The United States District Court for the District of Connecticut recently granted a property insurer’s motion for summary judgment on a claim that the insurer acted in bad faith when it denied coverage to its insured for damage to the basement walls in the insured’s home. Bacewicz. v. NGM Ins. Co., 3:08-CV-1530 (JCH) (D.Conn., Aug. 2, 2010). The decision offers some guidance to insurers and defense counsel seeking to dispel bad faith claims on the basis of legally insufficient evidence.
The insured plaintiffs posited three bases for their claim that the insurer acted in bad faith. First, they claimed that the defendant homeowner’s insurer denied coverage on the basis of a water damage exclusion, when there was no evidence of water damage. Second, they claimed that the insurer delayed issuing its denial of coverage in order to create an untimely filing defense. Finally, they claimed that the insurer, with no factual basis for doing so, accused the plaintiffs of making fraudulent misrepresentations.
The court first discussed the standard for bad faith under Connecticut law, and explained that bad faith implies “both actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one’s rights or duties, but by some interested or sinister motive …. Bad faith means more than mere negligence; it involves a dishonest purpose.” Applying this standard, the court held that the record could not support a finding of bad faith in connection with any of the plaintiffs’ three theories. With regard to the water damage exclusion, the court found that the record was devoid of any evidence indicating that the insurer acted dishonestly or in bad faith in relying on the exclusion, and that the record contained evidence on which a reasonable jury could find that the damage to the plaintiffs’ house was caused by water damage. With regard to the alleged delay in denying coverage, the court again found that there was a lack of evidence in the record to suggest that the insurer made a decision to delay in denying coverage in order to create an untimely filing defense.
Finally, with regard to the insurer’s accusation that the plaintiffs made fraudulent misrepresentations, the court explained that the plaintiffs’ bad faith theory related to the following circumstances: the plaintiffs filed a proof of loss claiming a recovery in excess of $226,000, and the next day they signed an agreement with a contractor to repair the damage for less than half that amount. Thereafter the insurer issued its coverage letter in which it stated that the plaintiffs made false statements during the presentation of their claim. The plaintiffs alleged that their earlier high estimate was based on a cost estimate made by their contractor, and the court agreed that there was evidence to support such a conclusion. However, the court disagreed that the insurer’s accusation of false statements was therefore made in bad faith. The court found that based on the timing of the proof of claim and the agreement with the contractor and the large disparity between the amounts, the defendant insurer had a reasonable basis on which to state that the plaintiffs had made false statements, and no reasonable jury could find that the insurer made the statements in bad faith.
Click here to read a copy of the court’s decision.
Click here to read our discussion of the court’s earlier decision dismissing the plaintiffs’ claim for a violation of the Connecticut Unfair Trade Practice Act.