Sunday, August 17, 2014

Insurance Irritation

Murphy v. Patriot Insurance Company, 2014 VT 96

By Andrew Delaney

I’ve dealt with a lot of insurance companies and adjusters. Some are great; some are not so great; some are in between. Plaintiff had some issues with hers. But are those issues actionable? Stay tuned.

Plaintiff reported storm damage to flashing on her roof that caused water leakage, and insurer sent out a private claims adjuster four days after the report. Though there was dampness in several areas, the adjuster reasoned there was no apparent damage to the roof. Insurer paid plaintiff a few grand for wind and water damage.

Plaintiff then filed an additional claim after a worker found rot damage from water infiltration around the front chimney. The adjuster returned and insurer initially paid plaintiff a few hundred dollars more after subtracting a deductible. Though the adjuster concluded that the damage was from the same storm, insurer initially disagreed, based in part on plaintiff not having discovered a ceiling stain until two months after the storm. Two months later, however, insurer refunded the deductible and paid plaintiff the policy limit for rot and mold damage, based in part on an independent building inspector’s report.

That report recommended demolishing part of the roof to gauge the damage and removing the chimney. After receiving the report, insurer’s claims adjuster planned to send an engineer out to inspect the chimney (yeah, and I “planned to” make a million dollars before thirty, but anyway . . .). Plaintiff removed the chimney before that happened.

In all, insurer ended up paying plaintiff a little over $32.5K in cashed and uncashed checks. Plaintiff had a remediation and repair estimate for over $56K. So, I’m no math-magician, but it seems like there are some differences of opinion here.

Between the first payments and the last payments, plaintiff filed for breach of contract. Insurer “moved for partial summary judgment on the scope of coverage for remediation of the mold and rot and replacement of the chimney.” The trial court found that the mold part of the policy maxed at $10K, and found that the “collapse”-of-a-building-or-part-of-a-structure portion of the policy didn’t apply to the chimney, which plaintiff had intentionally taken down. That stuff isn’t part of the appeal.

So plaintiff filed an amended complaint alleging negligence—in inspecting and processing the claim and assigning adjusters—and “bad faith” in denying the claim with no reasonable basis. Insurer again moved for partial summary judgment and the trial court granted the motion, reasoning that the relationship was purely contractual and that insurer had a reasonable—if debatable—basis for denying the claims. Some more boring procedural stuff happened and then plaintiff appealed.

Plaintiff’s first argument is that insurer was “estopped”—a more erudite way of saying “no take backs”—from denying the chimney coverage because the adjuster told her to go ‘head and have the work done. Unfortunately for plaintiff, this argument is based on her affidavit that wasn’t part of the record below and the SCOV isn’t going to touch it. If it’s not in the record, it’s got about as much chance as a raccoon crossing a six-lane highway during rush hour.

Plaintiff’s negligence argument receives a little more attention, but doesn’t make it across our fictional highway either. The negligence claim—and my inner lawyer likes this theory a lot, I must admit—is that insurer had a duty to process her claim in a reasonable manner and its failure to do so caused additional property damage and mold-related health problems. Brilliant!

Alas, the SCOV is not similarly swayed. The trial court held that plaintiff failed to establish that insurer owed a clear, non-contractual duty to her on the facts, and the SCOV agrees.

The concept at play here is “that the relationship between insurer and insured is fundamentally contractual.” Thus, the remedies are also contractual, meaning that an insured can sue for breach of contract and bad faith, but tort claims are barred absent an independent duty of care. There’s a Vermont case about this and a bunch of cases from other jurisdictions in line with this reasoning. So, over plaintiff’s protests, the SCOV affirms the trial court’s dismissal of the negligence claim.

Finally, the SCOV turns to the dismissal of the bad-faith claim. “Bad faith,” the SCOV explains, is “the general shorthand for breach of the covenant of good faith and fair dealing which the law implies in every insurance policy.”

To establish a bad-faith claim, a plaintiff must show that: “(1) the insurance company had no reasonable basis to deny benefits of the policy, and (2) the company knew or recklessly disregarded the fact that no reasonable basis existed for denying the claim.” Here, the SCOV reasons that plaintiff’s facts don’t meet that standard.

Plaintiff’s first bad-faith argument is inconsistency based. The adjuster submitted a report that said one thing about water flowing in from the road (allowing a denial of coverage), but changed his mind in a deposition. But this inconsistency alone by the SCOV’s math does not equal bad faith. The SCOV spends some time discussing it but ultimately concludes that the allegations are irrelevant and don’t rise to the level of bad faith.

Plaintiff’s second argument is that insurer’s disagreement with its own adjuster’s report demonstrates bad faith. She argues that it was unreasonable for insurer to conclude that the claims were unrelated. The SCOV notes that the only result of that conclusion was that insurer required a second deductible, which it later waived despite said conclusion. Again, the SCOV says it’s “irrelevant to the underlying controversy and not . . . grounds to find bad faith.”

So that’s it for plaintiff’s case. I’m guessing she just might be in the market for a new homeowner’s policy if she hasn’t bought one already.


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