Insurer’s Reasonable Grounds for Disputing Coverage

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United States: Insurer’s reasonable grounds for contesting coverage Overcoming inaccuracies to an insured who has not denied liability

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Last month, the Eleventh Circuit issued an unpublished opinion, by Curiam, reaffirming its interpretation of Georgia’s bad faith law which allows summary judgment “if there is a reasonable ground for the insurer to dispute the claim”. even in the face of an inaccurate statement by the insurer such as the time limit within which the insured can bring an action. In Passmore v. Travelers Casualty & Safety Company, No. 21-12423, 2022 US App. LEXIS 2604 (11th Cir. Jan. 27, 2022), a homeowner filed a claim with Travelers seeking coverage for damage to her home caused by Hurricane Irma in September 2017. When Passmore informed Travelers that she n had not completed repairs to a previous storm-related claim, Travelers only paid her $5,541.71 in actual cash damages to her property despite a later estimate she received for $43,200 .

When Passmore disputed the claim more than a year later, Travelers informed her in a letter that “research [was] ongoing” in its “total reservation of rights” claim and cited exclusions in the policy as well as the duties of a policyholder. Notably, Travelers cited a provision warning that “[n]o an action must be brought [against Travelers] UNLESS THE PROVISIONS OF THE POLICY HAVE BEEN COMPLIED WITH AND THE ACTION IS INITIATED WITHIN ONE YEAR AFTER THE EVENT CAUSING THE LOSS OR DAMAGE. indication of … bad faith … [that Travelers]attempted to claim that the policy provided a time limit for prosecution,” which she said was “intentionally attempting to mislead and defraud [her] saying [her] that it was too late to take legal action.”

The District Court for the Southern District of Georgia granted summary judgment to the travelers on the issue of bad faith. The Eleventh Circuit asserted, finding that “the letter that misrepresented the timeline for prosecuting travelers” did not constitute “an absolute disclaimer… [or] a refusal … to make a good faith effort to effect a settlement of the claim” which would justify the imposition of bad faith sanctions. Instead, Travelers’ reasonable grounds for contesting the “material issues” claim to home repair coverage warranted judgment in law, even in light of the inaccuracy.

On the face of it, Passmore isn’t groundbreaking because it relies on well-established principles to dismiss bad faith claims against insurers in Georgia. Nevertheless, the case demonstrates that even misrepresentations in correspondence to an insured will not allow a bad faith claim to proceed beyond summary judgment where the misrepresentation is not an “absolute denial of liability” or a refusal in itself to settle the claim and that the insurer has reasonable grounds to contest the claim.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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