This Colorado appeal court judgment dealt with a dispute regarding alleged roof damage caused by hailstorm.
The policy covered direct physical loss caused by hail.
The claims adjuster who was initially assigned to investigate and report to the insurer concluded that the roof was damaged by hail and the insurer paid the claim based on the adjuster’s repair estimates.
The insured hired a contractor who provided an estimate that significantly exceeded the insurer’s adjuster’s estimate.
The insurer then appointed a large-loss adjuster who re-inspected the property and hired an engineer to provide a report.
The engineer concluded that the damage was not caused by hail but by pre-existing and other causes.
On that basis the insurer denied cover for the repairs although not seeking to recover payments already made. The insured argued that the conflicting reports showed that the insurer was acting unreasonably in denying coverage.
The court said that there was no evidence of an industry standard suggesting that insurers acted unreasonably when they rely on a later-generated report.
The court, reviewing previous judgments, said:
“In fact, courts have reached the opposite conclusion, holding that an insurance company does not act unreasonably in determining the scope and value of a claim by relying on a report generated by an independent engineer, even if that report conflicts with an insurance adjuster’s initial assessment.”
The court also said that as a general matter, disagreements between an insurance company’s expert and the plaintiff’s expert do not necessarily suggest that the investigation or claim denial was unreasonable.
Because the claim was for alleged bad faith by the insurer in denying coverage, even if the relevant engineers report was wrong about the lack of hail damage, to have an actionable claim the insured had to show that the insurer not only wrongfully but unreasonably relied on the report. Mere disagreement was insufficient.
South Africa does not have a bad faith regime applicable to denial of coverage, but insurers would not be able to deny liability under the policy where, absent fraud, the insurer had admitted liability. It would be possible to revisit quantum where that remains in dispute or is still to be determined.