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In Wehrenberg v. Metropolitan Property and Casualty Insurance Company, the insured brought breach of contract and bad faith claims against an insurer refusing to provide coverage for alleged vandalism to a house owned by the insured.

The insured had previously leased the insured property to a lessee in October 2011 for five years starting in November, 2011. The house was subject to a mortgage, and the lessee was to pay each month’s rent directly to the mortgage company. In early 2012, the lessee stopped making his monthly rent payments and the insured received notice from the mortgage company that foreclosure proceedings had begun. After unsuccessfully attempting to email and call the lessee, the insured visited the house around June 24, 2012, and found that the locks had been changed.

The insured observed through the windows that the house had been gutted. The insured was able to reach the lessee by phone and told the lessee that he did not have permission to gut the house or perform any work on the house, and that the property had been damaged. The lessee responded that he was a contractor, that the house had major structural problems which he felt were necessary to fix by gutting the house, and that he would put the house back together.

The insured did not notify the insurer of what the lessee had done, but instead allowed the lessee to continue his “work” on the house. The insured told the lessee to get the mortgage caught up and put the house back together as soon as possible.

In January, 2013, the insured visited the property and found that not only was the first floor in the same disassembled condition, but that the basement and second floor had been gutted as well. According to the insured, “[t]hree bathrooms, flooring, bedroom walls, closets, furnaces, and air conditioner had all been removed.” However, the furnaces and air conditioners had been replaced.

In February 2013, the insured filed a claim with the insurer, asserting that the property had been vandalized. The insured alleged the insurer refused to cover the claim and neglected to return any of the insured’s phone calls. The insured eventually lost the house to foreclosure. The issue then became whether the lessee’s “work” on the property constituted vandalism, for which coverage would be provided, or renovations, for which coverage would be denied under the policy.

The insurer argued that the claim was not covered as a matter of law for two reasons. (1) The insured “failed to carry his burden of pleading that his loss falls within the Policy because he has not averred facts from which it could be shown that his loss could be considered ‘vandalism or malicious mischief.’” (2) The insurer averred that the loss characterized by the insured as vandalism was actually an incomplete renovation, subject to a policy exclusion.

The Court held that the insurer’s arguments failed for several reasons. First, the insurer failed to demonstrate that the facts alleged could never be “vandalism or malicious mischief.” The Court noted that if the complaint solely relied on the initial house-gutting, then the insurer might have a winning argument under the theory that the insured acquiesced to the act, from which malice could not be implied.

However, the Court acknowledged that after the insured instructed the lessee to repair the damage, the insured returned to the property six (6) months later and found additional damage done. Thus, the Court reasoned that it was “certainly plausible that [the insured] did not acquiesce in the second incident in which [the lessee] removed even more elements from [the insured property] without [the insured’s] permission.” Accordingly, the Court could not say at this point, as a matter of law, that the lessee’s actions could not constitute vandalism or malicious mischief, as the Court did not have enough information to make a determination either way.

Further, the Court stated that the insurer had not pointed to any applicable law “that stands for the proposition that vandalism could never be found under facts such as alleged here.” Here, the facts showed that the lessee committed a wrongful act in conscious or intentional disregard of the insured’s rights, which was allegedly the proximate cause of significant damage to the insured. Thus, “the further damage done to the property was not necessarily renovation gone wrong – it could plausibly have been vandalism.” Accordingly, the Court denied the insurer’s motion to dismiss the insured’s complaint.

As to the bad faith claim, the insurer focused on the argument that because there was no coverage obligation, there could be no bad faith as a matter of law.  However, because the Court found a plausibly pleaded argument for coverage, this argument necessarily failed (“i.e., the Court has not concluded as a matter of law that no coverage existed for [the insured’s] insurance claim for vandalism”). The insurer had apparently not pursued an argument that the bad faith claim should be dismissed in any event, because even if coverage was plausible the insurer’s position was not unreasonable as a matter of law.

Date of Decision: August 7, 2015

Wehrenberg v. Metro. Prop. & Cas. Ins. Co., Case No. 2:14-CV-01477, 2015 U.S. Dist. LEXIS 103758 (W.D. Pa. August 7, 2015) (Hornak, J.)