Karas v. Liberty Insurance Corp. July 28, 2014 • U.S. District Court • Underhill, J. When the legal issue of whether the term “foundation” in an insurance policy is ambiguous as to whether it includes the basement walls or only the footing on which the basement walls rest, that ambiguity may be construed against the party that drafted the policy. In October 2013, the plaintiff homeowners observed horizontal and vertical cracks in basement walls in their residence. They discovered that defective concrete can oxidize, expand and disintegrate, so that eventually the basement walls fall, and the entire home falls into the basement. In November 2013, the plaintiffs informed their insurer, Liberty Insurance. The subject policy covers “direct physical loss to covered property involving collapse of a building or any part of a building caused only by one or more of the following: . . . b.) Hidden decay; . . . or f.) Use of defective material or methods in construction.” Liberty denied coverage and argued the policy excludes deterioration of the “foundation.” The plaintiffs sued and alleged that Liberty breached the contract. Liberty moved to dismiss. The court found the plaintiffs adequately alleged Liberty breached the contract. The legal issue of whether the term “foundation” includes the basement walls or only the footing on which the basement walls rest is ambiguous. Ambiguity is construed against the party that drafted the policy. The court denied the motion to dismiss the breach-of-contract count. “Each party,” wrote the court, “has a reasonable but different interpretation of the phrases supported by dictionaries and case law, so the phrases are ambiguous, and the insurance policy should be construed against Liberty.” An insurer’s failure to adequately investigate, when accompanied by other evidence that reflects an improper motive, may be considered evidence of bad faith, pursuant to Capstone Bldg, Corp. v. Am. Motorists Ins. Co., a 2013 decision of the Connecticut Supreme Court. Allegations that Liberty denied coverage without inspecting the basement, ignored a policy provision that provided coverage for collapse and cited inapplicable provisions, were sufficient to allege bad faith. The court denied Liberty’s motion to dismiss the count for breach of the implied covenant of good faith and fair dealing.
Posted on: Sat, 26 Jul 2014 09:49:12 +0000
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