Reasonable Reliance on Experts Is a Successful Defense to Bad Faith Litigation
In order to prevail on a statutory bad faith claim in Pennsylvania, a policyholder must prove by clear and convincing evidence that 1) the insurer did not have a reasonable basis for denying benefits under the policy; and 2) the insurer knew or recklessly disregarded a lack of reasonable basis in denying the claim. Rancosky v. Washington Nat’l Ins. Co., 170 A.3d 364, 377 (Pa. 2017).
Two recent cases out of the Eastern District of Pennsylvania show how an insurer’s reasonable reliance on experts can defeat a bad faith claim.
In Gethsemane Fbh Church of God v. Nationwide Ins. Co., the policyholder alleged bad faith because the insurer failed to conduct an adequate investigation. 2020 U.S. Dist. LEXIS 60780 (E.D. Pa. Apr. 7, 2020). The insurer relied on the report of an outside expert in rendering its coverage decision. The policyholder claimed the expert’s report was lacking, but the court concluded the expert report was prepared based on an inspection of the property, with photographs and measurements. The insurer’s reasonable reliance on the report warranted summary judgment on the bad faith claim.
Similarly, in Balu v. Cincinnati Ins. Co., the insurer relied on an independent expert in determining coverage. 2020 U.S. Dist. LEXIS 63987 (E.D. Pa. Apr. 9, 2020). The bad faith allegation stemmed from a disagreement between the parties as to cause of loss. The insurer identified faulty construction as the cause of property damage while the policyholders identified wind, ice, and snow. The court dismissed the bad faith claim since the expert based his opinion on inspections of the property, and the insurer was reasonable in relying on the expert’s opinion on the cause of loss. The court noted that it was immaterial whether the insurer was or was not correct in its coverage determination, as this had no bearing on whether it was entitled to rely on the findings of its expert.
These cases demonstrate the importance of insurers using independent experts in the investigative process and in determining coverage. If you have any questions or would like additional information, please contact a member of the Timoney Knox’s Insurance Industry Group.