First Party Bad Faith Claim Fails as a Matter of Law Where Insurer Denies Claim Based on Independent Expert’s Report

To avoid a bad faith claim, an insurer investigating a first party claim in Georgia should retain an independent expert to evaluate the alleged loss and cause of loss. In Georgia, the standard for first party bad faith under O.C.G.A. § 33-4-6 is high: an insurer must have no “reasonable” ground to have denied the claim. According to a recent ruling from the Middle District of Georgia, an independent expert’s report finding that a cause of loss is uncovered will often constitute a reasonable basis for denial, as a matter of law.

In Manors of Innisbrook Condo. Ass’n, Inc. v. Home-Owners Ins. Co., Case No. 4:22-cv-40, 2023 WL 8553254 (M.D. Ga. 2023), an insured submitted a claim under a property insurance policy for alleged hail damage to a roof, and it submitted the report of a roofing contractor claiming hail caused the loss.  The insurer hired an independent adjuster to evaluate the loss, who concluded that the loss was mostly not covered for various reasons set forth in his report. Relying on the adjuster, the insurer denied the uncovered portion of the claim.

The insured sued for breach of contract and bad faith, alleging that the insurer ignored certain evidence that hail caused the loss.  The court granted the insurer summary judgment on the bad faith claim, finding that reliance on the “advice of an independent consultant” was “a reasonable ground to contest an insured’s claim entitling the insurer to summary judgment on a claim for bad faith penalties.”  The court noted that an independent expert’s report cannot be relied upon to defeat a bad faith claim if the report is “patently wrong” or “merely a pretext for an insurer’s prior decision to deny the claim.”  But, the court found no evidence of either here, and so it granted summary judgment to the insured.

In Georgia, first party insurance disputes – particularly property insurance disputes – often turn on an evaluation of the cause of loss.  To best insulate itself from a bad faith claim, an insurer should investigate the loss itself and also hire an independent expert to do so.  Assuming that the expert’s conclusion is reasonable and consistent with the insurer’s investigation, an insurer relying upon an expert’s report to deny a claim will typically be entitled to summary judgment on a claim for first party bad faith.

In coverage litigation, an understanding of Georgia law is essential to providing an effective defense.  Retaining experienced counsel to review insurance claims and assist in investigating coverage disputes can help avoid needless costs.  If you would like to speak to an attorney about a coverage matter, or if you have questions about the content of this update, please contact Seslee Smith, Ryan Burke, or Nathan Miles.