Coverage Denial is as Clear as Glass (PA)

In US Fire v. Kelman, the Western District of Pennsylvania determined that Continental Casualty Company’s denial of a glass manufacturer’s insurance claim for a furnace accident was reasonable.  Pointing to Continental Casualty’s clear denial letter, the court held that the bad faith claims against the insurer fail.

Kelman Bottles LLC manufactures glass containers for the food industry.  In March 2011, an accident occurred involving one of the furnaces Kelman used to melt glass.  A leak in the furnace caused molten glass to escape, damaging both the furnace and other property in the facility.   While Kelman filed claims with its insurer, Continental Casualty, to obtain coverage for the damaged property, Continental subsequently denied Kelman’s request for coverage.  Continental’s denial letter explained that their investigation determined that the leak in the furnace “is not uncommon,” and was not caused by operator error or a failure in any component of the furnace.  Therefore, the accident did not meet the requirements for a “breakdown” that would be entitled to coverage under the insurance policy.

Alternatively, Kelman insisted that the leak in the furnace was “sudden and accidental,” thus satisfying the conditions for coverage.  Furthermore, Kelman alleged that Continental’s basis for denying insurance benefits was “unclear” and possibly also “intentionally vague.”  Accordingly, Kelman claimed that Continental Casualty’s denial of coverage violated Pennsylvania’s bad faith statute.

The court noted that recovery on a bad faith claim would require Kelman to provide clear and convincing evidence that Continental Casualty did not have a reasonable basis for denying coverage.  But the court determined that Continental Casualty’s denial letter was appropriately clear, as it discussed the findings and conclusions of its investigation, a recitation of relevant policy language, and a step-by-step analysis of its decision.  Therefore, the court concluded that Kelman failed to meet the clear and convincing standard to establish unclear or intentionally vague reasons for denial.

Further, the court pointed to instances of similar leaks referenced in the investigative report Continental Casualty obtained, strengthening the reasonableness of the insurance company’s denial of benefits.  The report contradicted Kelman’s claim that the incident was not a routine occurrence, since furnace leaks were described as uncommon.  Concluding that there are no genuine issues of material fact regarding Continental Casualty’s reasonable basis to deny coverage to Kelman, the court held that Kelman failed meet the first prong of the bad faith test.

Thanks to Nicole Pedi for her contribution to this post.  If you have any questions, please email Paul at .