JULY 2016 BAD FAITH CASES: REASONABLE INVESTIGATION ELIMINATES BASIS FOR BAD FAITH CLAIM, AS INSURED COULD NOT SHOW BY CLEAR AND CONVINCING EVIDENCE THAT INSURER HAD “NO GOOD REASON” TO DENY COVERAGE (Philadelphia Federal)
Dougherty v. Allstate Property & Casualty Company involved a claim for water damage from burst pipes. The insurer took the position that the insured failed to properly maintain his furnace, leading to freezing and the burst pipes. The insurer asserted a frozen pipe exclusion and a maintenance failure exclusion. The insured brought breach of contract and bad faith claims. The court granted summary judgment to the insurer on both counts.
On the bad faith count, the court a “no good reason” to deny coverage standard as a means of measuring bad faith. Thus, it was not unreasonable to focus the investigation on the furnaces’ condition “given that the water damage to the property occurred in January in Pennsylvania in an unoccupied property where the gauge on the oil tank read empty at the time of the loss (even though the gauge was later determined to be faulty).” The furnace had failed due to a clogged nozzle.
The insured offered no evidence to show why the insurer should have concluded that “the discharge of water caused the furnace to malfunction and not the other way around.” The court also noted that the “plaintiff testified that he has no evidence that anyone [had] any ill will towards him or that anyone … tried to influence[the expert’s] conclusions.”
