(2/8/07) – The Eastern District Court of Pennsylvania has ruled that a bad faith claim can be brought against an insurer of a business owner who provided the business owner with a homeowner’s policy for a commercial property. The Court ruled that the business owner can bring a breach of contract and bad faith action against the insurer after it denied coverage when the commercial property was damaged by fire.
In Scarpato v. Allstate (1/23/07), the memorandum opinion of the Court indicated that Raymond Scarpato owned seven commercial properties in Philadelphia and sought insurance for them from his insurance agents. Scarpato advised the agents this real estate was commercial in nature and that although he sometimes slept in the buildings, his home was in New Jersey and insured by another company. He allowed the agents to determine how these properties would be insured and began making premium payments to the insurance carrier, Allstate.
In August of 2004, Scarpato\’s commercial property was damaged by fire. When he reported a claim to Allstate, the insurer denied coverage because, as he did not reside at the property, it was not covered by the homeowner\’s policy that had been issued for it. Scarpato did not learn the agents had written the property\’s policy as homeowner\’s until after the fire, apparently because that was the only way Allstate could provide coverage for all of Scarpato\’s commercial real estate.
Scarpato then brought suit against Allstate and its agents based on improper cancellation of his policy and the refusal to pay the fire damages, alleging various theories of liability including ibreach of contract, reckless misconduct, and a violation of the Unfair Claims Practices Act. Allstate filed a instant motion for judgment on the pleadings, seeking dismissal of Scarpato\’s breach of contract and bad faith complaints.
The District Court denied the insurer\’s motions and found that Scarpato could bring action against Allstate on the contested counts. It held that, in an instance where an insured advises an agent of the desired coverage and that agent fails to abide by that requested provision, the insurer cannot utilize this mistake in avoidance of the policy and that since Allstate\’s motion was not one for summary judgment, it would be premature to hold that Scarpato would not be able to provide clear evidence that Allstate acted in bad faith in later proceedings.
Source: Pennsylvania Trial Lawyer’s Association, News and Case Notes, February 8, 2007
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