JULY 2010 BAD FAITH CASES NO BAD FAITH WHEN INSURED REPAIRS DAMAGED PROPERTY BEFORE GIVING INSURER AN OPPORUNITY TO INSPECT PROPERTY AND PROPERLY EVALUATE DAMAGES (Philadelphia Federal)

In Berko Investments, LLC v. State National Insurance Company, the insured owned a building that contained apartments and a bar/restaurant, and he had purchased commercial property insurance with the insurer.  One day, a portion of the building’s roof began to leak over the dining room area.  A general contractor was a patron in the bar the evening the leak began, and after examining the roof he observed that it had peeled back.  After making temporary repairs the next day, he told the insured that the roof was damaged by the weather and it likely needed more thorough repairs.  The contractor then contacted a roofer he had used in the past, who provided an estimate covering the cost of replacing the roof. The contractor told the insured that he should file an insurance claim, but the insured waited until after the roof was completely redone to file a claim.

After the insurer received notice of the insured’s claim, a claims adjuster toured the property, which had already been repaired.  The insured alleged that the building’s roof was damaged by wind, which was a covered loss under the insurance policy.  However, the adjuster could not determine whether the roof actually needed to be replaced because the repairs were complete.  He had to recommend that the claim be denied because the insurer’s rights were prejudiced, and the insurer proceeded to deny coverage.  The insured filed suit, asserting that the insurer breached the insurance contract and acted in bad faith.

The court determined that the temporary repairs made by the contractor would have been sufficient to protect the property and simultaneously allow the insurer’s claims adjuster to inspect the roof before it was replaced.  It also held that the insured’s delay in reporting the claim until after fixing the roof himself was a breach of the Duties Provision, and the breach resulted in actual prejudice to the insurer’s rights.  Therefore, the court had no choice but to find in favor of the insurer for both the breach of contract and bad faith claims.

Date of Decision:  July 21, 2010

Berko Invs. v. State Nat’l Ins. Co., Civil Action No. 08-2609, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 73144 (E.D. Pa. July 21, 2010) (DuBois, J.)