For the last two weeks, I have been writing about a bad faith decision that was favorable to a Safeco policyholder. I would like to pick up where I left off last week.

Another ground upon which Safeco denied the Millers’ claim was that the Millers discovered “additional” water damage shortly after closing on the property and did not report the loss until four months later. As discussed in last week’s post titled A Wisconsin Policyholder’s Success in a Bad Faith Lawsuit Against Safeco, Part II, the inspection report prepared in connection with the sale of the property to the Millers did not prove Safeco’s allegation that the Millers were on notice of the damages before, during or shortly after the date upon which they purchased the property. Mytas, the Safeco adjuster who prepared the report upon which coverage was denied, concluded in his report that he thought the damages reported by the Millers had only recently been discovered. Mytas did not specify what “only recently discovered’ meant in terms of when the damages were discovered:

There is nothing in Mytas’ notes that would suggest he thought the loss was discovered before the Millers bought the Property. Thus, the Mytas Report does not provide Safeco with a reasonable basis upon which to deny coverage for the Millers’ loss.

Safeco also argued that the Abshire Report confirmed that the Millers were aware of the damages before purchasing the property. The Abshire Report was prepared in September 2005, the month after the Millers purchased the property. It was prepared at the Millers’ request in order to obtain cost proposals for repair work after they began the renovations to their new home. Safeco claimed that the Abshire Report confirmed the roof as a main factor in the water infiltration that caused the damages. However, the Abshire Report was prepared after the Miller’s purchased the property, after they moved in, and after they began renovations. It was only after they received the Abshire report that they discovered the damages. As such, the Court determined that it was unreasonable for Safeco to deny coverage based on this report.

With regard to the timeliness of the notice given by the Millers, the Court again found Safeco’s argument meritless. The four month delay was attributable to the Millers contacting their attorney and retaining the appropriate inspectors to assess the damage. This was supported by the documents that the Millers provided to Safeco at the time that they filed their claim. The Court explained further that the Millers’ delay in reporting their loss did not serve as a legitimate reason for denying the claim because Safeco did not demonstrate that it was in any way prejudiced by the delay.

Such being the case, this reason simply does not provide a reasonable basis for denying benefits under the policy, and Safeco acted with knowledge or reckless disregard for its lack of a basis to deny coverage because of the Millers’ delay in reporting their claim.

The Court rejected Safeco’s argument that no covered loss occurred to trigger the additional coverage for fungi, wet or dry rot.

Even assuming Safeco was correct in stating that the “Additional Property Coverage for Fungi, Wet or Dry Rot, or Bacteria only applies if a covered loss occurs” (citation omitted) its reason for denying the additional coverage cannot save the day for Safeco because its rationale rested upon a flawed premise, i.e., that no covered loss occurred. Just as its underlying decision with respect to whether the Millers sustained a covered loss was without a reasonable basis, so too was its decision to deny the additional mold coverage.

The Court also rejected Safeco’s argument that the Millers did not mitigate their damages. Safeco’s own report, prepared by Mytas, reflected that the Millers installed plastic sheeting where the drywall was removed. Further, the Court found that:

The Millers made reasonable efforts to mitigate their damages by winterizing the house, running dehumidifiers, making repairs to the roof, and installing plastic sheeting.

With regard to making any other repairs or mitigating damages to a greater extent, the Court explained that the estimated cost of repair to the home exceeded $315,000, and it is unreasonable to expect insureds who sustained a total loss to expend that amount in repairs. The Court also pointed out that, at no time, did Safeco ever specify any action that the Millers should have taken to protect the property – there was nothing in the claims file nor was there anything disclosed through trial testimony.

Safeco’s inability to identify measures that should have been taken is consistent with Mytas’ testimony that he was not sure whether anything could have been done to prevent further damage. Indeed, if before it denied coverage Safeco had asked Mytas whether the Millers took proper precautions in protecting their home, it would have learned that there was no reasonable basis to deny coverage on this ground. Instead, Safeco blindly denied coverage because of its ill-founded claimed belief that the Millers failed to protect the property from further damage. Such decision was made in reckless disregard of the lack of reasonableness of such ground for denying coverage.

For those who have been following my posts, it may be apparent now why I am dedicating a few weeks to this decision. Please tune in next week for more.