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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