‘Misleading’ denial and contradictory policy formulation cost Philadelphia compensation in court

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The insurer first said it would pay to repair a covered walkway at a student housing complex that partially collapsed during a student party on Saturday night.

Then he said he wouldn’t and sent the policyholder a ‘confusing’ and ‘misleading’ denial letter that didn’t explain his change of course and misrepresented the terms of the policy, according to one decision of the court of appeal.

A four-year court battle ensued, culminating Monday in a split appeal decision that adds $800,000 to the amount of damages Philadelphia Indemnity Insurance Co. must pay for damage to an apartment complex in Elon, North Carolina.

The 4th Circuit Court of Appeals, a 2-1 panel decisionupheld a district court judge’s decision in favor of the apartment complex owner, but also ruled that the Tokio Marine unit should pay triple the amount of damages for violating the Practices Act unfair and deceptive business practices of North Carolina.

“Although the District Court never considered whether Philadelphia’s denial letter constituted a substantial aggravating circumstance accompanying its breach of contract, we find that it was,” the panel’s opinion reads. “The District Court correctly determined that the letter was misleading.”

A breezeway in the second store at The Crest apartments caved in the early hours of January 14, 2018 when revelers began jumping, court documents show. Most of the breezeway dropped about a foot and came to a stop, but some parts fell to the ground one story below. The apartment complex’s 12 four-bedroom units had to be vacated until the breezeway was repaired.

The owner of The Crest Apartments, DENC, leases the property to Elon University for student housing. DENC submitted a claim asking Philadelphia to pay for the repairs as well as the cost of temporary housing.

DENC received a January 25, 2018 letter from a senior claims examiner stating that Philadelphia “has issued” or “will issue payment” for the loss. But the following February 19, he received a letter from a senior property claims specialist saying the insurer had determined the collapse had been caused by water damage and was not covered by the policy.

“The denial letter was puzzling in many ways,” District Court Judge Catherine C. Eagles wrote in an order. “He did not mention, let alone rescind or explain, his previous letter saying he would provide cover. The letter verbatim repeated several pages of what were purported to be policy snippets, then – without explaining how these policy snippets applied individually or in combination – stated that Philadelphia would deny coverage for a reason not stated by the policy snippets. cited.

The Crest apartment complex in Elon, North Carolina is shown in this photo posted to Apartments.com.

The DENC sued and a jury trial was scheduled, but later canceled. After mediation, the parties agreed that DENC’s “contractual damages” amounted to $400,007.

However, the parties could not agree. DENC demanded $1.5 million; Philadelphia offered a third as much. Eagles wrote in a footnote to its order that settling the claim should not have been so difficult.

“Indeed, this is a case study in how unreasonable behavior during settlement negotiations can unnecessarily increase everyone’s legal costs,” she wrote.

The judge ruled that Philadelphia should collect its contractual damages plus $221,455 in attorneys’ fees. After all, Philadelphia had written a misleading rejection letter and engaged in a wrongful refusal to settle, she said.

But Eagles denied DENC’s claim for treble damages because of the insurer’s “deceptive” business practices. DENC and Philadelphia appealed the decision.

The majority of the 4th Circuit panel rejected Philadelphia’s argument that Eagles erred in concluding that the damages were covered by its policy. The insurer argued that the damage occurred before its policy took effect because it was caused by a construction fault when the complex was built in 2004. This caused water infiltration which caused slowly eroded the support of the breezeway. The court said it would “refuse to characterize the loss in a way that excludes an entire class of coverage”, a position that “would render the terms of the policy meaningless”.

The panel was also unconvinced by Philadelphia’s argument that DENC was not obligated to provide temporary housing for displaced students. The company could have lost its relationship with Elon University had it taken that stance, the opinion said.

The majority of the panel said the insurer never gave the policyholder a clear explanation of why it was denying the claim.

“Instead, it left DENC deciphering a jumble of largely unenforceable political language with no clear connection to the Philadelphia factual investigation,” the opinion read.

The panel returned the case to the trial court with a judgment order for treble the contract damages.

Circuit Judge Allison Jones Rushing disagreed with that part of the ruling. While she agreed with the finding that Philadelphia was responsible, she said the carrier ‘reasonably’ explained its reasons for denying the claim, even though its letter of explanation was ‘not a model of clarity’ .

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