The Pennsylvania Superior Court upheld the lower court’s determination that Travelers Insurance Company properly denied insurance coverage following a building’s destruction in a fire, and did not act in bad faith by waiting six months before denying the fire loss claim.
In Yera, the owner of an apartment building initiated a lawsuit when its insurance company, Travelers, denied coverage for the apartment building’s destruction in a fire. After Yera provided notice of the loss, Travelers denied coverage because the building did not have an automatic sprinkler system installed, as required by a policy endorsement, when the fire occurred. The endorsement specifically required Yera to “maintain” listed protective devices or services, including an automatic sprinkler system.
The Philadelphia trial court agreed with Travelers, determining that the absence of an automatic sprinkler system was a violation of a condition of the Travelers’ policy. Yera promptly appealed the trial court’s holding, claiming that the protective safeguard endorsement clause in the policy was ambiguous and thus impossible to enforce. Specifically, Yera argued that endorsement’s use of the word “maintain” was ambiguous due to its dual meanings of “to keep in existence” and “to keep in a condition of good repair.” As the term was not specifically defined in the policy, Yera claimed that Travelers’ automatic sprinkler requirements were unclear, making the provision unenforceable. Further, Yera argued that Travelers acted in bad faith when the company waited six months after the fire before denying Yera’s claim.
Nevertheless, the Pennsylvania Superior Court upheld Travelers’ denial of coverage. The Superior Court determined that the protective safeguard endorsement clause was unambiguous in the context of the policy, clearly requiring Yera to have a functioning automatic sprinkler system in place in order to recover. Moreover, the Court noted that by its own admission, Yera failed to meet either proposed definition of maintaining an automatic sprinkler system. Whether the provision required simply having an automatic sprinkler system in place, or having one in place that was also fully operational, Yera could not satisfy either interpretation of the requirement for coverage.
Additionally, the Court denied Yera’s claim that Travelers acted in bad faith by waiting to deny its claim until six months after the fire. As Traveler was justified in denying the claim, the Superior Court held that any supposed delay caused by the company’s investigation of the claim was irrelevant. As Travelers did not owe Yera any coverage, there cannot be an improper delay in payment of insurance proceeds, so the requirements for bad faith were not met.