Allstate Insurance Company issued Mary Ann Jordan (Allstate
& Jordan respectively) a homeowner policy. During one policy term, Jordan
had some damage to her home investigated. An inspector determined that a window
fell out of its frame due to her home being infested with Poria,
a waterborne fungus.
Jordan
filed a claim with Allstate and the insurer denied the claim based on its
policy exclusion regarding wet or dry rot. Before denying the claim, Allstate
sent out a separate inspector who came to the same conclusion, that Poria had damaged the home. Jordan sued for coverage and
Allstate filed for a summary judgment based on policy exclusions. The insurer
based its request on policy wording that excluded coverage for loss involving
either wet or dry rot as well as a second exclusion that no coverage applied to
instances of imminent (as opposed to immediate) collapse. The trial court ruled
in favor of Allstate.
Jordan
appealed, arguing that the Poria loss did not involve
wet rot and, regardless, the loss should also qualify under the collapse
exception found in the policy’s section on additional coverages.
The higher court ruled that the policy language was ambiguous regarding its
references to wet rot and to hidden decay that applied to certain losses.
Because of this confusion, the court reversed the decision and remanded for a
new trial.
At the new trial, Jordan asserted that Allstate was
guilty of breach of contract, bad faith and also filed a motion for declaratory
relief. Countering Jordan’s
action, Allstate filed a summary motion that, due to a previous court ruling
that the insurer’s interpretation of part of its policy language was reasonable
(regarding wet rot), Jordan’s
bad faith allegation was meritless. The court agreed
with Allstate and Jordan
appealed, solely on the basis of her allegation of bad faith.
Upon a second review, the higher court addressed the new
argument. The insurer contended that, since the court agreed that its claim
denial, based on its policy interpretation, could be considered reasonable; it
could not be accused of acting in bad faith. The court considered the situation
on broader grounds. The court reasoned that, while Allstate’s denial was based
on a reasonable interpretation of policy language, the insurer owed a duty to
properly investigate claim requests fully for evidence of possible coverage. In
this instance, the court found that the insurer failed to properly consider Jordan’s
claim that the loss involved collapse, a covered situation.
The records showed that an inspector hired by Allstate came
to the same conclusion as had an inspector hired by Jordan….collapse was caused by the Poria infestation. However, the record also showed that the
company decided against investigating the possibility that a valid collapse
claim existed, ignoring information presented to the insurer by Jordan
in support of that claim. In the view of the court, the insurer failed in its
responsibility to fully review the claim and, therefore, could be guilty of
acting in bad faith toward Jordan.
The court found that there were grounds for a trial to resolve whether a valid
collapse claim existed. The lower court decision was reversed in favor of Jordan
and was remanded for trial. The higher court also ruled that Jordan was eligible to recover the
cost of the appeal.
Mary Anne Jordan, Plaintiff and Appellant
v. Allstate Insurance Company, Defendant and Respondent. California Court of Appeal, 2nd District, Division 3. No. B187706. Filed March 22, 2007. http://caselaw.lp.findlaw.com/data2/californiastatecases/b187706.pdf
(downloaded March 20, 2007)