FEBRUARY 2011 BAD FAITH CASES THIRD CIRCUIT AFFIRMS SUMMARY JUDGMENT ON BAD FAITH CLAIM WHEN INSURER AT MOST ACTED NEGLIGENTLY IN FAILING TO TAKE CERTAIN ACTIONS (Third Circuit)

In Luse v. Liberty Mutual Fire Insurance Company, the insureds, husband and wife, suffered damages to their condominium from an accidental fire in their kitchen.  The insurer covered them under a condominium insurance policy.  Four days after the fire occurred, the insurer sent a representative to the home, and he determined that the residence was livable.  The wife, who was the only resident present at the time, did not ask about relocation when the representative inspected the home.

The husband had multiple phone conversations with the insurer’s claims supervisor, but he also allegedly did not initially ask about relocation.  About three weeks after the fire, the husband’s respiratory therapist contacted two of the insurer’s employees and told them that keeping the insured in his home was risky to his health.  At that time, the insurer quickly relocated the insureds to a hotel.

The insureds were not satisfied with the relocation at that time, and they filed a suit for bad faith under Pennsylvania’s Bad Faith Statute, 42 Pa. Cons. Stat. § 8371.  They first alleged that the insurer failed to properly investigate their claim and did not promptly act to relocate them to another residence immediately.  They also claimed that the insurer acted in bad faith by not informing the insureds that their condominium insurance policy provided them with primary living expense coverage.

The district court had determined that there was no evidence sufficient to create a genuine issue of material fact as to whether or not the insurer acted in bad faith, and the Third Circuit agreed.  When the initial inspection occurred four days after the fire, the wife did not mention a possible need to relocate, and it was disputed whether she mentioned her husband’s health condition at all.  Also, once the insurer did gain knowledge of the insured’s respiratory condition, it immediately took steps to relocate the family.  At most, the court stated, the failure to learn of the insured’s medical condition for 20 days after the fire was negligent, and it therefore did not constitute bad faith.

Concerning the other bad faith allegation, the Third Circuit agreed with the district court that the insurer’s failure to inform the insureds about their condominium policy providing primary living expense coverage was not an intentional withholding of information.  It held that because the insurer’s representative determined upon inspection that the condominium was livable and the insureds made no request for relocation, the insurer had a reasonable basis for withholding the information about living expenses.  Therefore, the court affirmed the district court’s order granting summary judgment to the insurer on the bad faith claim.

Date of Decision:  February 11, 2011

Luse v. Liberty Mut. Fire Ins. Co., No. 10-3363, United States Court of Appeals for the Third Circuit, 2011 U.S. App. LEXIS 2725 (Feb. 11, 2011) (Ambro, J. Chagares, J., and Nygaard, J.)