In Cecilia Schwaber Trust Two v. Hartford Accident and Indemn. Co., No. JFM-06-0956, 2009 U.S. Dist. LEXIS 59788 (D. Md. July 14, 2009), Hartford unsuccessfully moved to dispose of the insured's claim for failure to act in good faith.
Hartford's policy covered the insured's warehouse for the period March 1, 2002, through March 1, 2003. In February 2003, a large snowstorm caused snow and ice to accumulate on the roof. In March 2003, the roof sprung a series of leaks. Hartford initially denied the claim, stating the damage was excluded based on faulty workmanship, maintenance, and wear and tear. Later, Hartford agreed that approximately five percent of the loss was covered.
The insured sued and Hartford moved to dismiss the good faith claim. A new Maryland statute provided the insured could recover expenses and litigation costs in an action for coverage under a policy if it could be shown "the insurer failed to act in good faith." "Good faith" was defined as making "an informed judgment based on honesty and diligence supported by evidence the insurer knew or should have known at the time the insurer made a decision on a claim."
Despite the language of the statute, Hartford argued the "fairly debatable" standard should be adopted. Under this standard, where a claim was not fairly debatable, an insurer's refusal to pay would be bad faith. The court determined, however, that the fairly debatable standard did not comport with the language of the Maryland statute. Moreover, the claim here was for failure to act in "good faith," which the Maryland courts had indicated was different from an action for bad faith. Therefore, it would be inappropriate to apply the "fairly debatable" standard.
Hartford further argued the new statute could not be applied retroactively. The court disagreed, however, because the legislature intended to give the statute retroactive effect.
