Most policyholders understand that the policyholder and the insurance company have different obligations under an insurance contract. In breach of contract and bad faith cases, insurance companies commonly argue the policyholder did not comply with post loss obligations the insured was required to satisfy in accordance with the terms of the policy.

In 3039 B Street Associates, Inc.,et al. v. Lexington Insurance Company, the District Court for the Eastern District of Pennsylvania was presented with a case where the policyholder did not comply with its policy obligations. 3039 B Street Associates ("B Street") filed a lawsuit against Lexington alleging breach of contract and bad faith for Lexington’s failure to timely pay a commercial property damage claim.

Among other bad faith allegations, B Street claimed that Lexington acted without a reasonable basis in investigating whether the premises were heated, as this might have caused or contributed to the pipe burst which caused of the loss. Lexington argued that B Street failed to comply with post loss obligations.

Here, Plaintiffs did not file a proof of loss within the thirty days following the submission of their claim on January 8, 2008…Further, despite attempts by Defendant to obtain necessary documentation confirming that the premises were heated, Plaintiff either failed to provide the requisite information or provided deficient and/or conflicting documentation.

When evaluating Lexington’s actions, the Court gave substantial weight to B Street’s failure to timely provide a proof of loss and failure provide the information requested by Lexington regarding whether the property was heated. The Court ruled that B Street could not demonstrate that Lexington lacked a reasonable basis in conducting an ongoing investigation on the issue. In combination with other issues, the Court decided that Lexington’s delay in payment was not in bad faith.

Although this decision is specific to the Eastern District Court of Pennsylvania, it serves as a reminder that it is important for policyholders to review their policy and understand their obligations. It is also critical that the insured comply with requests for information and documentation that can assist the carrier with the investigation of the claim.