By Kelsey Dilday, Barnes & Thornburg LLP
In a dispute over coverage related to the loss of fish and bad faith claims handling under a commercial property policy, Westfield Insurance Company (“Westfield”) argued unsuccessfully that $1.65 million of Bell Aquaculture LLC’s (“Bell”) fish destroyed when a generator switch failed was not covered pursuant to an Animal Exclusion and EBC Endorsement exclusion. The Animal Exclusion provided that animals were excluded from “Covered Property” unless owned by the policyholder only as “stock.” However, an EBC Endorsement provided additional coverage for direct physical damage to Covered Property resulting from “a mechanical breakdown or an artificially generated electrical current...” An exclusion contained within the EBC Endorsement excluded coverage for “loss or damage to animals.” When Westfield failed to provide coverage, Bell alleged a breach of Westfield’s duties of good faith and fair dealing during its handling of the underlying claims.
The District Court for the Southern District of Indiana granted in part and denied in part the parties’ cross-motions for partial summary judgment on the scope of coverage under the EBC Endorsement. It found that the EBC Endorsement unambiguously excluded coverage for any loss or damage to animals, which included fish; however, under the circumstances of this case, the specific coverage for spoilage under the EBC Endorsement still applied to the loss of Bell’s fish. The court concluded that although a “Causes of Loss–Special Form” set out general limitations that applied to the EBC Endorsement, the “unless otherwise stated” policy language made it clear that the additional coverages under the “Causes of Loss–Special Form,” including any endorsements, may have further limitations or exclusions in addition to those general limitations. Thus, the varied use of the term “animals” did not create ambiguity; instead, it recognized various coverage grants with separate conditions, limitations, and exclusions.
However, the EBC Endorsement also provided payment for “physical damage to ‘perishable goods’ due to spoilage,” and defined “perishable goods” as “personal property maintained under controlled conditions for its preservation, and susceptible to loss or damage if the controlled conditions change.” The court concluded that Bell’s fish fell squarely within this definition of “perishable goods” because the fish were personal property maintained under controlled conditions for their preservation, and they were lost or damaged when the controlled conditions changed. The court concluded that Bell’s fish loss was covered under the specific coverage for spoilage under the EBC Endorsement.
The court then granted Westfield’s motion for partial summary judgment on Bell’s bad faith counterclaim because the evidence shows that Westfield disputed Bell’s insurance claim in good faith and provided rational and reasonable bases for its conduct during the claims handling process. The court concluded that the facts did not support a bad faith claim against Westfield because Westfield promptly paid Bell, began its investigation of the loss the day following the incident, kept Bell apprised of investigation efforts, notified Bell of its reservation of rights and coverage position, and was justified in undertaking investigation to investigate Bell’s business loss claim. Additionally, the court held that Westfield did not take advantage of Bell’s financial situation by forcing Bell into litigation to settle the claim because TCFI initiated the litigation against Bell and included Westfield as a garnishee-defendant.
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