OCTOBER 2018 BAD FAITH CASES: A FINDING THAT NO COVERAGE IS DUE REQUIRES JUDGMENT FOR INSURER ON BAD FAITH CLAIM (Western District)

The insurer refused to pay the claim based upon policy conditions not being met. The court agreed there was no coverage based on the policy’s language and the facts of record, and it rejected the bad faith claim on that basis.

This was a property damage case resulting from a burst water pipe. The policy required continued residence as a condition for coverage. The insureds were not residing at the property at the time a water pipe burst. After the carrier refused to pay based on the residence requirement, the insured sued for breach of contract and bad faith.

In finding no breach of the policy, the court ruled the policy required continued residence, the facts showed the insureds did not meet that condition, and the insurer had not waived this residence condition.

On bad faith, the insureds unsuccessfully argued (1) the insurer had advised them to seek water remediation and then denied coverage; and (2) the insurer failed to inform them that they were not complying with the residency requirement. The court focused on the absence of any coverage obligation in determining whether (1) the insurer’s position lacked a reasonable basis, and (2) that it knew or recklessly disregarded that fact — Pennsylvania’s two criteria for determining statutory bad faith.

The court held that the insurer “clearly had a reasonable basis for denying coverage for the Subject Loss: the Policy required Plaintiffs to reside at the Subject Property, and Defendant concluded, after an investigation, that Plaintiffs did not reside there, a conclusion with which this Court agrees.” Thus, the carrier “could not have known or recklessly disregarded a lack of reasonable basis.” The court relied upon another recent Western District decision that “[i]n light of the dismissal of the Breach of Contract claim, the Bad Faith claim cannot survive.”

Date of Decision: October 11, 2018

Gerow v. State Auto Prop. & Cas. Co., U. S. District Court Western District of Pennsylvania Case No. 3:17-cv-203, 2018 U.S. Dist. LEXIS 175007 (W.D. Pa. Oct. 11, 2018) (Gibson, J.)