Alycen A. Moss and Elliot Kerzner | Property Insurance Law Observer
The Court of Appeals of Georgia recently held that an insurer’s reliance on the report of an independent consultant creates a presumption that it did not act in bad faith in denying coverage. In Montgomery v. Travelers Home and Marine Ins. Co., 859 S.E.2d 130 (Ga. Ct. App. 2021), the insured made a claim under her homeowners insurance policy for water damage to her basement that she asserted had been caused by a ruptured garden hose. The insurer’s claims adjuster inspected the property two days later and saw damage that appeared to be from ground water rather than the ruptured hose. The adjuster sought input from his supervisor, who suggested that he hire an independent engineer to determine the cause of the water damage.
The insurer retained a structural engineer, who inspected the property and observed conditions on several basement walls that indicated moisture had seeped into the basement from the ground outside over a period of time. Based on his observations, the engineer opined that the water damage resulted from the migration of groundwater through breaches in the concrete masonry unit block foundation walls and slab-on-grade, not from the broken garden hose. The engineer issued a written report to the insurer detailing his findings. Based on the engineer’s report, the insurer denied the claim because ground and surface water was not a covered peril under the policy.
The insured then sent the insurer a letter challenging the denial of her claim. She claimed that the engineer had focused on the cause of pre-existing moisture damage for which she was not making a claim instead of looking at the cause of the water damage to her basement from the ruptured water hose. She also claimed the engineer’s conclusions were inconsistent with the amount of rain that had occurred at that time, and she attached to her letter weather data for the month of the loss.
After reviewing the insured’s letter, the engineer disputed her contentions, reiterating the conclusions of his report and stating that the volume of rain at the time was only one of several factors contributing to ground water intrusion. The engineer concluded that the insured’s rebuttal letter contained no new information to alter the conclusions of his report. When the insurer did not change its decision to deny her claim, the insured brought an action in Georgia state court for breach of contract, statutory penalties under O.C.G.A. § 33-4-6 for bad faith failure to pay her claim, and attorney fees. The trial court granted summary judgment to the insurer on the claims for bad faith penalties and attorney fees, and the insured appealed.
The Court of Appeals of Georgia held that the trial court did not err in granting summary judgment to the insurer on the bad faith claim because the insurer presented evidence that it denied the claim based on the advice of the structural engineer and the insured had not presented evidence from which a jury could find that the structural engineer’s advice was patently wrong or that the insurer had used it as a pretext to deny the claim. The court explained that, under Georgia law, the insurer was entitled to summary judgment on the bad faith claim unless there was evidence that the insurer had no reasonable grounds to contest the insured’s claim under the policy. The court further explained that the advice of an independent consultant provides an insurer with a reasonable ground to contest an insured’s claim unless the advice is patently wrong or is a mere pretext for the insurer’s unwarranted prior decision to deny the claim.
Applying these rules to the facts of the claim, the court noted that the insured had pointed to no evidence that the structural engineer’s advice was patently wrong. The court defined “patently wrong” as “obviously or apparently wrong,” and observed that the insured’s criticisms of the structural engineer’s advice, and the evidence she cited in support of those criticisms, merely raised a factual question concerning whether or not the advice was wrong. While the existence of a factual question was sufficient to preclude summary judgment on the insured’s underlying claim of liability under the policy, it did not preclude summary judgment on her claim for bad faith penalties.
To the contrary, the court reasoned, the existence of a factual question demonstrated that the insurer had reasonable grounds to contest the claim and supported the conclusion that it did not deny the claim in bad faith. Similarly, the insured’s evidence challenging the findings of the structural engineer were relevant to the question of whether the engineer’s conclusions were correct, not whether they served as a pretext for the insurer’s denial of the claim. Accordingly, the court affirmed the grant of summary judgment to the insurer on the bad faith claim.
The Montgomery decision highlights the importance of obtaining an opinion from an independent expert who is qualified and been properly vetted. If the expert report is not obviously wrong, and is not used as a pretext for a prior decision to deny the claim, it will help preclude a claim for bad faith penalties.