A recent decision by the Seventh Circuit Court of Appeals emphasizes an insurer’s obligation to draft a clear and unambiguous insurance policy if it wishes to exclude certain property damages or losses that it deems to be merely cosmetic. In Advance Cable Company, LLC v. Cincinnati Insurance Company, 14-2620, the Seventh Circuit affirmed a Western District of Wisconsin decision granting summary judgment in favor of the insured, Advance Cable Company, on coverage but granting summary judgment in favor of Advance’s insurer, Cincinnati Insurance Company, on Advance’s claim of bad faith.
The decision recognizes that insurers must be allowed to investigate claims and retain legal counsel without fear that their every action might later be scrutinized as evidence of bad faith. And the decision certainly enforces a high standard to prevail on a claim for bad faith by implying that a successful claim would be one that could be described as “beyond the pale.”
The underlying facts are as follows: Advance had a policy of insurance through Cincinnati covering two properties in Middleton, Wisconsin. After a hailstorm in 2011, Advance submitted a claim to Cincinnati reporting damage to its property. That same month, Cincinnati’s adjuster inspected the roof and “spotted some dents, but he saw little other evidence of damage.” The estimate sent to Advance by Cincinnati noted “some dents to soft metal roof vents and AC fins” but stated that the adjuster “did not observe any damage to roofing.” After Advance’s $1,000 deductible, Cincinnati issued Advance a check for damage to both its buildings totaling $1,512.70.
Six months later, a potential buyer of one of Advance’s buildings had the roof inspected. The buyer’s inspector came to a different conclusion about the extent of the damage. He observed that there was “definitely hail damage” to the roof. Based on this report, Advance asked Cincinnati to reopen the claim. So Cincinnati inspected the roof again, and again it concluded that while some denting existed on the metal roof panels, the denting would “not affect the performance of the panels (roofs)” or reduce the roof’s life expectancy.
Advance believed that Cincinnati was required to replace the damaged roof, but Cincinnati believed that the damage was cosmetic and therefore not a covered “direct physical loss.” Ultimately, whether the damage was cosmetic was irrelevant, because the policy of insurance did not exclude cosmetic damage from its coverage.