Insurance. Proof of negligent claims-handling, short of knowing or reckless conduct required for a finding of bad faith, insufficient to support claim by policyholder against insurer for mold damage.

Murphy v. Patriot Insurance Company, 2014 VT 96, 106 A. 3d 911 (14-Aug-2014)

 DOOLEY, J.     Plaintiff Helena Murphy appeals from a superior court judgment in favor of defendant, Patriot Insurance Company, her homeowner’s insurer.  She contends that the trial court erred in dismissing claims for negligence and bad faith.  We affirm

Plaintiff added claims against Patriot for negligence “in inspecting and processing [the] claim and in retaining adjusters to investigate her claim,” and “bad faith” in denying the claims with “no reasonable basis.” Patriot moved for partial summary judgment on the additional claims, asserting that it owed no independent tort duty to plaintiff sounding in negligence; Patriot also argued that there was no basis to conclude that it had acted in violation of the covenant of good faith and fair dealing. The trial court granted Patriot’s motion. The court agreed that plaintiff had failed to “present[] a basis upon [which] to establish that [Patriot] owed a clear, non-contractual duty to her,” and further found on the facts alleged that Patriot “had a reasonable, if debatable, basis to deny [p]laintiff’s claims under the policy.” This appeal followed.

We agree with the trial court that plaintiff had failed “to establish that [Patriot] owed a clear, non-contractual duty to her” on the facts alleged. We rejected an independent tort duty on the part of the insurer’s agent in Hamill v. Pawtucket Mutual Insurance Company, 2005 VT 133, ¶¶ 2-3, 179 Vt. 250, 892 A.2d 226.in part on a recognition that the relationship between insurer and insured is fundamentally contractual, defined and governed by the coverage provisions in the insurance policy and the covenant of good faith and fair dealing implied therein. Id. ¶ 13. Indeed, the bad faith remedy would generally be superfluous if mere negligence in handling a claim would be sufficient for liability.

Most other courts have limited actions by insureds against their insurers to breach of contract or the implied covenant of good faith and fair dealing and have disallowed actions for negligence based upon an independent duty of care. We concur in the general view that,the insurance policy and the implied covenant of good faith and fair dealing defined plaintiff’s expectations for coverage and recovery in the event that benefits were wrongfully denied. Accordingly, we affirm the trial court’s dismissal of the negligence count.

“Bad faith,” is the general shorthand for breach of the covenant of good faith and fair dealing which the law implies in every insurance policy. Such a claim requires “more than negligence on the part of the insurer.” To establish bad faith, the plaintiff must show that: “(1) the insurance company had no reasonable basis to deny benefits of the policy, and (2) the company knew or recklessly disregarded the fact that no reasonable basis existed for denying the claim.” Where a claim is “fairly debatable,” the insurer is not guilty of bad faith even if it is ultimately determined to have been mistaken.

Measured against our bad faith standard, we find no basis to disturb the trial court’s ruling. At best, any claim that the adjuster’s failure to find that the true cause of the water infiltration was through the front chimney would fall well short of the knowing or reckless conduct required for a finding of bad faith