FEBURARY 2008 BAD FAITH CASES INSURER NOT LIABLE TO PAY LOSSES FOR PERIOD OF RESTORATION UNTIL ACTUAL LOSS IS SUSTAINED BY INSURED (Philadelphia Federal)
The Plaintiff submitted a claim to its insurer for damage that occurred at the Plaintiff’s property as a result of a fire. The fire damaged Plaintiff’s property, as well as leasehold improvements owned by the tenant. Plaintiff alleges that after the fire, it submitted benefit claims under the policy; however, the insurer failed and refused to pay. The insurer claimed that it issued advanced payments to Plaintiff immediately after the fire.
However, pursuant to an appraisal provision in the policy, Plaintiff demanded an appraisal and an appraisal award was entered.
The appraisal award included costs associated with rebuilding the property, as well as payment for losses sustained by the Plaintiff during the “period of restoration”, which is defined by the policy as the time the business would need to close to allow for the repairs. Defendant paid the balance owed for the property loss pursuant to the appraisal award, but did not pay the monies awarded to Plaintiff for the period of restoration.
The insurer argued that the Plaintiff’s losses for the period of restoration were not yet actually sustained pursuant to the policy language, since no repairs had been made. Therefore, Defendant refused to pay the period of restoration loss until the actual loss is sustained. Based on this refusal, Plaintiff filed claims for bad faith and breach of contract. In support of it’s bad faith claims, Plaintiff argued that Defendant failed to make payments in a timely manner.
In considering both Plaintiff and Defendant’s cross motions for summary judgment, the court held that although the appraisal award is binding upon both parties and conclusively establishes the amount of loss, Defendant is not liable for payment to Plaintiff until the actual loss is sustained. Therefore, once the repairs are made, Defendant will be liable for payment, but is not liable until such repairs are made.
The court also held that Plaintiff’s claim that Defendant acted in bad faith by making bald allegation of untimely payments were not enough to sustain it’s claim for bad faith and therefore Defendants’ motion for summary judgment was granted.
