Third Circuit grants Nationwide summary judgment in bad faith suit
Washington Street, LLC sued Nationwide for bad faith, alleging the carrier deliberately and unreasonably delayed policy payments after a building fire.
The judges of the Third Circuit recently affirmed summary judgment for Nationwide in a bad faith suit filed by the owner of an apartment building that had suffered severe fire damage. The case is called Washington Street, LLC v. Nationwide Property & Casualty Insurance Company.
An apartment building burned down after one of the tenants negligently caused a fire. The building owner, Washington Street, LLC, promptly reported the fire damage and submitted a claim to Nationwide. The first payment under the policy was issued to Washington Street six weeks later, after its attorney complained to Nationwide about how slowly the process was moving. When the payment was made, Nationwide acknowledged the payment was incomplete and agreed it would be subject to change if additional repairs were needed or more damage was found.
Washington Street submitted a repair estimate that had not been included with Nationwide’s initial report. Nationwide hired a consultant to evaluate the estimate and, based on the consultant’s findings, issued a second policy payment. Washington Street was dissatisfied with the amount of the second payment and invoked the policy’s appraisal clause. At the end of appraisal, the umpire awarded damages to Washington Street that exceeded the Nationwide policy limit, and Nationwide paid the full policy amount.
During the appraisal process, however, Nationwide filed a subrogation suit against the tenant who had negligently caused the fire. Though the subrogation investigation began in July 2019, Nationwide did not inform Washington Street of the suit until January 2021. That suit ended in settlement, and Washington Street received an additional payment as a result.
Still unhappy with the pace of the process, Washington Street sued Nationwide for bad faith and breach of contract based on bad faith. It alleged that Nationwide deliberately delayed the policy payments, misrepresented the prerequisites for invoking appraisal and had illegally filed its subrogation suit before Washington Street was made whole. Nationwide filed a motion for summary judgment, which was granted in the district court, and Washington Street appealed.
Before the Third Circuit, Washington Street reiterated its arguments about Nationwide’s alleged bad faith. The judges said Washington Street must prove there had been no reasonable basis for Nationwide to deny the claim, and that Nationwide either knew there was no such reasonable basis for denial or it recklessly disregarded the lack of a reasonable basis for denial and denied the claim anyway. Due to the nature of summary judgment, all Nationwide had to do to defeat the bad faith claim was show it had a reasonable basis for the delay.
Delay of payments
Washington Street claimed that the fire loss occurred on July 14, but that Nationwide had not contacted them for nearly a month. Nationwide asserted that the fire chief had not released the burned building for inspection for three weeks after the fire. As soon as the building was deemed “safe,” a claims specialist for Nationwide visited the site and began inspecting the premises. The claims specialist’s notes showed a comment from late August, shortly before the first payment was made, that the size of the building was affecting the speed of the inspection. Nationwide admitted the first payment was low, but it “left the door open for Washington Street to submit further estimates once repairs got underway” even though Washington Street did not do so.
Washington Street also complained that Nationwide did nothing to finish the investigation and give a completed estimate despite knowing the initial payment was too low. But the court pointed out that the claims specialist had believed his estimate covered all of the visible damages, and only tearing down the building would reveal damage to things unseen, like the HVAC system. After the attorney for Washington Street submitted a report of additional damages, the claims specialist worked to reconcile the numbers, but decided another consultant’s opinion was necessary. Though the judges agreed the process had not been as efficient as it could have been, a bad judgment call and inefficient claims process did not support an allegation of bad faith.
Washington Street’s allegation that Nationwide misrepresented the appraisal clause also failed. The clause had specified that providing an itemized list was mandatory in order for Nationwide to complete the appraisal process. Washington Street had refused to give such a list, but Nationwide had proceeded with the appraisal anyway. It had also abided by the umpire’s award and issued a payment to Washington Street for the policy limits.
The “made whole” doctrine requires an insurer who desires subrogation against a third party to wait until the insured has been “made whole” before filing suit. The court agreed with Washington Street that Nationwide had violated the made whole doctrine. However, a mere violation was an insufficient basis on which to build a bad faith claim. The judges indicated that Washington Street had not shown how the violation of the made whole doctrine had hampered the claims process, and pointed out that Washington Street had acknowledged the subrogation settlement was “fair and acceptable.”
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