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Bennett v. USAA Casualty Insurance Co.

Supreme Court of Delaware

March 13, 2017

DEBRA BENNETT & WILLIAM BENNETT, Plaintiff-Below, Appellant,
v.
USAA CASUALTY INSURANCE COMPANY, Defendant-Below, Appellee.

          Submitted: February 15, 2017

         Court Below: Superior Court of the State of Delaware C.A. No. S10C-02-010

          Before STRINE, Chief Justice; VALIHURA, and SEITZ, Justices.

          ORDER

          Collins J. Seitz, Jr. Justice

         This 13th day of March, 2017, having considered the briefs and the record below, it appears to the Court that:

         (1) On February 12, 2009, the Bennetts' toilet cracked causing water damage to their condominium as well as their belongings. The property was governed by a condominium association, which had insurance with Philadelphia Indemnity Insurance Company ("PIIC"). The Bennetts also had their own insurance policy with USAA. After the condominium association, USAA, and PIIC refused to cover the loss, the Bennetts filed suit against them alleging breach of contract and bad faith denial of insurance coverage. This appeal involves only the suit against USAA.

         (2) At trial, USAA moved for a directed verdict on the bad faith claim, contending that the Bennetts failed to present evidence that USAA lacked a reasonable justification to deny their claim. The Superior Court granted the motion, and instructed the jury that the bad faith claim was no longer in the case. After trial, the jury returned a verdict in favor of USAA on the breach of contract claim. In this appeal, the Bennetts raise two arguments. First, they contend that the Superior Court improperly required them to produce evidence that USAA did not have a reasonable justification for denying their claim. Second, they argue that the court should not have told the jury that the bad faith claim was no longer in the case. For the reasons stated below, we affirm the decision of the Superior Court.

         (3) William and Debra Bennett owned a condominium in Lewes, Delaware.[1] On February 12, 2009, the property manager of their condominium association, Plantations East Condominium Association (the "Association"), called them and told them that neighbors had reported water gushing out of the walls of their home. The Bennetts called ServPro of Sussex County at the Association's recommendation. ServPro determined that the source of the leak was a broken toilet in the Bennetts' condominium.

         (4) The Bennetts sustained major water damage to their condominium and their personal property inside the home. They filed a claim with their insurance company, USAA. The USAA policy contained an "other insurance" provision, which stated that if the condominium was covered by other insurance "in the name of a corporation or association of property owners covering the same policy, " the USAA policy would be secondary to that policy.[2] USAA requested that the Bennetts provide a copy of the Association's bylaws so that it could determine who was responsible for the repairs. Mr. Bennett forwarded them to USAA.[3] The Bennetts also filed a claim with the Association and the Association's insurance carrier, PIIC.[4] The Bennetts later hired an attorney, Georjan Overman, to handle the claims against the Association and PIIC.

         (5) There were significant delays in getting PIIC and the Association to pay for repairs to the property. On May 21, 2009, Mr. Bennett sent an e-mail to USAA stating "[a]s you were informed by our attorney, Georjan Overman, the actual repair to our property is presently in limbo despite the [Association's] insurer, [PIIC], accepting the claim to repair the damaged structure."[5] In the summer of 2009, the Bennetts agreed to mediate their claim with the Association and PIIC to move the repair process along.[6] USAA was not involved in the mediation.[7] During that time, the Bennetts did not request that USAA pay for repairs to the condominium.

         (6) While the Bennetts were pursuing their claims against the Association and PIIC, USAA requested that the Bennetts provide a list of items damaged by the leak.[8] On October 19, 2009, the Bennetts first mailed USAA their list.[9] On December 17, 2009, a USAA adjuster inspected the condominium and prepared an estimate of the loss. USAA paid a portion of the amount the Bennetts requested for their damaged personal property. On January 28, 2010, the Bennetts contacted USAA to inform them that PIIC and the Association had not paid any benefits for their unit repairs, and demanded benefits under their dwelling coverage with USAA. On January 29, 2010, USAA sent a denial letter to the Bennetts, informing them that USAA's coverage was secondary to that of the Association, and requested that if their claim was denied by PIIC, that they forward the denial letter to it for review.[10]

         (7) On February 9, 2010, the Bennetts filed suit against USAA for breach of contract and bad faith.[11] At their jury trial, the Bennetts testified in their case-in-chief regarding the damages to their condominium and personal property. A contractor witness also testified. The Bennetts did not call a representative from USAA to explain what information USAA knew or considered in rendering its decision to deny the claim.[12]

         (8) At the conclusion of the Bennetts' case, USAA moved for a directed verdict on the bad faith claim, arguing that the Bennetts failed to present sufficient evidence to support the claim. Specifically, USAA argued that the Bennetts had the burden to produce some evidence to show that USAA lacked a reasonable justification to deny primary dwelling coverage. During argument on the motion, the court asked why the Bennetts did not call a USAA representative as a witness:

Court: Let me just - let me ask one thing. I would have thought that you would have had Ms. Johnson testify to explain why she did what she did. Was there any reason why you didn't do that, Mr. Schaffer?
Counsel: Yeah, Your Honor. There are risks, of course, that she could get on the stand and say, I did do that.[13]
Court: Your - Ms. Bennett did say that Ms. Bowman did not ask for the insurance policy and I think she said she didn't look at it or that she was surprised that Ms. Bowman did not look at it. I don't know how Ms. Bennett would have actual knowledge of that. She may. Someone could have told her. Ms. Bowman could have told her. I doubt that, but she could have learned it through the litigation . . . But I'm certainly very troubled that we didn't have Ms. Bowman on the stand to say why she did what she did or why she didn't do what she didn't do and, you know - but what I'm left with right now is USAA paid on the personal property; the condo docs were sent to USAA; USAA, through great effort by Mr. Greenberg, was aware of the lawsuits against both the condo association and the Philadelphia Indemnity Insurance Company, but I - as I sit here, I don't know at all why Ms. Bowman did or [did] not do anything. I mean, I don't know.
Counsel: Well, I believe the burden is that . . . someone at USAA . . . has to testify that she had a reasonable basis for denying these claims. And if she didn't read the insurance policy, I don't see how that is reasonable. Court: I mean, I think you have the burden to say they denied it without any reasonable justification.
Counsel: Which we did.
Court: I really have no information as to why she denied it.
Counsel: So then how do we know whether their excuse is reasonable or not?
Court: Well, you put her on the stand and ask her, [w]hy did you deny it? And she says, [w]ell, I did 10 things, or, [e]very 29th, I deny all the claims that come in just as a matter of company policy. That's just what I do and I get a bonus ...

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