MAY 2015 BAD FAITH CASES: BAD FAITH CLAIM COULD PROCEED TO TRIAL ON THEORY THAT INSURER’S ADJUSTER REFUSED TO DISCUSS A SPECIFIC POLICY COVERAGE PROVISION WITH THE INSURED (Philadelphia Federal)

In Windowizards, Inc. v. Charter Oak Fire Insurance Company, the insured sought coverage for damaged roof trusses and losses for required upgrades based upon ordinance violations, in a commercial building. The insurer accepted that the damage to some of the trusses may be covered if damaged by snow, but not others if the damage was the result of deterioration over time.  During the claims process, after a new tenant had moved in, the fire marshal inspected the building and caused it to be vacated “due to code violations from the use of improvised electrical connections originating from another building, propane space heaters, and the support braces shoring up the roof.”  These items would have to be repaired.

The policy included a provision “Ordinance or Law Coverage” “[f]or loss or damage caused by the enforcement of any ordinance or law that” “[r]equires the demolition of parts of the same property not damaged by a Covered Cause of Loss,” “[r]egulates the construction or repair of buildings,” and “[i]s in force at the time of the loss.” However, under this provision, the insurer will not pay for increased construction costs . . . (a) Until the property is actually repaired or replaced, at the same location or elsewhere; and (b) Unless the repairs or replacement are made as soon as reasonably possible after the loss or damage, not to exceed 2 years. We may extend this period in writing during the 2 years.”

The insured argued that it was forced to make repairs for ordinance violations due to the poor condition of the structure, and this type of loss was covered.  The court found that the “enforcement” process had begun within the meaning of that policy condition.  The court further found that the insured was not barred from bringing the claim for failure to effectuate repairs in two years on a theory of anticipatory breach of the insurance contract.  The insured made this argument on the basis that the insured had communicated with the insurer on the need for repairs, but the insurer did not adequately respond on the ordinance violations; and in making payments for covered claims.  The insurer argued that any lack of funds arose because the insured spent the insurance proceeds on non-related expenses, and the insured disputed those facts. These created factual issues that could not be resolved on summary judgment.

Specifically, the insured contended that “it attempted to discuss code upgrade issues with [the] adjuster… on many occasions, but that he refused to consider them in breach of his good faith obligations.” The court found that the insured had a viable breach of contract claim and denied the insurer summary judgment. The court further concluded that “in light of, inter alia, [the insured’s] evidence that [the insurer’s adjuster] mishandled the claim by purposefully refusing to discuss the code compliance coverage, we conclude that genuine issues of material fact prevent summary judgment on [the bad faith] claim as well.”

Date of Decision:  March 27, 2015

Windowizards, Inc. v. Charter Oak Fire Ins. Co., CIVIL ACTION NO. 13-7444, 2015 U.S. Dist. LEXIS 39063 (E.D. Pa. March 27, 2015) (Strawbridge, U.S.M.J.)