Building That Could Collapse is Not a Covered Collapse

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Fairly Debatable Claim Defeats Charge of Bad Faith
Post 4794

On May 7, 2019, Saddletree Holding, LLC (Saddletree) filed an insurance claim for damages sustained to its building located in Upton, Wyoming (the Building). Following a winter of heavy snowfall, Saddletree discovered that the Building’s steel support columns had buckled two or more inches and the roof had deflected downward approximately six inches.

In Saddletree Holding, LLC v. Evanston Insurance Company; Markel Service, Inc., No. 23-8024, United States Court of Appeals, Tenth Circuit (April 30, 2024) the Tenth Circuit ruled on the breach of contract and bad faith suit filed by Saddletree.

A building that is standing even has not collapsed.

The district court entered judgment in favor of Evanston.

BACKGROUND

Evanston disclaimed coverage pursuant to a Policy exclusion precluding damage caused by “hidden or latent defect[s]” or “any quality in property that causes it to damage or destroy itself.”

Saddletree sued its builder, Dreams Carports &Buildings, Inc. and the district court entered default judgment and awarded Saddletree over $2.2 million in damages.

ANALYSIS

Saddletree does not dispute that its claim of breach fell outside the Policy’s two- year limitations period.

Defendants are entitled to rely on the Policy’s two-year limitations period. The district court correctly entered summary judgment for Defendants.

SUBSTANTIVE BAD FAITH

The test of bad faith is an objective one which questions whether the validity of the denied claim was not fairly debatable. A claim is fairly debatable when a reasonable insurer would have denied or delayed payment of benefits under the facts and circumstances.

Because Defendants were entitled to rely on their expert engineering report in making their coverage determination, the insurer acted properly and not in bad faith.

The Tenth Circuit concluded, as a matter of law that the insurer’s conduct failed to exhibit the egregious level of misconduct typifying bad faith.

ZALMA OPINION

The Tenth Circuit could have rejected the appeal on the failure to file suit before the expiration of the private limitation of action provision, alone. Regardless, it also dealt with the claims of bad faith and breach of contract to eliminate all of Saddletree’s claims. Saddletree has a judgment against the builders of the structure and only sued when it found it could not collect the default judgment.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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