United States District Court Judge Mariani granted partial summary judgment dismissing Plaintiffs’ allegations of bad faith in a claim where Plaintiffs allege water damage to their basement.
Plaintiffs brought a claim under their homeowner’s insurance alleging that on September 7, 2011, their home was damaged as a result of Hurricane Irene and/or Tropical Storm Lee. Plaintiffs observed exterior damage to their home, as well as to their basement interior which was reported to State Farm. State Farm sent a representative to inspect the damage. The inspector indicated that State Farm would pay for the exterior damage but it would not cover the damage to the interior basement because such damage was “flood damage” which was not covered by the homeowner’s insurance policy. All parties agreed that the Plaintiffs did not maintain flood insurance.
Plaintiffs contend that the damage to their basement was not caused by “flooding” but rather by water leaking through the damaged roof and chimney into the basement walls. The investigator, however, found that there was no evidence of damage from a roof leak based on the absence of any stains on the ceiling, on the walls, wet carpet, halls, or any water damage to the upper floors at all. An expert retained by State Farm supported that proposition while the public adjusters retained by the Plaintiffs contended that the basement water infiltrated the home through damage to the chimney and the roof.
Plaintiffs’ Complaint alleged counts for breach of contract and bad faith. State Farm’s Counsel, Lee Ullman, Esquire, of Forry Ullman moved for Partial Summary Judgment on the Bad Faith issue.
The Court noted that “… bad faith must be proven by clear and convincing evidence and not merely insinuated.” The court then noted that the test for bad faith as set forth in the case of Terletsky v. Prudential Property & Casualty Insurance Company, 437 Pa. Super. 108, 649 A.2d 659, 688 (Pa. Super. 1994), appeal denied, 540 Pa. 641, 659 A.2d 560 (Pa. 1995), is an objective one and so as long as a “reasonable basis” exists to deny a claim, “there cannot, as a matter of law, be bad faith.’”. Williams v. Hartford Casualty Insurance Company, 83 F. Supp. 2d, 567, 574 (E.D. Pa. 2000).
Plaintiffs argued that the inspection was inadequate, resulted in an incorrect assumption and that State Farm acted in bad faith in its immediate and unsubstantiated denial of the claim. As evidence, the Plaintiffs allege that State Farm’s inspector spent approximately 25 to 30 minutes at the property and came to a conclusion different from that of the public adjuster. Plaintiffs also alleged discrepancy existed between State Farm’s inspector’s belief that the water that entered the house was “subsurface water” and State Farm’s official denial letter stating that it was “surface water”.
Judge Mariani, specifically noted that Plaintiffs’ insurance policy did not insure against losses for either surface or subsurface water so that any discrepancy between the water sources would not affect whether the claim was paid. With regard to the allegation that the inspector spent only 25 to 30 minutes in their home, he indicated there was no reason to believe on the record before him that a longer time was necessary, given that the uncontradicted testimony was that he only observed damage to the basement and none on the upper levels, which the court found, would substantiate State Farm’s claim that the cause was flooding. Based on that, the Court found that the fact that the physical damage was consistent with the determination of flooding there was a reasonable basis sufficient to avoid a claim of bad faith.
The Court noted that there was no evidence to support the assertion that State Farm had “acted with a dishonest purpose” under Terletsky. The Court found that it was a jury questions regarding the claim for breach of contract, Plaintiffs could not state a claim for bad faith under Pennsylvania law. The Court again noted Terletsky, citing that “mere negligence or bad judgment is not bad faith.”
Copies of the Opinion are available upon request.
