SEPTEMBER 2010 BAD FAITH CASES NO BAD FAITH WHEN THE INSURER CORRECTLY INTERPRETS A POLICY BEFORE DENYING ADDITIONAL PAYMENTS TO THE INSURED (Philadelphia Federal)

In Caroselli v. Allstate Property & Casualty Insurance Company, the insurer issued a homeowner’s policy for the insured’s property.  The policy covered “sudden and accidental direct physical loss to property” up to $253,479.  The home was destroyed in a fire in June 2009, and the actual cash value loss was $284,752.02.  The insurer paid the policy limit of $253,479 but refused to pay the remainder of the cost of the loss.

The insured had purchased a Building Structure Reimbursement Extended Limits Endorsement, which under certain conditions increased the coverage to 120% of the original limit of liability.  The insurer would not pay the additional benefits under the endorsement unless he repaired, rebuilt, or replaced the dwelling within 180 days of the actual cash value payment, and the insured asserted that this was contrary to the policy’s language.  He filed a Complaint which contained claims for breach of contract, statutory bad faith, and a breach of the Pennsylvania Unfair Trade Practices and Consumer Protect Law (UTPCPL).

The court examined the language of the policy and determined that it clearly stated that absent repair or replacement within 180 days of the actual cash value payment, the insurer would pay actual cash value but would not exceed the limit of liability for the coverage that applies to the damaged, destroyed or stolen property, regardless of the number of items involved in the loss.  The insured had not repaired or replaced his property, so the insurer properly denied any further payments, and therefore there was no breach of contract.  Because the insurer correctly interpreted the policy, the court also dismissed the bad faith claim against it, as it had a reasonable basis to deny any additional payment to the insured.

Date of Decision:  Aug. 16, 2010

Caroselli v. Allstate Prop. & Cas. Ins. Co., Civil Action No. 10-1671, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 83515 (E.D. Pa. Aug. 16, 2010) (Schiller, J.)