Court Denies Insurer's Motion to Dismiss Bad Faith and Unfair Practices Claims Where Insureds Alleged "Industry-Wide Practice," Citing ISO, of Denying "Concrete Decay" Claims
A federal district court in Connecticut has denied an insurance company’s motion to dismiss bad faith and unfair practices claims in a “concrete decay” case, finding that allegations that the insurance carrier had followed an “an industry-wide practice” – citing its participation in the Insurance Services Office, Inc. (“ISO”) – in denying their claim were sufficient to permit the homeowners’ lawsuit to go forward.
Court Denies Insurer's Motion to Dismiss Bad Faith and Unfair Practices Claims Where Insureds Alleged "Industry-Wide Practice," Citing ISO, of Denying "Concrete Decay" Claims
1. The Insurance Coverage Law Information Center
The following article is from National Underwriter’s latest online resource,
FC&S Legal: The Insurance Coverage Law Information Center.
COURT DENIES INSURER’S MOTION TO DISMISS BAD FAITH AND
UNFAIR PRACTICES CLAIMS WHERE INSUREDS ALLEGED
“INDUSTRY-WIDE PRACTICE,” CITING ISO, OF DENYING
“CONCRETE DECAY” CLAIMS
May 5, 2014 Steven A. Meyerowitz, Esq., Director, FC&S Legal
A federal district court in Connecticut has denied an insurance company’s motion to dismiss bad faith and unfair practices
claims in a “concrete decay” case, finding that allegations that the insurance carrier had followed an “an industry-wide
practice” – citing its participation in the Insurance Services Office, Inc. (“ISO”) – in denying their claim were sufficient to
permit the homeowners’ lawsuit to go forward.
The Case
In August 2008, Danny and Marcia Panciera purchased a home in Willington, Connecticut, that had been constructed in
1989. The Pancieras asserted that, in April 2013, they observed a series of horizontal and vertical cracks on most of the
basement walls in their home and immediately undertook an investigation into the cause of the condition. The Pancieras
asserted that they discovered that the “pattern cracking” in their basement was due to a chemical compound found in
certain cement from a concrete company used in basement walls that were constructed in the late 1980s and early 1990s
that oxidized and expanded over time, eventually reducing the concrete to rubble. They asserted that the oxidizing
process had rendered the basement walls of their home structurally unsound, and that it only was a matter of time until
those walls collapsed and their entire home fell into the basement.
The Pancieras contacted their homeowner’s insurance carrier, Kemper Independence Insurance Company, and made
a claim for coverage; based on estimates they had obtained, the cost of replacing their basement walls and related
restoration work was expected to be at least $175,000.
Kemper denied coverage.
The Pancieras sued, bringing claims against Kemper for breach of contract (Count One); breach of the implied covenant
of good faith and fair dealing (Count Two); and violations of the Connecticut Unfair Insurance Practices Act (“CUIPA”),
Conn Gen.Stat. § 38a–815, et seq., and the Connecticut Unfair Trade Practices Act (“CUTPA”), Conn. Gen.Stat. § 42–110a,
et seq. (Count Three).
Kemper moved to dismiss Counts Two and Three, arguing, with respect to Count Two, that the Pancieras had failed to
allege sufficient facts to show that Kemper had acted in bad faith and, with respect to Count Three, that they had failed to
allege sufficient facts to show that Kemper had a general business practice of improperly denying claims similar to theirs.
The Court’s Decision
The court denied Kemper’s partial motion to dismiss.
First, the court found that the Pancieras alleged that Kemper had cited an inapplicable policy exclusion in its denial letter
while failing to disclose the coverage in the policy under which their claim should have been covered. The court added
that the Pancieras alleged that, in so doing, Kemper had acted with a “design to deceive” and in violation of Connecticut
public policy, which forbids insurers from misrepresenting the terms of insurance contracts. Furthermore, the court
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2. continued, the Pancieras incorporated by reference into Count Two their allegations that Kemper had “colluded with
other members of the ISO to uniformly deny collapse claims related to faulty concrete, despite several cases determining
that such claims are covered by policies identical to [the Pancieras’ policy], in violation of CUIPA and CUTPA.”
The court decided that, when taken together, the Pancieras plausibly alleged that Kemper had acted in bad faith in
denying their claim. Therefore, it denied Kemper’s motion to dismiss Count Two.
The court reached the same result with respect to Count Three.
It explained that the Pancieras alleged that Kemper had violated CUIPA and CUTPA by failing to effectuate the prompt
and equitable settlement of their claim, in which liability had become reasonably clear. The court noted that the Pancieras
alleged that Kemper “belongs to the ISO, which is an organization composed of and controlled by insurance companies
for the purpose of standardizing the language and interpretation of insurance policy provisions”; that “through its
participation in the ISO, [Kemper] has knowledge of similar cases in which ISO members denied coverage and courts later
found that coverage existed under identical policy language”; and that “based on this similar conduct, and based on the
function of the ISO to provide its participants with identical, specific policy interpretations, there is an industry-wide
practice of denying claims like [the Pancieras’], even though such claims are likely covered by the terms of their policy.”
The court found that, based on Kemper’s participation in the ISO, “and based on the conduct of other ISO participants
in denying similar claims,” the Pancieras “plausibly allege[d]” that Kemper had followed “an industry-wide practice in
denying their claim and that additional similar claims from the geographic area served by the [the concrete company]
likely had been submitted to and denied by [Kemper] consistent with this practice.”
Therefore, the court concluded, the Pancieras’ allegations were sufficient to sustain their CUIPA and CUTPA claim.
The case is Panciera v. Kemper Independence Ins. Co., No. 3:13cv1009 (JBA) (D. Conn. April 29, 2014). Attorneys involved
include: Jeffrey R. Lindequist, Michael D. Parker, Law Office of Michael D. Parker, Springfield, MA, for Plaintiffs; Joseph J.
Arcata, III, Meg R. Reid, Daniel P. Scapellati, Tracy L. Montalbano, Halloran & Sage LLP, Hartford, CT, for Defendant.
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![continued, the Pancieras incorporated by reference into Count Two their allegations that Kemper had “colluded with
other members of the ISO to uniformly deny collapse claims related to faulty concrete, despite several cases determining
that such claims are covered by policies identical to [the Pancieras’ policy], in violation of CUIPA and CUTPA.”
The court decided that, when taken together, the Pancieras plausibly alleged that Kemper had acted in bad faith in
denying their claim. Therefore, it denied Kemper’s motion to dismiss Count Two.
The court reached the same result with respect to Count Three.
It explained that the Pancieras alleged that Kemper had violated CUIPA and CUTPA by failing to effectuate the prompt
and equitable settlement of their claim, in which liability had become reasonably clear. The court noted that the Pancieras
alleged that Kemper “belongs to the ISO, which is an organization composed of and controlled by insurance companies
for the purpose of standardizing the language and interpretation of insurance policy provisions”; that “through its
participation in the ISO, [Kemper] has knowledge of similar cases in which ISO members denied coverage and courts later
found that coverage existed under identical policy language”; and that “based on this similar conduct, and based on the
function of the ISO to provide its participants with identical, specific policy interpretations, there is an industry-wide
practice of denying claims like [the Pancieras’], even though such claims are likely covered by the terms of their policy.”
The court found that, based on Kemper’s participation in the ISO, “and based on the conduct of other ISO participants
in denying similar claims,” the Pancieras “plausibly allege[d]” that Kemper had followed “an industry-wide practice in
denying their claim and that additional similar claims from the geographic area served by the [the concrete company]
likely had been submitted to and denied by [Kemper] consistent with this practice.”
Therefore, the court concluded, the Pancieras’ allegations were sufficient to sustain their CUIPA and CUTPA claim.
The case is Panciera v. Kemper Independence Ins. Co., No. 3:13cv1009 (JBA) (D. Conn. April 29, 2014). Attorneys involved
include: Jeffrey R. Lindequist, Michael D. Parker, Law Office of Michael D. Parker, Springfield, MA, for Plaintiffs; Joseph J.
Arcata, III, Meg R. Reid, Daniel P. Scapellati, Tracy L. Montalbano, Halloran & Sage LLP, Hartford, CT, for Defendant.
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