How often do insurance companies buy new ideas looking for a way to avoid covering a large loss? That’s what happened in a recent case that resulted in an insurance settlement of $44 million. A summary of the “purchase” of the new expert’s opinion regarding the boiler and the loss of the machine was explained by the court:
On September 21, 2018, four of the sixteen bolts of the Mesta Press broke, and the Complainant discovered cracks in two of its columns. Plaintiff filed an insurance claim, which Plaintiff accepted on September 25, 2018. Plaintiff initially retained Engineering Design & Testing Corporation (‘ED&T’) to assess the damage and repair costs. On October 9, 2018, ED&T sent an e-mail to the defendant, saying: ‘In the case that it has started, our initial hypothesis is that one of the tires broke due to fatigue … ‘ Ten days later, the defendant issued a report that the Defendant has to deposit $56 million in compensation which is lost.
Defendant released ED&T and retained Failure Analysis & Prevention, Inc. (‘FAP’) to continue ‘investigating the cause of the breaking of the tie rods and the cracking of the columns.’1
It’s clear that home office reformers were not happy with the idea of saving $56 million. So, why not bring together another technology company that has its ideas straight?
The new engineering company has researched for more than 20 months. One of the best things to do is to research the information quickly and without delay. Regular readers of blogs may assume that there is a steady stream of change going on and the decision to delay reporting it as a basis for negative reporting. Ultimately, the insurance company denied the claim:
On July 14, 2020, the Defendant sent a letter to the Plaintiff, denying all of her claims. The letter cited the FAP’s findings that (1) ‘the tires failed due to failure to properly compress the tie rods in accordance with the manufacturer’s approved 2008 instructions’; and (2) the cracking of the columns was a ‘fatigue fracture that occurred during the printing process’ and was ‘not related to, or aggravated by, the failure of the fasteners.’
Based on this, the Defendant concluded that the ‘misconduct’ is ‘slow
The damage exclusion excludes coverage for broken structures under the All-Risk Provision, and the ‘slow damage’ exclusion prevents coverage for broken columns under the All-Risk Provision. Under the Acceptance, according to the letter, the damage to the tie rods and poles was not caused by an ‘Accident’ because it happened over a period of time and is not covered.2
Prior to trial, the trial court ruled on the bad faith cause of action:
Defendant’s evidence, however, is not sufficient for a jury to find that Defendant acted unwisely or wrongfully. In most cases, it indicates that the Plaintiff breached the insurance contract by mistake or negligence; but mistakes and negligence alone do not constitute bad faith. ‘There is no definite suggestion in this record that (1) [Defendant] (2) submitted false documents or evidence, (3) did not honestly choose expe1is to make a proper evaluation, (4) relied on expert reports that were not sound or, (5) ) failed to conduct an adequate investigation.’… Therefore, the only reasonable point from the evidence is that the Defendant did not act in bad faith, although it was wrong to deny the Plaintiff’s answer.3
The case calls for insurers to try again, in an attempt to find a way to deny higher claims.
Thought of the Day
History repeats itself, first as tragedy, second as farce.
1 Weber Metals, Inc. v. Ace American Ins. Co.No. 2:21-cv-05995 (CD Cal. July 1, 2022).