Professional Negligence Law Reporter

A federal district court held that a homeowner’s insurer was not liable in bad faith where it denied a theft claim arising out of the insured’s estate sale.

Annie Allen and Eamon Walsh had a homeowner’s policy with USAA Casualty Insurance Co. (USAA). Allen and Walsh entered into an estate sales agreement with T’s Treasures to conduct an estate sale at their home and remit the proceeds to them. Allen and Walsh later cancelled their homeowner’s policy and sold the home. More than five months later, Allen and Walsh filed a theft claim under their USAA policy, claiming that they had never received payment from T’s Treasures and did not receive any of their items back. USAA denied the claim, finding that the claimed loss did not rise to the level of theft.

Allen and Walsh sued USAA, alleging abnormal bad faith. The defendant moved for summary judgment.

Granting the motion, the district court found that to assert the tort of bad faith, a plaintiff must show a breach of an insurance contract, a refusal to pay the claim, the absence of an arguable reason for failing to pay, and the insurer’s knowledge of such an absence. An allegation of failure to investigate, or “abnormal” bad faith, requires that the plaintiff show the insurer’s intentional failure to determine whether there is a legitimate reason to deny the claim. Citing case law, the court also noted that Alabama courts limit bad faith claims to lawsuits where the underlying breach of contract claim is so strong the plaintiff is owed a directed verdict.

Applying these elements, the courts found that the plaintiffs have not asserted a breach of contract claim. Additionally, the court reasoned, the plaintiffs did not file a police report regarding the alleged theft until they had already filed a claim with USAA. There is therefore at least a question of fact as to when the alleged theft occurred, whether the policy was in effect on that date, and whether the contract was breached, the court said. The court also found that the defendant’s reason for denying the claim is debatable in that it is at least arguable that the plaintiffs’ situation did not constitute a theft.

Consequently, the court held that summary judgment was warranted.

Citation: Allen v. USAA Cas. Ins. Co., 2023 WL 2839079 (N.D. Ala. Apr. 7, 2023).