White v. Metro. Direct Prop. and Cas. Ins. Co., Civ. A. No. 13-434 (E.D. Pa. July 29, 2014).

Eastern District of Pennsylvania enters summary judgment for the insurer on statutory bad faith claim in coverage dispute under homeowner’s policy.

This case involved a coverage dispute under a homeowner’s policy following the collapse of a wall in the plaintiffs’ home.  Plaintiffs alleged that the collapse resulted from excessive rainfall during a storm in March 2011.  As part of the investigation of the plaintiffs’ claim, the insurer, Metropolitan Direct Property and Casualty Insurance Company (“Metropolitan”), hired a professional engineer to assess the cause of the collapse.  The engineer concluded that the collapse was not caused by the single storm event in March 2011, but instead resulted from long-term and on-going water infiltration attributable to poor maintenance.  In fact, one year earlier, the plaintiffs’ home had sustained water damage, but the plaintiffs did not fix the damage.  Plaintiffs also retained an engineer, who determined that the cause of the collapse was attributable to the type of brick used to construct the home and not to poor maintenance.  Metropolitan determined that the plaintiffs’ claim was not a covered collapse under the terms of the policy and denied coverage for their claim.

Plaintiffs filed a complaint in Pennsylvania state court alleging breach of contract and statutory bad faith under 42 Pa. C.S.A. § 8371.[1]  Metropolitan removed the case to federal district court, and later moved for summary judgment on the plaintiffs’ claims, arguing that the homeowner’s policy excluded coverage for collapse caused by weather, and in any event, that the collapse was not caused by a single rain event but rather by long-term water infiltration behind the collapsed wall.  The homeowner’s policy provided coverage only for “sudden and accidental direct physical loss or damage to the property,” except as excluded in other relevant provisions of the policy.  Metropolitan also argued that the plaintiffs could not establish evidence of bad faith because the record demonstrated that the plaintiffs were not entitled to coverage and Metropolitan had adjusted their claim in a timely manner, provided them over $17,000 in temporary housing, corresponded with them regularly, and based the coverage denial on an engineering analysis.

The court analyzed the terms of the homeowner’s policy in ruling on Metropolitan’s motion for summary judgment on the plaintiffs’ breach of contract claim.  The policy excluded coverage for collapses caused (or caused in part) by weather conditions and defective, faulty, or unsound design, specifications, workmanship, or construction.  Thus, under either of the plaintiffs’ theories regarding the cause of the collapse – severe weather or construction defects – the policy unambiguously excluded coverage for their loss.  The court, therefore, entered summary judgment in Metropolitan’s favor on the plaintiffs’ breach of contract claim.

In support of their bad faith claim, Plaintiffs argued that Metropolitan wrongfully withheld payment under the policy without a reasonable basis.  To establish a bad faith claim under 42 Pa. C.S.A. § 8371, a plaintiff must establish that the insurer (1) lacked a reasonable basis for denying benefits and (2) knew or recklessly disregarded its lack of a reasonable basis.  The court noted, “[i]n the insurance context, bad faith denotes a ‘frivolous or unfounded’ refusal to pay policy proceeds, which imports a dishonest purpose and a breach of a known duty, such as good faith and fair dealing.”  The court then explained that “to defeat a motion for summary judgment, a plaintiff must show that a jury could find by ‘the stringent level of clear and convincing evidence,’ that the insurer lacked a reasonable basis for its handling of the claim and that it recklessly disregarded its unreasonableness.”  Having already determined that Metropolitan’s denial of benefits “was not only reasonable, but correct under the Policy language,” the court ruled that the plaintiffs could not demonstrate that Metropolitan lacked a reasonable basis for denying their claim and entered summary judgment for Metropolitan on the plaintiffs’ bad faith claim.

[1] Plaintiffs also alleged a claim for common law fraud in their complaint, which was dismissed with prejudice following Metropolitan’s motion for partial judgment on the pleadings.