SEPTEMBER 2017 BAD FAITH CASES: SUMMARY JUDGMENT WHERE NO EVIDENCE THAT CLAIM DENIAL WAS FRIVOLOUS OR UNFOUNDED, AND POLICY LANGUAGE WAS NOT AMBIGUOUS (Philadelphia Federal)
The insured filed a claim under his homeowner’s insurance policy after a leak in an air conditioner condensation line caused damage to his basement. Initially, the insured retained an independent claims adjuster to investigate the claim, who ultimately estimated the repair costs at $38,307.97. The insurer’s claims adjuster then investigated the property, and observed basement water damage, including “evidence of mold, rot, and deterioration damage to the building materials.” The insurer’s claims adjuster also noted bleach sprayed on the carpet in an attempt to remove the mold.
The insurer denied coverage due to exclusions precluding coverage for “damage caused by ‘continuous or repeated seepage or leakage of water’ from an air conditioning system, ‘which occurs over a period of time,’ water damage . . . and damage caused by the use of improper materials in the construction or repair of the property. . . .”
The insured requested reconsideration of the denial, arguing that the claim stemmed from “a ‘one time occurrence and [was] not due to repeated seepage.’” The insurer reviewed the insured’s request, but denied coverage again because the insured submitted no new information warranting coverage. The insured sued for breach of contract and bad faith, and the insurer moved for summary judgment on the bad faith claim.
In alleging bad faith, the insured argued that insurer failed to cite a factual basis for its coverage denial; that insurer unreasonably relied on an ambiguous and unenforceable policy exclusion for a loss caused by continuous or repeated seepage; and that there was no evidence that repeated seepage or leakage of water caused the loss.
After reiterating the “clear and convincing” evidentiary standard required for a bad faith claim, the Court concluded that no evidence in the record supported a finding that the insurer’s denial was frivolous, unfounded, or motivated by self-interest or ill will. On the contrary, the Court found that the insurer “acted reasonably and in good faith at all times during the claims investigation and handling process.” [The Pennsylvania Supreme Court has now ruled that self-interest/ill will are not elements of statutory bad faith claims.]
Furthermore, the Court found that the policy exclusions were neither ambiguous nor unenforceable. The mere fact that the insured may have interpreted those exclusions differently is not sufficient to support a bad faith claim. Lastly, the insurer provided expert evidence to show repeated seepage of water caused the loss, and the insured submitted no conflicting expert evidence.
The Court granted the insurer’s partial motion for summary judgment as to the bad faith claim.
