MCWG Obtains Summary Judgment affirmed by the Third Circuit Court of Appeals.

Third Circuit Affirms Dismissal of Bad Faith Claims Against Insurer and Awards Costs.

In 3039 B Street Associates v. Lexington Ins. Co., the U.S. District Court for the Eastern District
of Pennsylvania granted summary judgment in favor of Lexington Insurance Company in connection with
a first-party property bad faith claim.  On September 19, 2011, the Third Circuit Court of Appeals
affirmed that decision and awarded Lexington the costs of that appeal.

The case involved water damage that occurred in January 2008 to the insured's
Philadelphia warehouse allegedly caused by a frozen pipe that ruptured.  Based on an exclusion
restricting coverage if the hazard is increased by any means within the control of the insured,
Lexington's adjuster sought certain information from the insured concerning whether heat was
maintained in the building at the time of the loss.  The adjuster also requested documentation that
supported the ownership of personal property within the warehouse that allegedly was damaged. 
Through 2008, the adjuster repeatedly requested documents that would prove ownership of the
personal property and evidence that oil for the heating system was delivered to the premises at
any time between the Fall of 2007 and January 2009.  The insured failed to provide the requested
information and, in opposition to the motion, took the position that the insurer, Lexington, could
have contacted certain non-parties to obtain the needed information, including the caretaker for
the insured’s building.  The insured also demanded that the insurer issue an advance payment
while the claim was being investigated.  Since coverage had not been determined, no advance
was issued.

The investigation continued through February 2009, when the insured sued Lexington for breach
of contract and bad faith under Pennsylvania law.

While the claim remained suspicious, during the course of the litigation additional
information was developed through non-party witnesses that tended to support the insured's
contentions that the oil tank for the premises had been refilled since the Fall of 2007 and
that the insured owned the personal property that allegedly was damaged.  In light of that
information, in July 2009 the insurer concluded its investigation, issued a check to the
insured for the undisputed damage amount, and demanded appraisal to resolve the remaining
disputed damages.  Although coverage was now acknowledged and the issue of the amount of
covered damages was to be determined through appraisal, the insured refused to withdraw
its bad faith claims.

Lexington then moved the Court for summary judgment dismissal of the case, since the
only remaining causes of action were grounded in Lexington's alleged bad faith handling of the
claim.  On May 4, 2010, Judge Robreno issued a 25 - page decision in which he found as a matter
of law that Lexington did not commit bad faith by conducting a long-term investigation into the
claim.  In so ordering, Judge Robreno noted that the insurer was in constant communication with
the insured and the insured "either failed to provide the requested information or provided
deficient and/or conflicting documentation."  The insured’s motion for reconsideration was
substantially denied on August 27, 2010.

On September 19, 2011, the Third Circuit Court of Appeals upheld Judge Robreno’s
decision.  In its decision, the Third Circuit noted that the insured’s claim was “highly
questionable, and … Lexington, through [its independent adjuster] Crawford, conducted a
reasonable investigation.”  The Court held that, under the circumstances, the insurer was not
required to simply take the insured’s caretaker “at his word and immediately [pay] the claim” –
as a matter of law.

Lexington was represented by Philip C. Silverberg, Kevin F.
Buckley, and Daniel M. O'Connell of Mound Cotton.

The lower court’s decision can be found at: 3039 B St. Assocs. v. Lexington Ins. Co., 740
F. Supp. 2d 671 (E.D. Pa. May 3, 2010).  It was also reported in Mealey's Litigation Report:
Insurance Bad Faith, May 13, 2010, 24-1 Mealey's Litig. Rep. Ins. Bad Faith 9 (2010), Volume
24, Issue #1 as well as at 2010 U.S. Dist. LEXIS 43550.  The Third Circuit's decision affirming summary Judgment may be found at 2011 U.S. App. Lexis 19311.

For full decision please click here.