Many bad faith cases against insurance companies allege improper or inappropriate behavior toward an insured. Sometimes, this conduct rises to the level of bad faith, and other times it does not. This week, I write about a case where a court agreed that the carrier breached the contract, but not in bad faith.
In Stevenson v. Allstate Insurance Company, a wind storm caused damage to an insured’s large barn. He filed a claim with Allstate, and Allstate sent Mr. Hanna to inspect the property. During the inspection, Mr. Hanna told the insured that he would write a check for $844.20 for roof damage. Hanna claimed that the buildings had settled due to age and rot and insects damaged the foundation and supports of the buildings. An engineer inspected the buildings and concluded that less than 50 square feet of the barn’s roof was damaged by wind. The engineer also determined that the wooden frames of the buildings did not sustain wind damage. Based on these findings, Allstate denied coverage for the structural damage to the two buildings.
The insured filed a lawsuit against Allstate alleging both breach of contract and bad faith. Though the United States District Court in South Carolina determined that Allstate breached the insurance contract, the Court reached a very different decision on the bad faith claim. The insured alleged the following:
Defendant has failed to pay benefits that are clearly due to the Plaintiff arising from his property damage…Defendant lacks just cause for its refusal to pay a reasonable amount of benefits to the Plaintiff…Defendant has provided no valid reason for its refusal to pay the benefits to Plaintiff.
The United States District Court in South Carolina relied upon the principle that:
A policyholder may recover damages for bad faith denial of insurance coverage if he proves that there was ‘no reasonable basis to support the insurer’s decision to deny benefits” under an insurance contract’…if an insured can demonstrate bad faith or unreasonable action by the insurer in processing a claim under their mutually binding insurance contract, he can recover consequential damages in a tort action.
The insured claimed that Mr. Hanna was late for his appointment and inspected the property after dark and was arrogant and indifferent. Mr. Stevenson also claimed that Allstate did not provide him with a copy of the engineer’s report until after the lawsuit was filed. The Court carefully evaluated the evidence presented and concluded that no reasonable juror could find that Allstatet had “no reasonable basis” to support its denial of coverage.
Despite Allstate’s failure to pay the full amount of the insured’s damages, there was nothing to suggest that Allstate’s failure to pay was not a good-faith dispute about the extent of coverage. Accordingly, the Court ruled in favor of Allstate. Regarding the insured’s complaints about Hanna’s rude treatment, the Court held Hanna’s behavior did not rise to the level of bad faith.
Please consider that this decision is based on particular facts and law. Decisions in other jurisdictions on similar issues may differ.