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.
