Reasonable Basis for Denying Coverage Defeats Bad Faith Claim
Barry Zalma
Jan 25, 2024
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Post 4720
Mitchellville Plaza Bar LP (“Mitchellville”) appealed the district court’s granting summary judgment to Hanover American Insurance Company on Mitchellville’s breach of contract and bad faith claims arising from an insurance dispute over the infestation of its property by vultures. Mitchellville’s complaint alleged that Hanover wrongfully denied coverage under its insurance policy for commercial property damage caused by turkey vultures to the roof of one of Mitchellville’s properties. Hanover denied coverage under an exclusion for damage caused by an “infestation” of birds.
In Mitchellville Plaza Bar LP v. The Hanover American Insurance Company, No. 22-2089, United States Court of Appeals, Fourth Circuit (January 19, 2024) the Fourth Circuit resolved the policy interpretation.
FACTS
Mitchellville conceded that the only disputed issue in its breach of contract claim is whether the “infestation” policy exception applies to bar its claim. A contract is not rendered ambiguous by the mere fact that the parties do not agree upon the proper construction.
ANALYSIS
Mitchellville argued the exclusion was ambiguous. The court must consider a written contract and can find it is ambiguous only when a policy provision is reasonably susceptible of more than one meaning. The Fourth Circuit noted that the district court did not err in determining that the vulture presence on Mitchellville’s property constituted an “infestation” under a plain and ordinary understanding of this term.
Indeed, as the district court found, the various definitions of the term “infestation” commonly characterize an infestation as the persistent, invasive presence of unwanted creatures. The evidence of the vulture activity at the property, including the eyewitness testimony detailing the substantial bird activity at the property over the course of many months, meets this definition. Accordingly, the district court properly granted summary judgment to Hanover on Mitchellville’s breach of contract claim.
Bad Faith
While an insurer’s motive of self-interest or ill-will is potentially probative it is not a mandatory prerequisite to bad faith recovery. Proof of the insurer’s knowledge or reckless disregard for its lack of reasonable basis in denying the claim is sufficient.
Hanover based its denial of policy benefits on several reports that, taken together, gave Hanover a reasonable basis for denying coverage. The reports indicated that substantial, persistent, and troublesome bird activity had caused the relevant damage to the roof of the property. Accordingly, the Fourth Circuit concluded that the district court did not err in granting summary judgment to Hanover on this claim and affirmed the judgment of the district court.
ZALMA OPINION
When a flock of vultures lands on a roof over a period of months and damages or destroys the roof, that is an infestation of birds and was excluded by clear and unambiguous language of the policy. Courts are required to apply the facts and the law to the clear and unambiguous language of the policy. No insurance policy covers every possible cause of loss. This policy told the insured, when it acquired the policy, that it would not cover losses caused by an infestation of birds and that is what happened.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Post 5089
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Read the full article at https://lnkd.in/gziRzFV8, see the full video at https://lnkd.in/gF4aYrQ2 and at https://lnkd.in/gqShuGs9, and at https://zalma.com/blog plus more than 5050 posts.
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In Mluxe Williamsburg, LLC v. Hiscox Insurance Company, Inc., et al., No. 4:25-cv-00002, United States District Court, E.D. Missouri, Eastern Division (May 22, 2025) the trial court’s judgment was affirmed.
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Plaintiff, the operator of a massage spa franchise, entered into a commercial insurance agreement with Hiscox that provided liability insurance coverage from July 25, 2019, to July 25, 2020. On or about June 03, 2019, a customer alleged that one of Plaintiff’s employees engaged in tortious ...
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The Source for the Insurance Fraud Professional
Posted on June 2, 2025 by Barry Zalma
Post 5087
See the full video at and at
Read the full article and the full issue of ZIFL June 1, 2025 at https://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-06-01-2025.pdf
Zalma’s Insurance Fraud Letter – June 1, 2025
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ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Read the full article and the full issue of ZIFL June 1, 2025 at https://lnkd.in/gTWZUnnF
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at ...
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Post 5085
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On February 26, 2022, Plaintiff's home was destroyed by a fire. At the time of this accident, Plaintiff had a home insurance policy with Nationwide. Plaintiff reported the fire loss to Nationwide, which refused to pay for the damages under the policy because the home had been vacant for more than 60 days.
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ZIFL Volume 29, Issue 10
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See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
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Post 5062
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People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.
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