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Teti v. Phoenix Insurance Co.

January 29, 2009


The opinion of the court was delivered by: Joyner, J.


Before this Court is Defendant, Phoenix Insurance Company's ("Phoenix"), Motion for Summary Judgment (Doc. No. 14), Plaintiff, Diane Teti's ("Teti"), Response in Opposition (Doc. No. 17) and Defendant's Reply thereto (Doc. No. 19).


Plaintiff and Defendant have stipulated to the basic facts, as recited here. On January 9, 2007, a retaining wall located on plaintiff's premises at 251 Gray St., Philadelphia, PA, 19127, partially failed and collapsed. At the time of the collapse, plaintiff was insured under a Homeowners 3 Insurance Policy ("Policy"). On the same day, the City of Philadelphia ("City") declared the premises "imminently dangerous" and plaintiff was officially informed that she was to vacate the premises immediately and make repairs or demolish the premises.*fn1 On the same day, plaintiff notified defendant of the condemnation and requested coverage under the Policy. On January 10, 2007, Phoenix "confirmed a recent inspection of the home" and refused coverage, claiming that the loss did not fall within the terms of the Policy. Def. Mot., Exh. D. On February 12, 2007, and March 6, 2007, the City notified plaintiff again that she must vacate and repair or demolish the premises. Plaintiff sent this notification to Phoenix on March 6, 2007. Phoenix proceeded to send an engineer to Teti's property to inspect the cause of the retaining wall collapse. Randy Patacity, P.E., the engineer, concluded in his April 5 Report that long-term deterioration and recent, extensive rainfall had caused the collapse. Def. Mot., Exh. G. On May 3, 2007, the City filed a civil action in equity against Teti in the Court of Common Please in Philadelphia County requesting a permanent injunction for Teti to vacate the premises, either repair or demolish the premises and pay a fine for each day that she remained in violation of the Code. Plaintiff then forwarded this Complaint to Phoenix, requesting that they defend the action. On August 7, 2007, Phoenix responded, asserting that the loss was not covered under the policy and refusing to defend the action. Teti subsequently had the premises evaluated by Earth Engineers, Inc. Teti then sent another letter to Phoenix on August 23, 2007, citing the new report and requesting defense; Phoenix, again responded denying the request on September 18, 2007. On December 5, 2007, Teti sent a final demand letter to Phoenix. Finally, on February 15, 2008, Teti filed suit against Phoenix in the Court of Common Please of Montgomery County alleging breach of contract and bad faith denial of coverage. Phoenix then removed the action to this Court pursuant to 28 U.S.C. § 1441(a) because the parties are diverse as to jurisdiction and the amount in controversy exceeds $75,000 exclusive of interests and costs. Teti later sold the premises below market value due to its inhabitability and is seeking damages for Phoenix's alleged failure to provide her with a defense and indemnification for the loss of selling the now-condemned home.


Summary judgment is proper "if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). An issue is genuine only if there is a sufficient evidentiary basis on which a reasonable jury could find for the non-moving party, and a factual dispute is material only if it might affect the outcome of the suit under governing law. Kaucher v. County of Bucks, 456 F.3d 418, 423 (3d Cir. 2006), citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). If the non-moving party bears the burden of persuasion at trial, "the moving party may meet its burden on summary judgment by showing that the nonmoving party's evidence is insufficient to carry that burden." Id., quoting Wetzel v. Tucker, 139 F.3d 380, 383 n.2 (3d Cir. 1998). In conducting our review, we view the record in the light most favorable to the non-moving party and draw all reasonable inferences in their favor. See Nicini v. Morra, 212 F.3d 798, 806 (3d Cir. 2000).


In this Court's reading of Plaintiff's Complaint, it appears that plaintiff asserts two distinct claims: bad faith in denial of coverage and breach of contract. Each of these counts will be addressed in turn.

I. Bad Faith in Denial of Coverage

Plaintiff has alleged bad faith denial of coverage against defendant for denying her claim following the collapse of the retaining wall. Defendant denies that it acted in bad faith and asserts that the claim was properly denied under plaintiff's Policy.

In the insurance context, the term "bad faith" has a distinct and universally accepted meaning: . . . "Bad Faith" on part of insurer is any frivolous or unfounded refusal to pay proceeds of a policy; it is not necessary that such refusal be fraudulent. For purposes of an action against an insurer for failure to pay a claim, such conduct imports a dishonest purpose and means a breach of a known duty (i.e., good faith and fair dealing), through some motive of self-interest or ill will; mere negligence or bad judgment is not bad faith.

Woody v. State Farm Fire & Cas. Co., 965 F. Supp. 691, 693 (E.D. Pa. 1997) (citing Polselli v. Nationwide Mut. Fire Ins. Co., 23 F.3d 747, 751 (3d Cir. 1994)). Damages for bad faith may be awarded pursuant to 42 PA. CONS. STAT. § 8371 (1990) which allows for specific damages if the court "finds that the insurer has acted in bad faith toward the insured." It is clear in this context that even bad judgment on behalf of the insurer will not constitute bad faith in Pennsylvania.

In the present action, following Teti's claim, Phoenix conducted an engineering assessment and the engineer concluded that the collapse of the wall, and therefore any damage to the premises, was a result of long-term deterioration and rainfall, two causes explicitly not covered by the Policy at issue. Def. Mot., Exh. G. Further, Phoenix claims, no matter the reason for the collapse, retaining wall collapses are not covered under the Policy pursuant to Section 8. Collapse. Following its denial of coverage based on the engineer's report and its interpretation of the Policy, defendant refused to defend the City's action against Teti.

Plaintiff claims, following a separate assessment, that hidden root decay due to the removal of a tree was the actual reason for the collapse and alleges that the engineer engaged by defendant did not have enough information to make an accurate finding. However, outside of its factual dispute surrounding the cause of the collapse and the meaning of Section 8 of the Policy, plaintiff has not provided any evidence of an unfounded or frivolous refusal to pay on the part of Phoenix. In addition, as to Phoenix's refusal to defend, plaintiff has offered no evidence ...

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