In order to recover under Pennsylvania’s bad faith statute, a party must prove, by clear and convincing evidence, that (1) the insurer did not have a reasonable basis for its coverage determination, and (2) the insurer knew of or recklessly disregarded the lack of a reasonable basis. Rancosky v. Wash. Nat’l Ins. Co., 170 A.3d 364 (Pa. 2017).
The United States District Court for the Eastern District of Pennsylvania has held that an insurer’s reasonable reliance on an expert is sufficient to defeat a claim for bad faith.
In Gethsemane Fbh Church of God A policyholder alleged bad faith against an insurer alleging that the insurer failed to conduct an adequate investigation. Gethsemane Fbh Church of God v. Nationwide Ins. Co., 2020 U.S. Dist. LEXIS 60780 (E.D. Pa. Apr. 7, 2020). The insurer from that case was relying on the findings and conclusions of its retained expert in making its coverage determination. The policyholder argued that the expert’s report was inadequate. The report was prepared based on an inspection of the property and it included photographs and measurements. As such, the court held that the insurer’s reasonable reliance on the report was warranted and granted summary judgment on the bad faith claim.
Likewise, in Balu, the insurer relied on the conclusions of an expert in making its coverage determination. Balu v. Cincinnati Ins. Co., 2020 U.S. Dist. LEXIS 60780 (E.D. Pa. Apr. 7, 2020). The coverage dispute arose from a disagreement between the parties as to the cause of loss. The policyholders claimed the cause of loss was wind, ice, and snow. The insurer denied the claim based on the expert’s conclusion that the loss resulted from faulty construction. The insurer reasonably relied on the expert’s conclusion in making its coverage decision. The court held that it was immaterial whether the insurer was correct in making its coverage determination. The court dismissed the bad faith claim because the insurer was entitled to rely on the findings of its expert.
These cases stress the benefits of insurers retaining independent experts in the investigation process and in determining coverage for a loss. If you have any questions or would like additional information on these cases, please contact any member of Horst Krekstein & Runyon.