PHILADELPHIA – In a Philadelphia federal court, Allstate Insurance Company’s effort to dismiss a breach of contract and bad faith action filed against it by a landlord who suffered water damage to his rental properties has not met success.
In a decision released July 17, U.S. District Court for the Eastern District of Pennsylvania Judge Michael M. Baylson ruled to deny Allstate’s motion to dismiss a claim of bad faith from plaintiffs Overbook Properties, LLC and William Wolverton and partially grant its motion to strike portions of the amended complaint.
Overbrook Properties is located in Narberth, and owned a three-unit residential apartment building located at 5932 Ridge Avenue in the Roxborough section of Philadelphia. According to the litigation, the trio of units collected a monthly rental income of $2,200, and in 2009, the plaintiffs secured a policy from Allstate, based in Northbrook, Ill.
After a prior policy dispute between the plaintiffs and Allstate in 2011, which nearly led to the termination of the plaintiffs’ policy, Allstate offered a “Landlords Package Policy” in June 2016, renewing the policy coverage on the property.
“On or about Jan. 12, 2017, leaking water was observed in all three apartments of the property emanating from the toilet in the third floor apartment and the sewer stacks in the second and first floor apartments, causing water damage to the premises. There had not been any continuous or repeated leakage of water, steam, or fuel from any of the pipes, walls, plumbing fixtures, floors, stacks, or ceilings prior to that date. Plaintiffs reported the Jan.12, 2017 leak and resulting water damage to Allstate on or about Jan. 16, 2017,” Baylson said.
The plaintiffs claimed they performed all post-loss obligations required under the policy, including proper notice of the loss, providing a sworn statement in proof of loss and repair estimates – however, Allstate has allegedly refused to reimburse the plaintiffs for their claims.
“Allstate denied plaintiff’s claim solely based on an unsigned report form an unnamed person on a letterhead from a plumbing company dated March 30, 2017, which states: ‘The amount of water damage seen would indicate that the damage had occurred from continuous water use and not from a one-time occurrence or had contributed to possible prior water damage when the pipe on the first floor has been replaced.’ The unsigned report did not provide a factual basis to support its conclusion,” Baylson said.
Baylson added Allstate “failed to consider a statement, reports and documents provided by plaintiffs and their representatives communicating that Jan. 12, 2017 was the first time that any water damage was observed, and failed to consider or give adequate weight to plaintiffs’ contractor’s report which stated that the water damage occurred as a result of a deteriorated toilet flapper along with a broken fluid master.”
As a result of the water damage, plaintiffs sustained repair costs of $32,671 and loss of rental income of $24,200 over a time period spanning Jan. 12, 2017 to Nov. 20, 2017. Subsequently, Overbrook was unable to pay the mortgage on the property and was forced to sell it at a loss of $75,000 on Nov. 30, 2017.
The plaintiffs filed their initial complaint in the Philadelphia County Court of Common Pleas on Jan. 11, which Allstate removed to the U.S. District Court for the Eastern District of Pennsylvania on Feb. 9, for reasons of the amount in controversy and the diversity of citizenship between the parties.
An amended version of the complaint was filed on March 1, detailing claims of breach of contract and bad faith – leading Allstate to file a motion to dismiss the bad faith claim and one to strike the plaintiffs’ demand for attorney’s fees on the breach of contract claim, in addition to a final one to strike paragraphs 9-11 and 37 of the amended complaint. The plaintiffs opposed these motions.
Allstate argued under Pennsylvania law, an insurer is insulated from a claim for bad faith when it has a reasonable basis for the relevant coverage decision, including when it relies on the conclusions of an independent expert in making that decision. Because Allstate relied upon the conclusions of a plumber in making its coverage decision, it said there can be no claim for bad faith.
Allstate added the only standard required to defeat a bad faith claim was that it “had a reasonable basis for its conclusion about coverage, not that an insurer eliminated all possibilities at odds with that conclusion.”
“Plaintiffs respond that Allstate’s reliance on a report prepared by a plumber in making its coverage decision in this case was unreasonable, given that the report was unsigned and its author unnamed, it failed to state the factual basis for its conclusion, and it did not state its conclusion within a reasonable degree of plumbing certainty,” Baylson stated.
Baylson said the report “does indicate a factual basis for the plumber’s judgments about the cause of the damage – namely ‘the amount of water damage seen” – but that it “suggests that the plumber considered only surface level evidence, and offered quite a thin analysis of the potential evidence available for determining the cause of the damage.”
“The question is whether, taking these allegations in the light most favorable to plaintiffs, they plausibly state a claim for statutory bad faith. At the motion to dismiss stage, this Court concludes that they do. Taking the allegations in the light most favorable to the plaintiffs as we must at this stage, it cannot be said that Allstate did not act in bad faith as a matter of law in making its decision to deny plaintiffs’ claim. Allstate’s motion to dismiss plaintiffs’ statutory bad faith claim will be denied,” Baylson said.
Regarding the motion to strike the plaintiffs’ demand for attorney’s fees for breach of contract, Allstate did win such approval from the Court since the “limited circumstances” allowing for such recovery did not apply in this case.
“Plaintiffs concede to their demand for attorneys’ fees in Count I being stricken. As such, Allstate’s motion to strike this language will be granted, and the demand for attorneys’ fees in plaintiffs’ breach of contract claim will be stricken from the amended complaint,” Baylson stated.
Next, Allstate argued paragraphs 9-11 and 37 of the amended complaint should be stricken, as they reference the prior 2011 policy dispute between the parties which cannot be re-litigated and which the provider labeled as “immaterial and impertinent.” Meanwhile, the plaintiffs felt they were relevant to whether Allstate had knowledge of or recklessly disregarded a lack of any reasonable basis for denying the plaintiffs’ coverage claim for the January 2017 water damage to the property.
“A motion to strike is reviewed according to a very high standard, and should only be granted in rare circumstances. Allstate has failed to meet that high standard to establish that justice requires this Court to strike these paragraphs from the complaint. The motion to strike will be denied,” Baylson concluded.
“Defendant’s motion to dismiss will be denied. Defendant’s motion to strike plaintiffs’ demand for attorneys’ fees in Count I will be granted, pursuant to plaintiffs’ concession; Defendant’s motion to strike paragraphs 9-11 and 37 from the amended complaint will be denied.”
The plaintiff is represented by James Cunilio of Cunilio & Cunilio, in Bryn Mawr.
The defendant is represented by Mark J. Walters of Labletta & Walters, in Eatontown, N.J.
U.S. District Court for the Eastern District of Pennsylvania case 2:18-cv-00630
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nickpennrecord@gmail.com