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Summary Judgment To Insurer: Continuing Investigation & Negotiation Implies Reasonableness

The Eastern District of Pennsylvania recently granted an insurer’s motion for summary judgment and dismissed the insureds’ bad faith claim after finding that the insurer’s continued investigation and negotiation of the insureds’ property damage claim was reasonable.  See Davis v. Safeco Ins. Co. of Illinois, 2021 WL 3603037 (E.D. Pa. Aug. 13, 2021).

In Davis, the insureds’ property sustained structural water damage and damage to personal belongings when a toilet malfunctioned and overflowed.  The insurer prepared an estimate for the structural damage and paid its insured consistent with that estimate.  Additionally, when the insureds provided the insurer with a spreadsheet showing personal property damage, the insurer paid the insureds for certain personal property.  The insureds next sought reimbursement for the price of painting the home, but the parties could not agree and the insurer refused to pay the amount requested.  Negotiations subsequently deteriorated, and there was no contact between the parties for a few months.  When negotiations resumed, the parties went back and forth over claims and expenses, and the insurer re-inspected the insureds’ property.  Following the re-inspection, the adjuster noted that he believed that the insurer had paid more than what was owed, so no additional payments were necessary.  The insureds then hired a public adjuster and the insurer continued to negotiate with the insureds.  After the insurer refused to pay for certain items submitted by the public adjuster, the insureds sued the insurer for breach of contract and bad faith.

The Court dismissed the bad faith claim and concluded that the insureds were unable to establish that the insurer lacked a reasonable basis to deny policy benefits and that the insurer knew or recklessly disregarded the lack of reasonable basis for denial.  In so finding, the Court noted that the insurer inspected the loss and made payments for dwelling damage and personal items that it deemed to be related to the loss.  The Court also found it reasonable for the insurer to review estimates submitted by the insureds for additional damage, and to re-inspect and negotiate with the insureds when there were concerns regarding scope and pricing.  The Court held that “the mere existence of continuing investigation and negotiation rather than an arbitrary and immediate denial implies reasonableness on the part of [the insurer].”

With respect to the breach of contract claim, the insurer argued that it should be dismissed because the insureds failed to bring suit within the one-year-from-date-of-loss policy requirement.  It was undisputed that the insureds did not institute suit until nearly two years after the loss.  While it is well-established in Pennsylvania that contractual one-year suit limitations in insurance policies are valid and enforceable, the Court noted that suit limitations are not enforceable when the insurer explicitly waives this defense, or their actions induce the insured to delay filing suit.  The Court held that the insurer was estopped from using the statute of limitations defense because the insurer failed to inform the insureds about their intent to rely on the provision despite the ongoing claim investigation.  Accordingly, the Court declined to dismiss the breach of contract claim because a reasonable jury could find the insurer’s conduct during the claim investigation and adjustment led the insureds to believe the suit limitations period would be modified or not enforced.