OCTOBER 2017 BAD FAITH CASES: NO BAD FAITH WHERE NO COVERAGE OWED PER POLICY EXCLUSION (Philadelphia Federal)
The insured engaged in basic grout and tile work, and had a CGL. While performing work in the lobby of a commercial premises, grout dust and other particulates settled in other parts of the premises. The owner submitted a claim for the clean-up costs to its insurer, which ultimately paid the claim and then made demand on the CGL insurer. That insurer denied coverage under the “Deleterious Substances Exclusion”.
The property’s owner’s insurer sued the contractor, which notified its CGL insurer and requested defense and indemnification. Again, the CGL insurer denied coverage pursuant to the deleterious substances exclusion. The insured engaged private counsel, who asserted that the type of grout dust involved is not included in the policy exclusion. The insurer hired an expert who concluded that the grout dust was of a type precluded from coverage by the exclusion.
The insured executed a stipulated judgment to limit its legal expenses, and then sued its insurer for breach of contract and bad faith. The insurer moved for summary judgment.
The Court held that the deleterious substance exclusion was unambiguous, and the insurer did not owe coverage under the CGL policy. As such, the insurer did not breach its contract with the insured.
The insured argued that the insurer should be estopped from denying coverage because it initially failed to raise a deleterious substances exclusion specifically including silica, which is ultimately what precluded coverage. However, the Court ruled, “[i]t cannot be said in this matter that [the insurer’s] failure to cite the relevant policy language about silica . . . prejudiced [the insured], as [the insured] was already on notice that [the insurer] was disclaiming coverage, albeit under a different provision of the exclusion.” The Court further reasoned that the insurer could not have known about the applicability of this particular silica exclusion prior to the retaining of its own expert.
Lastly, the Court granted the insurer’s motion for summary judgment as to the bad faith claim, holding that “[t]here can be no finding of bad faith where the insurer did not have a duty to provide coverage under the provisions of the Policy.”
