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Bad Faith Claims Against Insurer Go Up In Smoke!

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A relatively recent decision out of the Eastern District of Pennsylvania captioned: Arun Mohanan et al. v. Liberty Mutual Personal Insurance Company, 2023 WL 8026106 (E.D. Pa. Nov. 20, 2023) granted Liberty Mutual’s Motion to Dismiss, in part, claims of Bad Faith in denying coverage to its insured pursuant to the language found in the policy.

As way of background, Arun Mohanan, through his corporation Arun & Simon LLC, owned a residential property in Philadelphia that he leased to tenants. In August of 2021, a fire broke out near the building two properties away. As a result of the fire, Mohanan claimed the property sustained “substantial smoke damage”. Following proper notification to Liberty Mutual, an adjuster and agent of Liberty Mutual conducted a thorough inspection of the property. Liberty Mutual found no apparent damage, and denied coverage as there was in fact no evidence of smoke damage present and the policy clearly stated that direct, physical damage was required for coverage to apply.

Unhappy with this result, Mohanan brought a number of claims against Liberty Mutual, including one of Bad Faith, on the thin basis that the insurer “failed to respond and refused to provide any payments” after requesting further resolution.

Unsurprisingly, the Eastern District was not impressed. The court began its analysis quoting Iqbal, noting: “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice”. Id at 2, (citing Iqbal, 556 U.S. at 678). It is well established in the third circuit that a bad faith claim requires a demonstration of clear and convincing evidence that the insured lacked any reasonable basis for denying benefits, or otherwise exhibited a lack of good-faith in investigating the claim. The court further remarked that the complaint only contained “bare-bones conclusory allegations to support a bad faith claim”. Id at 6. In sum, the complaint failed on all levels. Not only did the complaint conclude that “[Liberty Mutual failed to respond [and] provide payments”, it also did not plead any facts as to why Liberty Mutual’s investigation was unreasonable. The court had no problem dismissing this count of the complaint.

This case highlights the no-nonsense attitude the E.D.P.A takes when approaching bad-faith claims made by an insurer. Routine, good faith inspections with unfavorable outcomes do not serve as a basis for a bad faith claim.

Mohanan v. Liberty Mutual Personal Insurance Company
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