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In Morrisville Pharmacy, Inc. v. Hartford Casualty Insurance Company, the insured was a pharmacy operating under an “all risk” policy issued by the insurer. It initially filed a claim for insurance benefits in December 2008, claiming that the loss was caused by theft from the pharmacy earlier that year. The insured eventually changed its claim to allege that the property owner caused the loss by changing the pharmacy’s locks so that the pharmacy owner could not enter and remove the medications, documents, and equipment that belonged to the pharmacy.

The pharmacy owner had attempted to commit suicide in August 2008, and the pharmacy had closed down shortly thereafter. The property owner’s attorney wrote to the pharmacy owner asking for her to surrender the premises and return the keys, but she did not respond.

The pharmacy owner attempted to enter the premises almost two months after the pharmacy closed down, but she discovered that the property owner had changed the locks. The two sides communicated with each other, but they could not arrange for the pharmacy owner to recover the narcotics and other files left in the pharmacy. She filed a claim with the insurer, alleging direct physical loss of pharmacy property, which would be recoverable under her “all risk” policy.

She later admitted that her claim was simply that the property owner prevented her access to files and documents in the building, and that this prevented her from taking an offer for that sale of her pharmacy files.

The pharmacy owner filed a claim for breach of contract and bad faith after five months had passed without the insurer providing a determination on the claim. The main issue on the breach of contract claim was the legal question of whether the pharmacy owner suffered a direct physical loss of property, as defined by its insurance policy.

The court determined that because it was the pharmacy owner who was unable to effectively communicate with the property owner and her attorney, to the extent that there was a loss, it was due to her failure to take reasonable action to mitigate its loss, and even if there was a loss, “all risk” policies do not cover direct physical losses stemming from non-fortuitous events under Pennsylvania law. Therefore, there was no breach of contract that occurred.

Concerning the bad faith allegation, the court first noted that the insurer never even denied any benefits under the policy before the filing of the lawsuit. While the insurer had been evaluating the claim for five months before the suit was filed, the insured did not file proof-of-loss statements for the first two months after she submitted her claim. The court finally determined that the insurer adequately investigated the insured’s claim after the proof-of-loss statements and kept the insured notified of the investigation’s progress.

Therefore, the court determined that there was no issue of material fact as to whether bad faith was the reason for the delay, and it granted the insurer’s Motion to Dismiss both counts of the Complaint.

Date of Decision: November 3, 2010

Morrisville Pharm., Inc. v. Hartford Cas. Ins. Co., Civil No. 09-cv-02868, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 116607, (Oct. 28, 2010) (Rufe, J.)