In Kao v. Markel Insurance Company, the insureds owned adjacent multi-unit properties in South Philadelphia. The properties contained commercial units on the first floor and a total of six residential apartments on the second third floors. The insureds purchased an insurance policy with the insurers. The policy contained a “Government Acts Exclusion” that relieved the insurers of obligations to pay for “loss or damage caused directly or indirectly by . . . seizure or destruction of property by Order of Governmental Authority.”
One day, police forcibly entered the insureds’ property with a search warrant, as they had reason to believe one of the tenants was selling drugs from his apartment. The searches caused damage to the doors of all six residential apartments and one of the first floor offices. After the insureds made a claim, the insurance adjuster told the insurers that the police search was the reason for the damages. The insurers then denied coverage under the Government Acts Exclusion before obtaining a copy of the warrant or police report.
While the breach of contract claim survived summary judgment, the bad faith claim did not. The court noted that there is a high standard for showing bad faith, and the insurers’ interpretation of the exclusion was “not devoid of a reasonable basis.” At worst, the insurers were negligent in failing to wait to receive a copy of the warrant and/or police report before denying coverage, but there was no knowledgeable lack of a reasonable basis for denying the insureds’ claim. Therefore, the court granted summary judgment to the insurers with respect to the bad faith claim.
Date of Decision: April 12, 2010
Kao v. Markel Ins. Co., Civil Action No. 09-CV-3249, United States District Court for the Eastern District of Pennsylvania, 708 F. Supp. 2d 472, 2010 U.S. Dist. LEXIS 40400 (E.D. Pa. Apr. 12, 2010) (Brody, J.).