The insurer was successful on summary judgment in establishing it correctly denied coverage for collapse, but its motion was denied regarding the insureds' bad faith claim. Jones v. State Farm Fire & Cas. Co., 2018 U.S. Dist. LEXIS 153102 (W.D. Wash. Sept. 7, 2018).
The insureds' retaining wall collapsed. They tendered to State Farm under their homeowners policy. An engineer retained by State Farm determined that the wall buckled due to "excessive lateral earth pressure from retained soils behind the wall." The parties agreed that the soil, saturated by water from frequent rain, grew too heavy for the retaining wall to bear, causing the collapse.
State Farm denied coverage based upon the Earth Movement exclusion. This exclusion provided, in part, "We do not insure under any coverage for any loss which is caused by . . . Earth Movement, meaning the sinking, rising, shifting, expanding or contracting of earth, all whether combined with water or not."
The insureds sued. In the response. State Farm raised additional exclusions for the denial of coverage. State Farm contended the policy did not cover for loss caused by collapse or for inadequate design or workmanship in building the wall. Further, there was no coverage for collapse because neither a building or any part of a building collapsed, as required by the policy.
State Farm moved for summary judgment. The insureds argued that State Farm should be estopped from asserting any reasons for denial other than earth movement because State Farm failed to cite the additional reasons in its denial letter.
The court held that State Farm was not estopped from relying on additional reasons from those stated in the denial letter. The insureds failed to show how their pursuit of coverage would have differed had State Farm cited the additional reasons for denial in the letter. Therefore, the insureds could not show any prejudice resulting from State Farm's delay and State Farm was not estopped from asserting the additional reasons for denial in its lawsuit.
Next, the court considered whether the collapse of the retaining was was covered. The court first determined that the collapse did not fall under the earth movement exclusion. No earth moved until after the wall buckled. Coverage was excluded, however, under the policy's water exclusion. That provision barred coverage for losses caused by "water below the surface of the ground including water which exerts pressure on a building . . . or other structure." The parties agreed that the wall buckled from the weight of the water-soaked soil back fill, which was likely saturated from heavy rainfall. Therefore, an excluded peril caused the loss.
Finally, the court considered the insured's claims for bad faith and violation of the Consumer Protection Act (CPA). Washington's insurance regulations provided that an insurer committed an unfair or deceptive act by "failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim." This regulation is nearly identical to a provision in Hawaii's unfair claims settlement practices, Haw. Rev. Stat. sec. 431:13-103 (11) (P).
Here, State Farm's initial denial listed only the earth movement exclusion as the basis for denying the insureds' claim. As noted, the earth movement exclusion was not a proper basis for denial. Only after it was sued did State Farm provide the insureds with a comprehensive explanation of the bases for denying coverage.The record supported an inference that State Farm may have violated the relevant insurance regulations and thus breached its duty of good faith and committed an unfair or deceptive act. Therefore, State Farm's motion was denied on the bad faith and CPA claims.
