INSURANCE-RELATED COURT CASES
Digested from case reports published online
COURT DECISIONS
Not bad faith, bad timing
After a large network of thunderstorms with powerful, straight-line winds passed through, the home and property of Colin Henderson and Wende Kelsey (Hendersons) experienced damage. At the time, they possessed a homeowners insurance policy issued by State Farm Fire and Casualty Company (State Farm). A claim for damages was submitted, and that is when the process became complicated, protracted and, eventually, litigated.
Roughly a month after the loss occurred and was reported, State Farm made a property inspection. The insurer issued a payment of nearly $2,300. The amount was minus their deductible and based on the actual cash value (ACV) damage to the Hendersons’ roof, living room, aluminum siding, a fence gate and an outdoor grill.
After sending State Farm an invoice for repairing their fence, additional pictures of damage, and an additional loss estimate, the Hendersons were paid another $3,800 (again based on ACV). The Hendersons asked a roofing firm to inspect and provide an estimate for their roof and other property repairs. This resulted in a total estimate of more than $21,000, including a total roof replacement.
For months, the Hendersons and State Farm continued arguing over both the scope and the amount of damage. There were continued requests for the roof to be replaced, as the homeowners’ selected roofer advised that there were roof deck issues that would not allow for selective repair and matching shingles were not available.
There were additional disputes regarding the damage to the home’s siding as well as interior damage. No action was taken by State Farm when they received an estimate on interior damage that was higher than the one the insurer determined. The Hendersons also requested that the siding be replaced.
When the insurer suggested sources for siding, the Hendersons argued that they were unable to secure replacement materials that would match their existing siding. A complaint was later filed by the policyholders with the state’s insurance department alleging that the adjuster used by State Farm was a bully. The department did not respond to the complaint.
Roughly a year after submitting their loss, the Hendersons requested use of the appraisal process as well as for an extension on the period for filing a lawsuit. A week after State Farm refused an extension, the insureds sued, claiming breach of contract and that the insurer was acting in bad faith. They also asked the court to enforce the insurer’s participation in appraisal.
While the initial court action was pending, the parties did submit to an appraisal. The appraisers determined that the Hendersons’ roof should be replaced and determined total claim amounts of roughly $16,000 ACV and $21,000 replacement cost value (RCV). State Farm paid an additional $9,000 which, when combined with its previous payments, equaled the ACV appraisal award.
The insurer then advised the insureds that they could apply for the funds equal to the RCV appraisal award if repairs were completed by August 10, 2022. The homeowners were also required to notify State Farm within 30 days of completion, along with documentation of the completed repairs.
For various reasons, the insureds could not meet the policy’s deadlines. State Farm moved for summary judgment that it owed no further payments. Its position was that it had made a full ACV payment and no other documentation was received within the policy’s claim submission time-limit of two years after the loss occurrence.
The lower court ruled in favor of the insurer, dismissing the bad faith and breach of contract claims. It also ruled that State Farm even had proper grounds to reject the original request for full roof replacement. The Hendersons appealed.
Upon appeal, besides their bad faith and contract breach claims, the Hendersons argued that the district court did not have jurisdiction over the case due to state regulations concerning a damages threshold. The higher court dispensed with that matter, determining that the district venue acted within its authority.
The breach of contract claim centered around the Hendersons’ position that State Farm stopped them from making all home repairs within the two-year time limit and that there were delays in the loss adjustment process. The court finding was that the insurer appeared to make timely responses to payment requests, properly advised the insureds of policy requirements and deadlines.
The court also pointed out that the insureds did not justify several months passing by without efforts to complete repairs. Further, the court found that State Farm was within its rights to withhold any payments involving RCV when the Hendersons failed to make repairs on time and provided insufficient documentation of repair efforts.
Regarding the charges of bad faith, the higher court found no evidence suggesting that State Farm’s actions were prejudicial to the Hendersons. Responses to the policyholders were timely and appropriate, and the insurer adhered to policy conditions, participated in the appraisal process, and fulfilled their obligations as contracted. The district court decision to dismiss both the bad-faith and contract breach claims was affirmed.
Colin Henderson, Wende Kelsey v. State Farm Fire and Casualty Co.—United States Court of Appeals for the 8th Circuit—No. 23-1310—September 6, 2024.
