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Home / Courts / Insurance – Fire – Tort/Negligence – Bad Faith Refusal to Settle Claim – Unfair Trade Practices – Breach of Contract

Insurance – Fire – Tort/Negligence – Bad Faith Refusal to Settle Claim – Unfair Trade Practices – Breach of Contract

Kielbania v. Indian Harbor Insurance Co. (Lawyers Weekly No. 12-03-0958, 26 pp.) (Joi Elizabeth Peake, USMJ) 1:11-cv-00663; M.D.N.C.

Holding: Based on a drawn-out appraisal process that ignored some losses and changed the value of others without explanation, plaintiffs have presented a jury question as to their claims of unfair insurance settlement practices and bad faith refusal to settle a claim.

It is recommended that the defendant-insurer’s motion for summary judgment be granted as to plaintiffs’ breach of contract claim, but the parties’ cross-motions for summary judgment should be otherwise denied.

Even though the coinsurance provision of the parties’ policy was noted in a column adjacent to a notation of “replacement value” on the declarations page, this did not mean that the coinsurance provision only applied if the plaintiff-insureds sought the replacement value of their lost property. The coinsurance provision also applies if plaintiffs seek the actual value of their lost property.

With regard to plaintiffs’ unfair trade practices/unfair insurance settlement practices claim, there is evidence from which a jury could conclude that defendant’s appraiser failed to adequately inspect the property, which resulted in him missing several rooms and being “short” by 3,000 square feet, and failed to adequately investigate potential water damage; that defendant knew that the initial estimate did not include all of the expected water damage, but this information was not disclosed to plaintiffs, and the estimate was instead presented to plaintiffs as the total valuation; that defendant failed to consider plaintiffs’ counter-appraisal and instead insisted on using its estimate as the basis for negotiations, even after defendant knew that the initial estimate was inaccurate and that the “scope of the damage” was substantially greater than what was included in the initial estimate; that defendant revised its estimates multiple times with increases in relatively small increments, but failed to include items it had agreed to include and then actually reduced its estimates in many areas without providing a sufficient explanation for the changes, leaving defendant’s own adjuster “bewildered”;  that defendant’s initial offer and estimate of the loss at $903,913.75 actual cash value was unreasonable in the circumstances, and was roughly half the umpire’s ultimate appraisal of $1,732,898.70 actual cash value, a difference of over $800,000; that the process stretched over many months and resulted in significant delays that could be viewed as an effort to “wear down” plaintiffs and then pressure them to take an unreasonable award;  and that after the formal appraisal process was invoked, defendant’s  adjuster recommended an umpire because he believed the umpire would “lean toward”  him, and then attempted to engage in ex parte communications with the umpire.

However, a reasonable jury could also find that defendant acted in good faith to attempt to value the loss and settle the claim, that defendant’s estimates provided an adequate explanation and basis for the valuation, that delays in the process were primarily the result of scheduling conflicts on both sides, and that any ex parte contact by defendant’s adjuster with the umpire was unintentional and did not cause any harm because plaintiffs were included in the process at all stages.

It is properly the role of the jury to determine whether defendant failed to attempt in good faith to effectuate prompt and fair settlement, whether defendant’s offers to settle were less than an amount to which a reasonable person would have believed he was entitled, whether defendant promptly provided a reasonable explanation of the basis for its offers, and whether defendant compelled plaintiffs to institute litigation by offering substantially less than the amounts ultimately recovered.

For the same reasons, summary judgment would not be appropriate as to plaintiffs’ claim for bad faith failure to settle, and any ultimate election of remedies would be a matter for trial.

Summary judgment should be granted to the insurer on plaintiffs’ breach of contract claim; otherwise, summary judgment should be denied.

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