Honesdale Volunteer Ambulance Corp. Inc. v. Am. Alternative Ins. Corp., CIV.A. 3:11-1488, 2014 WL 1203317 (M.D. Pa. Mar. 24, 2014)

Middle District of Pennsylvania grants summary judgment on bad faith claim where insurer responded to the claim the day after it was made, twice investigated the building in question, acceded to insured's request to review its decision, and reasonably relied upon its expert engineer's report.

On June 23, 2010, an earthquake allegedly damaged Honesdale Volunteer Ambulance Corporation's (“Honesdale EMS”) property.  On the day of the earthquake, workers at the Honesdale EMS building reported feeling the building shaking and hearing squeaking noises from the walls.  They evacuated the building, and, once outside, found issues with the building that Honesdale EMS contended were not preexisting.  This damage included cracks in the masonry, loose bricks on window arches, and the window at the top of the west gable wall being dislodged and appearing to be falling into the building. The building was condemned on that day after a preliminary inspection by the town code enforcer accompanied by an engineer.

The day after the earthquake, Honesdale EMS reported its claim to its insurer, American Alternative Insurance Corporation's (“AAIC”).   AAIC hired an independent adjustment company, Gerald Williams Adjustment Service (“Gerald Williams”), to assist in investigating the claim.  On June 24, 2010, an adjuster from Gerald Williams inspected the property. The following day, Michael H. Queen, P.E., an engineer engaged by AAIC, performed an initial inspection of the building.  Queen concluded that the building had not been damaged as a result of the earthquake.  Based on the initial inspections, AAIC denied Honesdale EMS’s claim on July 9, 2010. Honesdale EMS requested additional consideration of the claim following the July 9 denial, and AAIC agreed to consider the claim further.  The building was re-inspected on July 23, 2010.  Queen submitted a supplemental report addressing the re-inspection and an engineer’s report submitted by Honesdale EMS, and again concluded that the building was not damaged as a result of the earthquake.  As a result, AAIC maintained its prior denial of the claim on August 10, 2010.

Following the second denial of the claim, Honesdale EMS sued AAIC for breach of contract and bad faith.  Honesdale EMS alleged that AAIC determined that it would deny the claim before making any investigation, that AAIC's investigators ignored the testimony provided by those present in the building on the day of the earthquake, and that AAIC failed to conduct a proper investigation of Honesdale EMS's claim.  AAIC filed a motion for summary judgment on both claims

With respect to Honesdale EMS’s bad faith claim, the district court found that Honesdale EMS had not met its “substantial burden of showing by clear and convincing evidence that defendant acted in bad faith.”   The court noted that “[f]irst, and most importantly, an insurer's reasonable reliance on an engineering expert's report for a coverage decision does not constitute bad faith.”   The court discussed Queen’s inspection of the building independently two days after the earthquake, and his re-inspection of the building in July, noting that his “opinion was consistent throughout” this process.

Moreover, the court gave no weight to the objectionable attitudes and behaviors of the other Gerald Williams employees. Employees for Honesdale EMS’s insurance agent testified that one of the Gerald Williams employees was an “advocate for non-payment,” that he was abrasive and unprofessional, and that he used foul language and expletives.  Further,  Gerald Williams’s employees had referenced anonymous blog posts critical of executive director of Honesdale EMS, and newspaper articles indicating that EMS had been attempting  to relocate from its current building for some time.   The testifying witness believed that the Gerald Williams employee was using those posts and items as justifications for not paying  the claim.

The court held that the plaintiff put “forth no evidence that [engineer] Mr. Queen shared in this behavior or otherwise acted in a biased or improper way.”  Rather, Queen’s reports were indicative of having undertaken a reasonable investigation, and therefore it was reasonable for AAIC to rely on those reports.  Likewise, the court found that the unprofessional behaviors of Gerald Williams employees were not indicative of bad faith where the Honesdale EMS could not show that those employees had responsibility for the coverage decision; “[t]he attitude of a lower level claims representative, who lacked the authority to make final decisions on the claim and who handled the claim preliminarily, is not enough to show bad faith.”  The court also held that looking at anonymous blog posts was not evidence of bad faith; there is no case law in the Third Circuit or Pennsylvania prohibiting claim investigators from researching on the internet.

Finally, the court rejected the argument that AAIC’s investigation was inadequate because the employees working in the building on the day of the earthquake were not interviewed by defendant.  While acknowledging that interviewing the employees may have been helpful in evaluating the claim, the court stated that the defendant “need not show that the process used to reach its conclusion was flawless or that its investigatory methods eliminated possibilities at odds with its conclusion.  Rather, an insurance company simply must show that it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action.”