JULY 2011 BAD FAITH CASES PLAINTIFF STATED CLAIMS OF BAD FAITH AND UNFAIR BUSINESS PRACTICES, WHERE INSURER ALLEGEDLY DENIED COVERAGE WITHOUT INSPECTING PROPERTY, INVESTIGATING DAMAGE (Middle District)

In Pinkhasov v. Allstate Insurance, plaintiff Pinkhasov owned a residential property in Pittston, PA which was insured by Allstate. Plaintiff’s Homeowner’s policy had a coverage limit of $250,000 for his dwelling, $25,000 for other structures and $150,000 for personal property. While the policy did cover damage from the sudden and accidental escape of water, it did not cover losses caused by continuous or repeated seepage or leakage. During the life of the policy, plaintiff discovered that his basement had undertaken extensive flooding and immediately reported the loss to Allstate. But Allstate refused payment on the claim, without investigating or inspecting the property.

Without receiving coverage under his Allstate policy, plaintiff was unable to complete the necessary structural repairs to his basement, which resulted in further damage including the growth of mold.

Plaintiff brought breach of contract, bad faith and unfair trade practice claims in the Lackawanna County Court of Common Pleas, which Allstate removed to the U.S. District Court on diversity grounds. Under the breach of contract claim, the insured sought approximately $75,000 in compensatory damages; under the bad faith claim, he sought punitive damages, interest and attorney’s fees; and he also sought to treble damages pursuant to the unfair trade practices claim.

In order to support his bad faith claim, the insured was required to show that the Allstate lacked a reasonable basis for denying benefits and that it knew of or recklessly disregarded its lack of reasonable basis. Here, the Middle District declined to grant Allstate’s motion to dismiss the bad faith claim, finding that the plaintiff stated sufficiently factual allegations that Allstate failed to investigate the claim in good faith.

The court also found that plaintiff’s unfair trade practices claim survived dismissal because taking the facts asserted in the complaint as true, the court would find that Allstate had misrepresented their policy in denying plaintiff’s claim. This is because Allstate basically denied the claim out of hand without first investigating the claim or inspecting the property; action, or inaction, made evident by the fact that Allstate sent the insured a denial letter that cited policy provisions that were inapplicable to the insured’s particular loss.

The court ultimately found that the plaintiff relied on Allstate’s fraudulent assurances to its detriment in entering into the policy at issue. As such, the Middle District refused to dismiss both the claim of bad faith and the claim for unfair trade practices.

Date of Decision: June 20, 2011

Pinkhasov v. Allstate Ins., No. 3:11cv171, United States District Court for the Middle District of Pennsylvania, 2011 U.S. Dist. LEXIS 64933 (June 20, 2011) (Munley, J.)