evidence presented did not meet the clear and convincing standard for bad faith, the court granted the insurer’s motion for summary judgment on the insured’s bad faith claim.

Date of Decision: September 29, 2008

Rock-Epstein v. Allstate Ins. Co., No. 07-2917, 2008 U.S. Dist. LEXIS 76042 (E.D. Pa. Sept. 29, 2008)(Schiller, J.)