OCTOBER 2006 BAD FAITH CASES COURT HELD THERE CAN BE NO BAD FAITH WITHOUT DENIAL OF BENEFITS (Western District)

In Borden v. Amica Mutual Insurance Company, Plaintiff insureds filed suit against Defendant insurer alleging that Defendant acted in bad faith during the adjustment and settlement of a building loss claim resulting from an accidental fire that destroyed Plaintiffs’ home.  Specifically, Plaintiffs contended that Defendant acted in bad faith by offering an unreasonably low figure to resolve the building loss claim and in requesting appraisal to resolve the dispute.  The United States District Court for the Western District of Pennsylvania looked to case law that held there could be no bad faith in the absence of a denial of benefits.  The Court determined that this case did not involve a denial of benefits or unreasonable delay in the payment of benefits; rather, it was Plaintiffs’ contention that Defendant acted in bad faith by offering an unreasonably low figure to resolve the claim and in requesting arbitration to resolve the dispute.  The Court held that the bad faith claim failed because Defendant had never adopted a final position relative to the loss estimate in general and the appropriateness of two alternatives:  smoke remediation as opposed to gutting and rebuilding in particular.  The Court also held that a request for appraisal, which was a dispute resolution mechanism specifically provided for in the insurance contract, followed within days by an agreement on the part of the carrier to hire an expert to provide a second opinion, was not the “stuff” of which bad faith was made.  Finally, the Court found that the bad faith claim failed because Plaintiffs failed to demonstrate by the heightened “clear and convincing” standard that the smoke remediation approach initially propounded by the carrier was objectively unreasonable under the circumstances.  After reviewing the evidence, the Court held that Defendant did not breach its duty of good faith in handling of this fire loss claim and was not motivated by self interest or ill will against Plaintiffs.  The Court accordingly entered judgment in favor of Defendant.

Date of Decision:  September 30, 2006

Borden v. Amica Mut. Ins. Co., United States District Court for the Western District of Pennsylvania, Civil Action No. 04-175, 2006 U.S. Dist. LEXIS 75069 (W.D.Pa. September 30, 2006) (McLaughlin, J.).