Boulware v. Liberty Ins. Corp., No. 3:13-CV-1541, 2015 WL 1219283 (M.D. Pa. Mar. 17, 2015).
After a portion of the insured’s deck collapsed, the
insurer denied coverage based on a brief inspection without hiring an
engineer or other expert. The insured brought a bad faith claim for
insufficient investigation, which the court denied, holding that the
insurer’s employees had a reasonable basis for their denial based on
their observations and experience.
On March 4, 2012, a portion of the deck attached to Taitwana Boulware’s
home collapsed, taking with it the sunroom built on the deck. At the
time, Boulware’s home was covered by a homeowners insurance policy
issued by Liberty Insurance Corporation (“Liberty”). Boulware notified
Liberty of the damage on March 5.
On March 7, Daniel Baron, a senior property loss specialist with
Liberty, investigated the damaged deck. He inspected the property for
about half an hour and took photographs, concluding that the damage had
been caused by defective construction which led to dry or wet rot.
Before leaving, he explained to Boulware that based on exclusions
contained in her policy for defective construction and wet or dry rot,
there was no coverage for the loss. Baron subsequently drafted a denial
letter to that effect which his manager, after reviewing the policy
language and Baron’s photographs, approved. Baron sent the denial
letter on March 28.
After a public adjuster hired by Boulware disputed the denial in
October 2012, Baron once again reviewed the claim file and, along with
another manager, confirmed the conclusion that there was no coverage for
the damage to the deck. As before, Liberty did not hire an engineer or
other construction expert to support its findings. Liberty denied
coverage a second time in January 2013.
The following month, Boulware filed a lawsuit in Pennsylvania state
court for breach of contract and bad faith, alleging that Liberty had
conducted an insufficient investigation before denying her claim by
conducting only a single brief inspection and failing to have an expert
review the damage. Liberty removed the suit to federal court. After
the suit commenced, Boulware retained an expert who opined that the deck
had not collapsed due to defective workmanship, while Liberty retained
an engineer who concluded that improper construction was the cause of
the damage. At the close of discovery, Liberty filed a motion for
summary judgment on the bad faith claim.
The Court stated that, under Pennsylvania law, bad faith claims are not
limited to unreasonable denials of coverage but “can have various other
bases, including an insurer's lack of investigation.” However, the
insurer need only show that it had a “reasonable basis” for its actions,
which it can accomplish by demonstrating that “it conducted a review or
investigation sufficiently thorough to yield a reasonable foundation
for its action.”
When the plaintiff fails to show that there is “clear
and convincing evidence that the insurer's conduct was unreasonable and
that it knew or recklessly disregarded its lack of a reasonable basis in
denying the claim,” summary judgment for the insurer is appropriate.
On these facts, the court granted Liberty’s motion. The court pointed
out that while Baron’s inspection was relatively brief, it produced
direct evidence of faulty workmanship and rot, including the use of
nails instead of screws to attach the deck to the house, the lack of a
certain feature that would have prevented water from entering the deck,
and visible areas of rot and rust.
Baron saw and photographed each of
these elements, and he and his supervisors relied on this evidence when
they decided that there was no coverage for the loss. These findings
were consistent with the conclusion eventually reached by the expert
Liberty retained in its defense of Boulware’s suit.
In these circumstances, the court stated that “it can hardly be said
that [Liberty’s] decisions were unreasonable or that they knew an expert
or engineer was required to properly evaluate plaintiff's claim yet
recklessly disregarded this in denying her claim.” Moreover, it noted
that “even if the insurer erred by not retaining an expert to examine
the damage prior to the initial denial of a claim, this amounts to only
negligence or poor judgment and not bad faith.”
The court therefore
held that Liberty conducted a reasonably detailed investigation which
supplied a reasonable basis to deny the claim, and it dismissed the bad
faith claim.