Mansell, Engel & Cole

Bad faith not even an arguable proposition in this insurance matter

A federal judge recently decided to bypass a jury’s input on a key question relevant to an insurance dispute. Instead, the court ruled in a summary judgment outcome that an insurer clearly acted in bad faith in its treatment of a policyholder’s claim.

The claimant is a church and connected business that together leased a building. The plaintiff had paid nearly $3 million in mortgage payments on the property when the owner reclaimed it in a sheriff’s sale owing to the plaintiff’s failure to continue making timely payments.

What brought the property-linked dispute to court was a massive water leak on the property that occurred some months prior to the sheriff’s action. The church had made a timely insurance claim for property damages, but the insurance adjuster raised challenges against it.

A key argument was that the property was vacant when the damage occurred, which triggered a non-payment “vacancy” provision in the insurance contract. The plaintiff presented proofs that, while the building was not being fully used, it was still partially occupied for various uses. The resulting lawsuit against the insurer argued that the company’s vacancy argument was a mere pretext to stall the claim.

And stalling is exactly what the insurer did, egregiously violating a state law mandating that progress reports on unpaid claims be sent to insured parties every 45 days. The insurer had gone beyond that time limit four times without ever addressing the matter. The court found that inactivity to be purposeful and in bad faith.

The case is still partially before a jury, which will decide applicable damages and bad-faith conduct that the insurer might have engaged in during additional periods. The plaintiff parties are seeking at least $2.8 million for property payments made on the building, $1.2 million in lost equity and rents, and punitive damages.

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