Friday, December 6, 2019

Court Rules that Where Carrier Has Paid the Benefits, There Can Be No Breach of Contract


In the case of Merrone v. Allstate Vehicles & Property Ins. Co., No. 3:18-cv-193 (W.D. Pa. Oct. 21, 2019 Gibson, J.), the court granted summary judgment in favor of the carrier in a bad faith action based primarily on allegations by a Plaintiff that there was no evidence to support the carrier’s lengthy investigation in an alleged arson case. 

According to the Opinion, after the Plaintiff’s house burned down, the carrier conducted a lengthy, detailed and wide-ranging arson investigation before ultimately paying the full benefits under the policy. 

The Plaintiff brought a breach of contact action for the delay payment and bad faith claim alleging that there was no evidence to support the investigation. As noted, summary judgment was granted on both claims. 

The court indicated that, “where the insurance company has paid the benefits under the policy, the insured cannot maintain an action for breach of contract.” 

The court otherwise held that payment by the carrier “negates any breach of contract action” where the carrier has paid the full policy limits and where there is no other evidence of failure to compensate. 

On the bad faith claim, the court held that an insurer can conduct investigations of questionable claims without acting in bad faith. The court found that there were red flags present in this case that were sufficient to warrant the carrier’s detailed investigation into the claims presented. 

The court in Merrone additionally held that while a payment delay can be the basis for bad faith, or a factor in a bad faith claim, the delay in and of itself might not constitute bad faith. Moreover, the court emphasized that, in order to proceed on a claim of bad faith based upon a delay in payment, an insured must produce clear and convincing evidence to establish that the carrier knew that its delay of payment was baseless. 

The record before this court established that the carrier reasonably believed that there were potential grounds to deny the Plaintiff’s claim which warranted the further investigation that was completed. 

The court also merely found that the carrier had a reasonable basis to conduct its investigation, to reasonably pursue all avenues of that investigation as new information arose, and to continue to investigate until it decided to pay the claim after the matter was fully investigated.

Anyone wishing to review a copy of this decision may click this LINK .

I send thanks to Attorney Lee Applebaum of the Philadelphia, Pennsylvania law firm of Fineman, Krekstein & Harris for bringing this case to my attention. Please be sure to check out Attorney Applebaum’s excellent Pennsylvania and New Jersey Insurance Bad Faith Case Law blog.

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