Insurer that Pays Limit of Policy After Appraisal Did not Breach The
Covenant of Good Faith & Fair Dealing
Washington Street, LLC ("Washington Street") appealed a District Court
order granting summary judgment to Nationwide Property and Casualty
Insurance Company ("Nationwide"), which ended Washington Street's claims
that Nationwide proceeded in bad faith in delaying claim payments
following a fire that damaged Washington Street's property.
In Washington Street, LLC v. Nationwide Property & Casualty
Insurance Company, No. 22-3396, United States Court of Appeals, Third
Circuit (September 13, 2023) the Third Circuit resolved the dispute.
BACKGROUND
In July 2019, a fire caused by a tenant's negligence destroyed an
apartment building owned by Washington Street.
That initial payment ($376,342.95) was, as Nationwide acknowledged,
incomplete, as it was subject to change based on additional repairs or
damage found. In October 2019, in January 2020, estimating the total
cost of repairs to be $635,898.86, after which Nationwide paid an
additional $208,555.91, an amount the parties accepted as bringing the
total payments to $584,907.68.
In November 2020, the umpire entered an award for Washington Street:
$859,670.03 for dwelling loss, $7,720.05 for business personal property,
$35,306.40 for debris removal, and $74,200 for loss of income. The
total amount exceeded Washington Street's policy limit of $854,700 for
dwelling loss, $60,000 for business income, and $25,000 for debris
removal, and Nationwide paid the full policy amount.
During the appraisal, on June 3, 2020, Nationwide filed a subrogation
lawsuit against the tenant who had negligently caused the fire. The
subrogation investigation began in July 2019, but Nationwide did not
inform Washington Street of the lawsuit until January 14, 2021.
Eventually, Nationwide obtained a settlement that resulted in Washington
Street receiving an additional $15,000, an amount Washington Street
described as "fair and acceptable."
Washington Street sued. After discovery, Nationwide moved for summary
judgment and the District Court granted it. The Court held that
Nationwide's handling of Washington Street's claim was "by no means a
model of perfection" but it did not constitute bad faith.
DISCUSSION
Washington Street claims that Nationwide demonstrated bad faith by
delaying six weeks to make its first partial payout, failing to make
further estimates until Washington Street pressed for progress, hiring a
building consultant for the alleged purpose of further delaying the
process, making a still-deficient payment six months after the fire,
knowingly misrepresenting its appraisal policy, delaying its policy
reformation request, and filing its subrogation action prematurely.
Pennsylvania provides a statutory remedy if an insurer acts in bad faith
toward the insured. Bad faith requires evidence so clear, direct,
weighty and convincing as to enable a clear conviction, without
hesitation, about whether or not the defendants acted in bad faith. At
the summary judgment stage, the insured's burden in opposing a summary
judgment motion brought by the insurer is commensurately high because
the court must view the evidence presented in light of the substantive
evidentiary burden at trial.
Therefore, Washington Street did not show by clear and convincing
evidence - the applicable standard of proof - that Nationwide acted in
bad faith in processing Washington Street's insurance claim.
ZALMA OPINION
The tort of bad faith requires a breach of contract by an insurer that
provides clear, direct, weighty and convincing evidence sufficient to
enable a clear conviction, without hesitation that the insurer acted in
bad faith. The evidence did not exist to establish the required clear
and convincing evidence of wrong doing it only reflected a claim that
took time and expertise to resolve.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
