Insurer’s Actions So Wrong Court Finds Bad Faith as a Matter of Law

Summary Judgment Entered for Insured finding Insurer’s Conduct Tortious Bad Faith

It is almost impossible to obtain a summary judgment finding an insurer acted in bad faith allowing an insured to recover tort damages. However, it is not impossible, and the facts stated by the court in Shawnee Tabernacle Church And Az Learning Day Care v. Guideone Insurance, Civil Action No. 16-5728, the United States District Court for the Eastern District of Pennsylvania (April 23, 2019) should teach an important lesson to insurers who fail to maintain a staff of professional, well trained insurance adjusters. Failure to do so can be, as it was for GuideOne, devastating.

DECISION

With respect to a period between mid-June and mid-December, however, the facts are undisputed. During that time, Defendant GuideOne acted in bad faith as a matter of law by ignoring the claim and withholding coverage when it possessed all of the necessary information to determine coverage. But as to the delays before and after this period of time, there are factual disputes and issues of causation.

FACTUAL BACKGROUND

This case centers on a loss that resulted from water damage on the property of Plaintiffs Shawnee Tabernacle Church and AZ Learning Daycare. The property in question was covered by an insurance policy that Defendant GuideOne Mutual Insurance Company (“GuideOne”) issued. The policy’s provisions spelled out the obligations of the insurance company and the insured in the event of a loss. Of particular relevance to this case, a vacancy provision precluded water damage coverage if less than 31% of the building was rented or used for customary operations, unless the property was under construction or renovation.

The loss in this case occurred on January 13, 2015, and on the same day, Plaintiffs reported the claim to GuideOne. GuideOne assigned adjuster Brian Baskin. Baskin received an initial report, spoke with Pastor Bloom of Shawnee Tabernacle Church, and made a preliminary estimate of damages prior to inspecting the property. Mr. Baskin inspected the property on January 15, 2015.

Baskin in his deposition stated he “didn’t see any evidence that there was activity in the school side of the structure,” and he knew a school that previously rented the building had vacated the property in October 2014. In the same deposition he admitted to seeing some renovation work during the inspection, he claimed it was limited to “one room in the back top second level” and maintained that he “did not see that to be renovations of the building.”

Plaintiffs contended that GuideOne knew that at the time of the loss the church was in the process of fixing damage the previous school tenants had caused, making the renovation exception to the vacancy provision applicable. Additionally, the GuideOne claim log notes indicate that, immediately after the inspection, Baskin received information and documentation about the church and daycare’s continued use of the property in November and December 2014.

Baskin sent no status letters to the insured as required by the policy and Pennsylvania law and he just stopped communicating. Adjuster Baskin’s next step in the coverage investigation was to arrange for examinations under oath (EUOs), which the policy allowed for “at such times as may be reasonably required.” The EUOs occurred on June 12, 2015. On June 15, Baskin made a claim log note that GuideOne’s counsel had informed him the EUOs were complete, and on June 16, he wrote, “Okay to set precautionary reserve [redacted] awaiting review of EUO’s and decision of coverage.” The claim log contains no subsequent notes of activity in June, and no notes at all from July or August 2015.

Baskin’s supervisor, Mike Ellison, specifically instructed him to resolve the case with a compromise settlement. Rather than comply with this instruction, however, Baskin waited two more months before reviewing the EUOs. Ellison again instructed Baskin to do so and told him he should have done better. During this time, it is undisputed that Baskin also failed to send the status letters required by Pennsylvania law to notify the insured of the reasons for the delay. On October 5, 2015, the claim was reassigned to a new adjuster, Larry Brown, to be handled on the merits.

In practical terms, GuideOne further delayed progress toward resolution of the claim by seeking to negotiate without first having to concede it was obligated under the terms of the policy to cover the loss. On December 11, 2015—11 months after the initial water damage and 6 months after the EUOs were completed—GuideOne conceded that the claim was covered. The information in GuideOne’s file when it acknowledged coverage as of December 11, 2015 was exactly the same as it had on June 16, 2015, after the examinations under oath had been completed.

DISCUSSION

With respect to breach of contract, GuideOne agrees that it is obligated to provide coverage. Its disagreement is with the scope and amount of the loss, issues as to which there are multiple factual disputes. With respect to bad faith, although the ultimate issue requires resolution by a jury, as noted above, there are no factual disputes as to one critical six-month period, and GuideOne’s inactivity and delay during that time frame can only be described as bad faith.

The required analysis is inherently fact specific and centers on the conduct of the insurer in relation to the insured. For that reason, it would go too far to decide all of the claims as a matter of law, because many of the allegations turn on disputed facts and the credibility of the individuals involved. But during that period of time where the facts are undisputed, the sole question is how GuideOne’s actions are properly characterized. As a matter of law, the District Court found that GuideOne acted in bad faith when it abandoned the investigation and resolution of Plaintiffs’ claim between June 16, 2015 and October 5, 2015, and then further delayed a determination of coverage until December 11, 2015, despite the fact that it possessed all relevant information about the vacancy provision once the EUOs were complete.

The undisputed facts show that work on the claim was virtually nonexistent after June 16, 2015. The new adjuster did not ignore the file in the same way but still failed to address the existence of coverage, even though GuideOne’s investigation was effectively completed as of mid-June and despite the fact that his first instruction with respect to the claim was a note to “[h]andle on merits.” Given that these material facts from June 16 through December 11, 2015 are undisputed, the court concluded that Defendant GuideOne acted in bad faith.

Proof of ill-will or self-interest is not required to show that an insurer knew of or recklessly disregarded the absence of a reasonable basis to deny or delay benefits. Bad faith may include lack of good faith investigation into facts, and failure to communicate with the claimant, both of which certainly occurred in this case between June and December. When Baskin halted forward progress on the claim, it had already been pending for five months, with an insured that was dependent on rental income to support the property, unable to rent it until the claim was resolved, and facing foreclosure proceedings. GuideOne then permitted an additional six months to elapse, despite possessing of all the information it deemed necessary to decide the issue of coverage.

With respect to that six-month period, the court concluded, as a matter of law, that GuideOne acted in bad faith in the abandonment of the claim from June 16 through October 5, and in failing to make a coverage decision between October 5 and December 11, 2015.

ZALMA OPINION

The court was right, there was simply no excuse for the conduct of GuideOne’s adjuster who not only ignored the insured and its claim, he ignored the instructions of his supervisor who became so upset that he eventually assigned a new adjuster to resolve the claim who also acted with the alacrity of a tree sloth. Such inadequate, useless, and unprofessional claims handling resulted in this most unusual ruling that the insurer breached the implied covenant of good faith and fair dealing as a matter of law. The trial judge will so instruct the jury and leave them free to assess damages with a decision that the insurer acted wrongfully. GuideOne and its counsel will be well advised to enter into a quick settlement with the church and hope to be able to hold the settlement down to the amount demanded.