WHERE POLICY DOES NOT COVER CLAIM, INSURER HAS A REASONABLE BASIS TO DENY BENEFITS AS A MATTER OF LAW (Philadelphia Federal)
The case involved a policy interpretation dispute, specifically focusing on an exception to an exclusion. The carrier denied coverage, and the insured sued for a declaratory judgment, breach of contract, and bad faith.
The exclusion at issue plainly applied to condominiums, but also included an exception for single-family dwellings that were not tract homes, condominiums, or townhouse projects. The insured argued that the exception encompassed three types of structures: single family homes that are not tract homes, and condominiums, and townhouse projects. The insurer argued that the exception only applied to single family dwellings that were not part of tract homes, condominiums or townhouse projects.
The court agreed with the insurer. It would be unreasonable to read the policy as excluding coverage for condominiums, and then excepting condominiums from the exclusion in the next breath. Otherwise, this would make the exclusion language surplussage.
After making this finding, the court determined that there was no breach of contract, and that the insurer should be granted a declaratory judgment in its favor.
The court then granted judgment to the insurer on the bad faith claim. “Given that the policy does not cover the … claim, [the insurer] did not, as a matter of law, lack a reasonable basis for denying benefits under the policy.”