In Dooley v. Scottsdale Insurance Company, the insured homeowners suffered a flood in their home from a frozen/burst piping system, during a nearly four week hiatus from their home in December. There was a dispute of fact over whether the insureds turned off their heat, or left the thermostat on at a low temperature, to prevent the pipes from bursting. There was policy exclusion for freezing pipes, with an exception, however, where the insured used “reasonable care to: (a) Maintain heat in the building….”
The insurer conducted an investigation, including obtaining and reviewing the electric (heating related) bills during the month at issue; and an expert analysis as to whether the pipes could have frozen even if the thermostat was left at the lowest functioning temperature (he concluded they could not have frozen). The company refused the claim and the insured brought a bad faith claim, among others.
In addressing the argument that coverage had to be provided because the carrier allegedly never provided a copy of the policy to the insureds, the court found against the insureds. It held that the insureds were “in constructive receipt of the full policy as a matter of law when … their retail agent, received a copy….” Thus, the Court did not have to address the argument. Citing prior case law, “while ‘[i]nsurance companies have an obligation to supply insureds with a copy of their policy,’ … under New Jersey law, [the insureds] need not have received the entire policy directly to be bound by its terms. That [their broker] received the full policy is sufficient.” Thus, “’[t]he delivery of information by an insurance company or insurance intermediary to the broker of the insured is tantamount to providing that information to the insured.”
On the issue of summary judgment under the policy exclusion based on the expert testimony concerning the thermostats, the court found there was a dispute of fact, taking the facts most favorably the insured. The insured husband claimed he set thermostat on low. If this were the case, per the defense expert, freezing should not have occurred; and the insureds took reasonable steps to prevent it in this factual scenario. The jury would have to decide this set of facts against the defense expert’s testimony that the pipes could not have burst if the thermostat were even set low.
This same finding, however, permitted summary judgment for the insurer on the bad faith claim. Under New Jersey law, in the first party context, “’[t]o show a claim for bad faith, a plaintiff must show the absence of a reasonable basis for denying benefits of the policy and the defendant’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. …. If a claim is ‘fairly debatable,’ no liability in tort will arise.’” Under the fairly debatable standard, “a claimant who could not have established as a matter of law a right to summary judgment on the substantive claim would not be entitled to assert a claim for an insurer’s bad-faith refusal to pay the claim.” Where “’factual issues exist as to the underlying claim (i.e., questions of fact as to whether plaintiff is entitled to insurance benefits-plaintiff’s first cause of action), the Court must dismiss plaintiff’s second cause of action-the “bad faith” claim.’” In this case, there was a genuine dispute of material fact as to whether the insureds left the thermostats on before they departed, thus precluding any potential bad faith claim.
Date of Decision: February 18, 2015
Dooley v. Scottsdale Ins. Co., CIVIL ACTION NO. 12-1838 (JEI/KMW), 2015 U.S. Dist. LEXIS 19140 (D.N.J. February 18, 2015) (Irenas, J.)