Farm Bureau’s Denial of Skid Loader Claim “Fairly Debatable” and Therefore Not Bad Faith

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SALT LAKE CITY, July 21  — Sufficient evidence existed to establish that a stolen skid loader was not covered by a homeowners policy issued by Farm Bureau Insurance Company, a federal judge ruled on July 18.

Insureds  Naser and Stacy Awadh submitted a claim for a stolen skid loader after it went missing  on or about April 22, 2009. Farm Bureau investigated the theft and made an offer to pay the $2,500 limit for equipment on residential premises “used primarily for any business purpose.”  The insureds rejected the offer.

Mr. Awadh at one time indicated he purchased the loader for his company.  Farm Bureau’s investigation included contact with the Weber County, Utah, Sheriff’s Office, which closed a criminal theft investigation on the loader after determining there was a dispute between Mr. Awadh and a buyer of the loader,  Montalvo,  who claimed he paid the Awwadhs $13,000.00 to purchase it.  Farm Bureau later denied the Awadhs’ claim after uncovering a bill of sale for the loader, corroborating the sale.

The Awadhs then sued Farm Bureau in state court in Utah,  and  Farm Bureau removed the action to the U.S. District Court for the District of Utah.  Following removal it sought ant obtained summary judgment on both the insureds’ breach of contract and bad faith claims.

U.S. District  Judge Dale A. Kimball found “ample evidence to support Farm Bureau’s denial.”  He wrote:

 “Even if it is ultimately established that Montalvo stole the skid loader, there was evidence supporting Farm Bureau’s decision at the time. Based on all the evidence Farm Bureau uncovered in its investigation, it was fairly debatable whether the skid loader was stolen and Farm Bureau acted reasonably in denying Plaintiffs’ claim. Whether the skid loader was actually stolen is irrelevant to the present motion and Farm Bureau’s fairly debatable defense. And, Plaintiffs’ arguments that a fact finder would need to make findings about the intent of Farm Bureau’s agents, representatives, and investigators misses the mark. Plaintiffs have failed to point to any evidence that Farm Bureau’s agents or representatives acted inappropriately. Because it was fairly debatable whether the skid loader was stolen, Farm Bureau’s denial of Plaintiffs’ claim on those grounds cannot be the basis for a bad faith claim. Therefore, the court dismisses Plaintiffs’ bad faith claim.”

Kimball also dismissed the breach of contract claim, finding that Farm Bureau  had record evidence that the loader was business property, and the Awadhs had no corroboration of their claim that the loader was personal property:

“Awadh asserts he initially bought it with a personal account, but he gives no information or records in relation to the account. Awadh testified that he bought the skid loader from his business for one dollar, but again there is no record or documentation of the sale that would be conducted solely for the purpose of changing ownership. Awadh further testified that, at the time the skid loader went missing, he had no business and he was using the skid loader for personal snow removal at his home. But, he claims damages for the loss of rental income from not having the skid loader. While there are several unsupported assertions supporting Plaintiffs position, there is actual evidence supporting Farm Bureau’s position. At the summary judgment stage, Plaintiffs must do more than make unsupported, self-serving assertions. Even if there was a brief hiatus in which the skid loader was not rented out, the evidence demonstrates that the skid loader was ‘primarily’ used for business purposes. The court concludes that no reasonable juror could conclude otherwise. Accordingly, the court concludes that there is no basis for Plaintiffs’ breach of contract claim and Farm Bureau is entitled to summary judgment.”

Naser Awadh, et al. v. Farm Bureau Mutual Insurance Co., No. 13-0145, D. Utah; 2016 U.S. Dist. LEXIS 93369

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Travelers’ “Fairly Debatable” Position On Roof Loss Bars Bad Faith Claim

SALT LAKE CITY, Jan. 25 – A Utah federal judge has dismissed bad faith claims against Travelers on grounds that the insurer’s position on coverage of a roofing damage claim  following a windstorm was “fairly debatable.”  In Pheasantbrook Homeowners Ass’n. v. Travelers, U.D. District Judge David Nuffer ruled that even if an insurer is ultimately incorrect on a coverage position, it should escape bad faith liability if the position it took is “fairly debatable.”

Judge Nuffer reviewed applicable case law, including Utah decisions which have held that an insurer’s engagement of an expert to help assess the nature and extent of covered damage for a given loss could provide a defense to bad faith liability.  He ruled that the denial of certain portions of the windstorm claim in reliance on an expert engaged by the insurer, even if the expert was compensated, created legitimate factual questions regarding which portions of the roofing repairs were attributable to the windstorm, as opposed to betterment, maintenance, or a need to replace the roofing regardless of the wind damage.

Such legitimate factual questions regarding the insured’s proposal for roof replacement created a “fairly debatable” dispute about the amount owed, causing the judge to grant Travelers’ summary judgment motion as to the bad faith claim.

Pheasantbrook Homeowners Ass’n. v. Travelers, N.D. Utah, 2016 (Nuffer, J.)

Cyber Liability Insurance Bad Faith Suit Trimmed In Utah

A U.S. District Court Judge in Utah has granted partial summary judgment in favor of Travelers Insurance in a bad faith suit involving a Cyber Liability insurance policy.  U.S. District Judge Ted Stewart of Utah has dismissed portions of a bad faith suit against Travelers, ruling that it has no duty to defend or indemnify its insured, Federal Recovery, in an underlying data breach lawsuit.  The Court found that Travelers’ coverage position was “fairly debatable,” and therefore that the position it took cannot, as a matter  of law, be found to have been taken in bad faith.

The Court denied Traveler’s motion to dismiss that portion of the suit against it relating to Traveler’s intake and handling of the claim, however.  The insured claims that Travelers breached its duty of good faith and fair dealing in allegedly misleading its insured to delay the filing of the claim until it received formal suit papers.   The Court also found there were factual issues relating to whether Travelers  diligently investigated, evaluated, and communicated about the claim to its insured, and denied Travelers’ summary judgment motion as to those claims also.

The Takeaway:   This decision is a textbook example of a jurisdiction in which having a reasonable position to deny coverage to an insured is not the end of the bad faith analysis.  Claims handling (the means), separate and apart from the claims decision (the end), is subject to bad faith scrutiny under this jurisdiction’s bad faith law.  Best claims practices, therefore, should facilitate proper claims decisions being made in conjunction with proper claims handling, from initial intake to final coverage decision.

Travelers v. Fed. Recovery Services (D. Utah 2016)