FEBRUARY 2013 BAD FAITH CASES: COURT DECLINES TO HOLD THAT ALLEGED “POST-CLAIM UNDERWRITING” IS EVIDENCE OF BAD FAITH, DENIES CARRIER’S SUMMARY JUDGMENT MOTION ON BASIS OF POTENTIAL ESTOPPEL IN UNDERWRITING PROCESS (Lackawanna County Common Pleas)

In AJT Props. v. Lexington Ins. Co., a commercial property owner purchased building and property insurance, which, based on surveys, indicated that the property was not in a special flood hazard area (“SFHA”). Several years later, the property suffered flood damage. The insured filed a claim under its policy and the carrier tendered coverage for building and personal property losses, totaling $1,000,000. However, the carrier denied coverage for the flood loss based on a post-claim survey establishing that the property was in an excluded SFHA area.
The insured property owner filed suit, alleging breach of contract and bad faith. The carrier responded by filing a motion for summary judgment. First, the court rejected an opportunity to predict whether the carrier’s alleged post-claim underwriting was tantamount to bad faith conduct because the insured property had been the subject of an underwriting investigation more than two months before the flood. Second, the court ruled that the insured was not entitled to a finding that its policy was ambiguous with respect to flood coverage.
However, the court recognized that the carrier might be estopped from denying coverage based on a pre-flood investigation concluding that the insured property was not in an SFHA area. The court was unable to conclusively determine this issue because of disputed factual issues. As such, summary judgment was not appropriate and the carrier’s motion was denied.
Date of Decision: July 26, 2012
AJT Props. v. Lexington Ins. Co., NO. 08-CV-4252, 2012 Pa. Dist. & Cnty. Dec. LEXIS 308, Lackawanna County Court of Common Pleas (Pa. County Ct. 2012) (Nealon, J.)