COURT ALLOWS FOR POSSIBILITY OF STATUTORY BAD FAITH, EVEN WHERE NO BENEFIT DUE – BUT STILL DENIES CLAIM (Western District)

The court determined no coverage was due under a policy exclusion in this water damage case. Thus, there could be no statutory bad faith claim on the basis coverage was improperly denied.

However, even though no benefit was denied under the policy, the court concluded that denial of a benefit was only one type of statutory bad faith. Under this view, failures to investigate facts, communicate with insureds, or do proper legal research could still create actionable bad faith claims even if no duty to indemnify or defend exists under the policy. [Note: As this Blog has set forth on many occasions, this view is questionable, i.e., the denial of a benefit is a sine qua non of statutory bad faith, and poor investigation or communication are only evidence of bad faith where a benefit has been denied, and cannot be a stand-alone basis for bad faith claims where no benefit is denied.]

Even under this broader standard, the court granted the insurer summary judgment. The insured asserted inadequate investigation bad faith concerning the cause of water damage in this case. It alleged the investigation was too brief, the inspector did not investigate all areas of the property, and did not communicate with the insured about the loss. The plaintiff admitted the adjuster did investigate a burst public water supply pipe from which all of the alleged property damage originated.

The court found because the policy excluded losses originating from a burst water supply pipe, there was in fact no need for any further investigation. “Under these circumstances, any additional investigation would not have changed the outcome of [the] decision to deny [the insured’s] claim.” Thus, there was insufficient “evidence from which a reasonable jury could find by clear and convincing evidence that [the insurer] performed an inadequate investigation or otherwise acted in bad faith in its handling [the] claim.” [Note: It is clear that the policy’s coverage language defining benefits due informed the court’s decision on what constituted a reasonable investigation.]

Thus, summary judgment was granted on the bases that there was no improper benefit denial, and no bad faith investigation.

Date of Decision: November 21, 2019

Sypherd Enterprises, Inc. v. Auto-Owners Insurance Co., U. S. District Court Western District of Pennsylvania 2022102:18-CV-00141-MJH, 2019 U.S. Dist. LEXIS 202210 (W.D. Pa. Nov. 21, 2019) (Horan, J.)

It is interesting to compare this case to the statement of principles governing actionable statutory bad faith claim in last week’s post on Judge Beetlestone’s Purvi decision.