In SRP Management Corporation and Nibur Westmoreland, Inc. v. Seneca Insurance Company, the United States District Court for the Eastern District of Pennsylvania granted Defendant’s motion for summary judgment and dismissed Plaintiffs’ bad faith claims. The court held that the Plaintiffs failed to provide clear and convincing evidence that the Defendant’s failure to pay Plaintiffs’ claim was unreasonable. Plaintiffs owned and managed a commercial warehouse building, which was insured by Defendant. The policy excluded loss or damage caused by decay and collapse but an additional coverage provision of the policy extended coverage to collapse if caused by “hidden decay”, a term not defined by the contract. A wooden truss in the roof of Plaintiffs’ building broke as a result of severe wood rot and decay, and a portion of the roof covering the second floor of the building collapsed. Defendant denied coverage for the loss claiming that the loss was not caused by hidden decay. Plaintiffs filed a complaint seeking coverage for the loss and asserting bad faith claims against the Defendant. Defendant filed a summary judgment action seeking dismissal of Plaintiff’s bad faith claim. The court granted Defendant’s motion and held that it was uncertain that the cause of the collapse was unknown decay as required by the policy. Plaintiffs’ and Defendant’s experts disagreed as to the extent of the damage surrounding the wooden truss prior to the accident and whether that damage would have obvious to the Plaintiffs. Because there was a question as to whether Plaintiffs had actual or constructive knowledge of the defect, prior to the accident, the court held that a finding of bad faith was precluded and therefore summary judgment was granted.
Date of Decision: September 26, 2007