Summary: Insured brought breach of contract and bad faith claim against commercial property insurer for denial of coverage for the cost of labor to replace fixtures stolen from insured’s vacant rental home and the cost of lost monthly rent after the rental home was burglarized. The trial court entered summary judgment in favor of the insured. The appellate court affirmed in part and reversed in part.
The insured owned a single family home in Atlanta, Georgia which was insured by Auto Owners under a dwelling policy. The insured used the home as rental property. However, before the insured could find a tenant for the property it was vandalized by burglars. During the burglary, the perpetrators removed the property’s water heater, outside condensing unit, the inside air handler and furnace, and electrical wiring. It was undisputed the policy did not cover the cost of the items stolen from the property, however, the insured filed a claim with the insurer seeking to recover the damages caused by the removal of these items. The insurer issued payment on what it believed was covered by the policy; however, the insured refused to cash the check because he disagreed with the insurer about the extent of the coverage under the policy. Specifically, the insured took issue with the insurer refusing to pay for the labor costs associated with replacing the items stolen by the burglars and for his alleged loss of rent.
The insured argued he was entitled to recover the cost of labor to replace the fixtures were stolen from the dwelling and the cost of the lost monthly rent when he had no tenant at the time of the burglary. The parties filed motions for summary judgment and the trial court denied the insurer’s motion, but granted the insured’s motion for partial summary judgment determining the policy’s provisions for coverage and exclusions related to burglary and its coverage of “normal rent” were ambiguous. By construing the provisions in the insured’s favor, it determined the insured was owed the cost of damage by removal of the stolen property and the labor cost to replace it, and he was owed rent for the period in which the property was uninhabitable. The trial court also determined there was a genuine issue of material fact as to whether the insurer had acted in bad faith by refusing to pay the damages.
The insurer appealed, and the appellate court found there was no coverage for damages related to recovery of “normal rents” because it was clear from the policy provision this coverage only applied to inhabited property being rented at the time of a burglary loss. It was undisputed the property at issue was vacant. However, the appellate court affirmed the trial court’s finding the policy was ambiguous in regard to coverage for damages related to burglary. After strictly construing the policy provisions in the insured’s favor and against the insurer, in accordance with Georgia law, the appellate court agreed with the trial court and found the insurer was liable for the cost of repairing the damage to the dwelling caused during the commission of burglary, including the cost of labor and material to repair the damages and replace the items removed (though not the cost of the items themselves).
The appellate court then turned to the analysis of the bad faith claim brought by the insured. Under Georgia statutory bad faith law, the insured bears the burden of proving the refusal to pay was in bad faith. The insured must prove that 1) the claim is covered under the policy, 2) a demand for payment was made against the insurer within sixty (60) days prior to filing suit, and 3) the insurer’s failure to pay was motivated by bad faith. As for the insurer, a complete failure to prove any defense to an action on the policy is evidence of bad faith and subjects the insurer to a verdict for both a statutory penalty and attorneys’ fees. However, if the insurer can prove it had a reasonable and probable cause for making the coverage defense it shows the good faith of the company and provides a complete defense to a statutory bad faith action. Because the appellate court reversed the finding of coverage for lost rents, it found the insurer had not committed bad faith as a matter of law in denying payment for the lost rent claim. However, the appellate affirmed the denial of the insurer’s motion for summary judgment as to the insured’s bad faith claim for failure to cover labor costs relating to the burglary. There was an issue of fact as to the reasonableness of the denial and the insured could proceed with its bad faith claim relating to the refusal to pay labor costs.
By Aaron French