Insurer's Failure to Conduct a "Proper Forensic Investigation" Before Denying Coverage for Destroyed Poultry House Not Bad Faith
After heavy snow destroyed a Slaubaugh Farm poultry house in Delaware, the farm called on its insurer to cover its loss. After its claim was denied, the farm sued the insurer, alleging bad faith denial of coverage under Delaware law. The Superior Court of Delaware, in Re: Slaubaugh Farm, Inc. v. Farm Family Cas. Ins. Co., No. CV S16C-06-033 ESB, 2018 WL 3559252 (Del. Super. Ct. July 23, 2018), found that even though it had not conducted a "proper forensic investigation," the insurer had not acted in bad faith when it denied the farm's claim because the insurer relied on an engineer's report that concluded the collapse was caused by conditions not covered under the policy.
Slaubaugh Farm, Inc. and Sarah and Lambert Slaubaugh (collectively, "Plaintiffs") insured their poultry houses under a policy issued by Farm Family Casualty Insurance Company ("Farm Family"). When a 2016 blizzard destroyed Plaintiffs' poultry house, trapping live chickens inside, Plaintiffs called Farm Family for immediate assistance. A Farm Family adjuster hired an engineer to inspect the property. The engineer walked the property, spoke with the insureds, observed the construction of the poultry house, and noted weather conditions. The engineer sent Farm Family a report later that day opining that the trusses of the poultry house roof suffered massive failure when heavy snow overloaded them, causing the house to collapse. Relying on the engineer’s report, Farm Family issued a letter denying coverage because it determined that the poultry house collapsed because of the weight of ice, snow, or sleet, a peril not covered by Plaintiffs' policy.
In his report, the engineer also recommended that a second poultry house on Plaintiffs' property be checked for damaged truss members or connectors. Although the second poultry house had not suffered any damage during the storm, Farm Family arranged for a second engineer to examine the property. In his summary of his examination, that second engineer concluded that the first poultry house collapsed because of insufficient strength of the trusses. Family Farm then sent a second denial letter to Plaintiffs summarizing the second engineer’s report and citing an exclusion in the Plaintiffs' policy for defects in design or construction, as well as reiterating the fact that ice, snow, or sleet accumulation was not a covered peril in the policy. Plaintiffs sued Farm Family for breach of contract, negligence, and bad faith.
Both parties sought summary judgment on the bad faith claim. Plaintiffs argued they were entitled to summary judgment because Farm Family's engineer testified that while he spent several hours at the property, took photographs, and investigated the scene, he did not bring with him any tools and did not weigh or calculate the weight of the snow on the poultry house roof. Plaintiffs also pointed to the engineer's testimony that his current belief was that a "proper forensic investigation" of the poultry house was not conducted. In citing this testimony, Plaintiffs did not argue that a "proper forensic investigation" would have revealed information that would entitle them to coverage, but rather argued that Farm Family’s failure to mount a full-scale investigation established a bad faith failure to investigate their claim as a matter of law. Farm Family responded that its denial was based on the engineer’s report, not his later deposition testimony that a "proper" forensic investigation had not been completed.
The Court disagreed with Plaintiffs and held that, at the time Plaintiffs' claim was presented, Farm Family was entitled to rely on the engineer's report, in which the engineer determined that the cause of the collapse was snow accumulation, a peril not covered in the policy. The Court accordingly denied the Plaintiffs' motion for summary judgment and granted Farm Family’s motion for partial summary judgment as to the bad faith claim.