The Georgia Court of Appeals recently ruled that an insurer’s reliance on an independent consultant’s report creates a presumption that it did not act in bad faith in denying coverage. In Montgomery v. Travelers Home and Marine Ins. Co., 859 SE2d 130 (Ga. Ct. App. 2021), the insured made a claim under her home insurance policy for water damage to her basement which she claimed had been caused by a broken garden hose. The insurer’s claims adjuster inspected the property two days later and found damage that appeared to be from the groundwater rather than the broken pipe. The expert sought the advice of his supervisor, who suggested that he hire an independent engineer to determine the cause of the water damage.
The insurer retained the services of a structural engineer, who inspected the property and observed conditions on several basement walls indicating that moisture had seeped into the basement from the exterior floor. for a period of time. Based on his observations, the engineer estimated that the water damage resulted from the migration of groundwater through breaches in the concrete masonry block foundation walls and the slab on the ground, and not broken garden hose. The engineer submitted a written report to the insurer detailing his findings. Based on the engineer’s report, the insurer rejected the claim because ground and surface water was not a risk covered by the policy.
The insured then sent the insurer a letter contesting the denial of its claim. She claimed the engineer focused on the cause of the pre-existing moisture damage that she was not making a claim for instead of examining the cause of the water damage to her basement by the broken garden hose. She also claimed that the engineer’s conclusions were inconsistent with the amount of rain that had occurred at that time, and she attached weather data for the month of the incident to her letter.
After seeing the letter from the insured, the engineer disputed his claims, reiterating the conclusions of his report and asserting that the amount of rain at the time was only one of the many factors contributing to the underground water intrusion. The engineer concluded that the insured’s rebuttal letter contained no new information that might change the conclusions of his report. When the insurer did not change its decision to deny its claim, the insured brought an action in Georgia State Court for breach of contract, legal penalties under OCGA § 33-4-6 for failure in bad faith to pay his claim and attorney’s fees. The trial court granted summary judgment to the insurer on the bad faith penalty and attorney fees claims, and the insured appealed.
The Georgia Court of Appeals ruled that the trial court did not err in granting summary judgment to the insurer on the bad faith claim because the insurer presented evidence that it dismissed the claim based on the advice of the structural engineer and that the insured had not presented evidence from which a jury could conclude that the opinion of the structural engineer was manifestly wrong or that the insurer had used it as a pretext to dismiss the claim. The court explained that under Georgian law the insurer was entitled to summary judgment on the bad faith claim unless there was evidence that the insurer had no reasonable grounds to contest the insured’s claim under the policy. The court further explained that the opinion of an independent consultant provides an insurer with reasonable grounds to dispute an insured’s claim unless the opinion is manifestly wrong or is merely a simple matter. pretext for the insurer’s unjustified prior decision to refuse the claim.
Applying these rules to the facts of the claim, the court noted that the insured had not reported any evidence that the structural engineer’s advice was manifestly erroneous. The court defined “manifestly false” as “obviously or apparently false” and observed that the insured’s criticisms of the structural engineer ‘s advice, and the evidence she cited in support of these reviews, simply raised a factual question as to whether or not the advice was wrong. While the existence of a factual question was sufficient to preclude summary judgment on the insured’s underlying claim of liability under the policy, it did not preclude summary judgment on its claim for penalties of bad faith.
On the contrary, the court explained, the existence of a factual question demonstrated that the insurer had reasonable grounds to contest the claim and supported the conclusion that it had not rejected the claim in bad faith. Likewise, the evidence of the insured contesting the conclusions of the structural engineer was relevant to the question of whether the conclusions of the engineer were correct, and not whether they served as a pretext for the insurer’s refusal of the claim. claim. Accordingly, the court upheld the granting of summary judgment to the insurer on the bad faith claim.
The Montgomery This decision stresses the importance of obtaining the opinion of a qualified and duly audited independent expert. If the expert’s report is not manifestly erroneous and does not serve as a pretext for a preliminary decision to reject the complaint, it will help to exclude a request for penalties in bad faith.