The insurer's motion to dismiss a bad faith count was granted because the existence of coverage was "fairly debatable" under New Jersey law. Merchants Mut. Ins. Co. v. 215 14th St., LLC, 2020 U.S. District. LEXIS 23664 (D. N. J. Feb. 10, 2020).
Coverage for damage to the insured's commercial building was denied. The insurer sued for a declaratory judgment that there was no coverage. The insured counterclaimed, alleging that the policy provided coverage for abrupt collapse, which was defined as "an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its intended purpose." The policy covered collapse if caused by "building decay that is hidden from view, unless the presence of such decay is known to an insured prior to the collapse."
The insurer moved the dismiss the bad faith count in the counterclaim. The insured argued that because the counterclaim sufficiently alleged that the building "suffered an abrupt collapse or caving in" that was caused by "structural decay of the building that was hidden from the view, and unknown to [the insured] prior to the collapse," the asserted claim for bad faith satisfied the Rule 12 (b) (6) standard.
The insured argued that the policy also stated that coverage for collapse did not apply to "[a] part of a building that is standing," Because the parties did not dispute that the building was standing, the insurer's decision to deny the insured's claim was "clearly 'fairly debatable,'" and not in bad faith.
Under New Jersey law, to meet the "fairly debatable" standard, a claimant had to establish, as a matter of law, a right to summary judgment on the substantive claim; if the claimant could not establish a right to summary judgment, the bad faith claim failed.
The court agreed with the insurer. The insured failed to establish that, as a matter of law, they were entitled to summary judgment on the claim. The insurer sufficiently showed that, based on its reading of the policy, a reasonable basis existed to deny the insurance claims. Therefore, the motion to dismiss was granted.
