In Colella v. State Farm Fire & Casualty Company, there was a leak in the insureds’ basement of their home, leading to water damage. The insurer had an “all risk” homeowner’s insurance policy with the insureds, but it contained an exclusion for damage caused by water below the surface of the ground, regardless of the cause of the subsurface water.
Shortly after the leak caused the damage, the insureds reported the loss to the insurer, which proceeded to investigate the claim. The undisputed cause of the leak was a “drain line leaking from the horizontal section below the concrete slab.” The insurer eventually denied the insurance claim, determining that the below-ground exception applied.
The insureds responded to the denial of their claim by filing suit, including claims for breach of contract and bad faith. Initially, an estimate of the cost of repairs was slightly over $25,000, but the insureds in their Complaint requested damages in excess of $50,000, plus punitive damages and costs. The insurer moved for summary judgment, and the district court granted its motion on both the breach of contract and bad faith claims. The insureds then appealed to the Third Circuit.
The court first affirmed the district court’s breach of contract ruling, noting that the words “regardless of the cause” in the below-ground exception were unambiguous, and it therefore was required to give effect to that language. Concerning the bad faith claim, the insureds only offered a statement made by one of the insurer’s managers, who stated in a deposition that he did not seek a legal opinion before denying coverage. The court quickly affirmed the district court’s ruling that the insureds had not actually identified any evidence which could show bad faith on the part of the insurer if proven to be true. It also ruled that the insurer had a reasonable basis for denying the insureds’ claim due to the explicit language of the below-ground exception, so it also affirmed the district court’s order with respect to the bad faith claim.
Date of Decision: January 14, 2011
Colella v. State Farm Fire & Cas. Co.
, No. 10-1976, United States Court of Appeals for the Third Circuit, 2011 U.S. App. LEXIS 1306, (Jan. 14, 2011) (Submitted Under Third Circuit LAR 34.1(a)) (Barry, J.)