Willful Non-Cooperation Precludes Finding of Breach of Contract

A U.S. District Court judge in Oregon recently adopted the recommendations and findings of the magistrate judge in Formosa v Great Northwest Ins. Co., 2014 WL 4537537 (D.Or.  Sept. 4, 2014), addressing the effect of an insureds’ failure to cooperate on the insurance company’s potential liability for breach of the implied covenant of good faith and fair dealing.  The court determined that the insureds’ willful non-cooperation in providing verification of the claim precluded a finding that any delay in payment of insurance benefits constituted a breach of the policy.

The case involved an insured couple that submitted a claim for loss of personal property after their home burned down.  The day after the fire, the insurance company scheduled an appointment with the insureds to begin adjusting their personal property claim.  The insureds subsequently engaged a public adjuster, and were advised to cancel the scheduled appointment.  Four months later, the insurance company inquired about when it might expect to receive verification of the personal property loss for review.  The insureds did not respond.  The insureds failed to provide verification of their losses within six months of the fire, despite the insurance company’s repeated inquiries about the status of the claim.  The insureds’ finally submitted a personal property inventory more than seven months after the loss, and the insurance company requested examinations under oath to clarify the information provided in the personal property inventories.  The insureds filed suit the same day the examinations under oath were conducted, alleging that the insurance company breached the insurance policy by not settling the insureds’ personal property claim.  The insurance company paid the full personal property policy limits eight business days after the examinations under oath.

The parties filed cross-motions for summary judgment regarding whether the insurance company breached the policy.  The insureds conceded that the insurance company never denied their claim and that it was paid in full.  Instead, they argued that the insurance company’s delay in settling the personal property claim was a breach of the insurance contract and the implied covenant of good faith in fair dealing.  The insureds argued further that the insurance company’s payment of the full policy limits was an admission of its breach of the implied covenant of good faith and fair dealing.  The court rejected the insureds’ argument, finding that the insurance company paid the policy limits promptly upon completion of the investigation and that any delay in the claim resulted from the insureds’ willful failure to cooperate in the investigation.

The court also considered the insureds’ claim for additional living expenses (ALE) under the policy.  The insurance company paid for eleven-and-a-half months of ALE benefits.  The insureds asserted they were entitled to further ALE payments based on the delay in adjusting the claim.  The evidence adduced in discovery established that repairing or restoring the damaged structure would take no more than ten months.  The court rejecting the insureds’ argument, holding that “[a]lthough it is [the insureds]’ prerogative to delay rebuilding, [the insurance company] is not required to pay additional living expenses indefinitely during this time and such is not a breach in the circumstances of this case.”  The court dismissed the insureds case entirely.

The lawyers at Maloney Lauersdorf Reiner regularly litigate insurance coverage matters that include issues regarding an insured’s cooperation in an investigation.  Please contact us with any questions regarding this case or any other matter you see on the Insurance Coverage Blog.

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