In Gray v. Allstate Indemnity Company, the insured asserted breach of contract claim and bad faith claims due to the insurer’s alleged wrongful denial and refusal to pay insurance benefits for his fire loss claim, which was the result of vandalism. The insurer asserted that the property was vacant and unoccupied from the time the last tenant left the property until the time of the vandalism and resulting fire, and therefore, as a matter of law, no coverage was due. It moved for summary judgment on both claims.
The insurer relied upon a policy exclusion providing: “Vandalism. However, we do cover sudden and accidental direct physical loss caused by fire resulting from vandalism unless your dwelling has been vacant or unoccupied for more than 90 consecutive days immediately prior to the vandalism.” It further relied upon a policy endorsement which provided that the insurer “shall not be liable for loss occurring  while a described building, whether intended for occupancy by owner or tenant is vacant or unoccupied beyond a period of  consecutive days.” The insured claimed to have periodically done work on the property, within the 60 and 90 day periods before the vandalism and fire.
The court found the policy terms “vacant” and “unoccupied” to be ambiguous, relying on Third Circuit precedent. It concluded that there were disputed facts “as to whether plaintiff was sufficiently present at the subject property after the tenants moved out … to personally rehabilitate and rebuild parts of the property such that the property was neither vacant nor unoccupied for purposes of the policy.” Thus summary judgment on the breach of contract claim was denied.
As to the bad faith claim, the court reiterated the principles that an insurer “need not demonstrate its investigation yielded the correct conclusion, or that its conclusion more likely than not was accurate.” Nor is an insurer “required to show that ‘the process by which it reached its conclusion was flawless or that the investigatory methods it employed eliminated possibilities at odds with its conclusion.’” Rather, “an insurance company must show it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action.” Moreover, it is the plaintiff-insured that must provide clear and convincing evidence of bad faith, i.e., “that
the evidence is so clear, direct, weighty and convincing as to enable a clear conviction, without hesitation, about whether or not the defendants acted in bad faith,” a standard that likewise applies at the summary judgment stage. Under that standard, summary judgment is proper “when there is no clear and convincing evidence that the insurer’s conduct was unreasonable and that it knew or recklessly disregarded its lack of a reasonable basis in denying the claim.”
In this case, the insured’s bad faith claim amounted to an argument that the insurer drafted an ambiguous policy, and then construed the ambiguous language to deny coverage. The court rejected that argument because the record showed that the insurer “had a factual basis to conclude that the subject property was vacant or unoccupied for more than the specified number of days before the vandalism, and that [the insurer] had a reasonable basis for denying plaintiff’s claim for coverage of the fire loss caused by the vandalism.” Moreover, as to the policy language, while the court ruled against the insurer’s interpretation of the terms “vacant” and “unoccupied”, the insurer’s interpretation was still reasonable. In this regard, the court also “found that relevant Pennsylvania state law is unsettled on the matter,” and “[b]ad faith cannot be found where the insurer’s conduct is in accordance with a reasonable but incorrect interpretation of the insurance policy.” A reasonable basis is sufficient to defeat a bad faith claim. Thus, summary judgment was granted to the insurer on the bad faith claim.
Date of Decision: February 23, 2015
Gray v. Allstate Indem. Co., CIVIL ACTION NO. 3:13-CV-1232, 2015 U.S. Dist. LEXIS 21109 (M.D. Pa. February 23, 2015) (Mannion, J.)