JULY 2015 BAD FAITH CASES: PA FEDERAL COURT, APPLYING NEW JERSEY LAW, FINDS HANDLING OF PROPERTY DAMAGE CLAIM “FAIRLY DEBATABLE” AS TO THE SUM DEMANDED, REFUSAL TO ENTER APPRAISAL PROCESS, AND TIMING OF ASKING FOR EXPERT REPORT AFTER SUIT INITIATED (Philadelphia Federal)

In Beyer v. State Farm Fire & Casualty Company, a Pennsylvania federal court was called upon to apply New Jersey law to a first party property damage claim. Under New Jersey law, bad faith cannot be established if the insurer’s position was “fairly debatable”. In practice this means that if the facts are sufficiently in dispute that an insured could not win a motion for summary judgment on coverage, then the claim is fairly debatable. Under New Jersey law, an insured need not prove any dishonest motive on the insurer’s part, though the insured must prove that the insurer knew or recklessly disregarded the lack of a reasonable basis for denying the claim.

In this case, the insurer carried out a series of inspections, after some of which the insurer increased its payments to the insureds but did not give the insured all sums sought. The court found that this did not amount to bad faith where the record showed the payments the insurer refused were in dispute. Next the insurer’s refusal to agree to an appraisal on certain items remained the subject of material dispute as to whether there was coverage for those loses, i.e., if there were no coverage an appraisal would be unwarranted. Finally, where the insureds did not request an expert report from the insurer until after litigation had started, any delay in producing that report did not delay the claim processing. Rather, “[a]fter the [insureds] filed suit, the [expert] report became discoverable subject to the applicable rules of civil procedure.” Thus summary judgment was granted on the bad faith claim.

Of considerable interest is the first paragraph of this Opinion, which is quoted here verbatim:
“A property insurance policy for a beach home is a negotiated document through which the insurer, competing against other insurers, will cover certain losses based on its risk assessment. After a loss, repeated negotiations and supplemental insurance payments against the backdrop of disputed claims is often part of the insurance recovery process. The insurer is entitled to dispute coverage for items it believes are not covered so long as its positions are fairly debatable and the insured may challenge such determinations. This process is part of many litigated property loss claims. An insurer timely negotiating but refusing to budge from a position it believes to have merit is not bad faith. Here, the parties disagree as to coverage, submission to appraisal and producing a report. Plaintiffs claim the insurer breached their contract in failing to tender payments. In the accompanying Order, we grant the insurer’s motion for partial summary judgment on the insured’s bad faith claim in Count II of the Complaint as there are no genuine issues of material fact the insurer did not act in bad faith under applicable New Jersey law.”
Date of Decision July 20, 2015
Beyer v. State Farm Fire & Cas. Co., CIVIL ACTION NO. 14-4887, 2015 U.S. Dist. LEXIS 94456 (E.D. Pa. July 20, 2015) (Kearney, J.)