SEPTEMBER 2014 BAD FAITH CASES: WHERE POLICY CLEARLY EXCLUDES COVERAGE FOR WALL COLLAPSE, WITH NO APPLICABLE EXCEPTION FOR HIDDEN DECAY, THERE CAN BE NO BAD FAITH BECAUSE CARRIER HAD REASONABLE BASIS TO DENY CLAIM (Philadelphia Federal)
In White v. Metropolitan Direct Property & Casualty Insurance Co., the insureds suffered a wall collapse, which they originally claimed was “sudden and accidental” and the result of a heavy rain (which was later denied by them). Coverage was denied, and the insureds sued for breach of contract and bad faith.
First, the court found that the policy language of the “weather conditions exclusion” stated that sudden and accidental direct physical loss or damage to the property is not covered in the event of collapse where weather conditions contributed in any way to the collapse. The plaintiffs had originally claimed a weather source for the collapse, and the exclusion applied to a loss if that were the case.
The insureds further claimed that the wall collapse was the result of a structural defect, via use of the wrong type of brick. Such a claim was again subject to an express policy exclusion if defective, faulty, or unsound design, specifications, workmanship, or construction contributed to the collapse.
Lastly, the insureds also claimed decay and deterioration were a source of the collapse, through water infiltration in visibly deteriorated parts of the wall. Again, the policy was clear that only hidden decay would be covered, and because the decay was not hidden, the loss resulting from the collapse was not covered under the hidden decay exception.
After finding no breach of contract, the court addressed the bad faith claim: “The current bad faith claim before the Court cannot get past the initial element—lack of a reasonable basis for denying benefits. As explained in detail above, Defendant’s denial of benefits was not only reasonable, but correct under the Policy language. Absent a showing of an unreasonable denial, Plaintiffs are not entitled to recover on their bad faith claim.”