Mayorga Coffee Roasters v. Erie Insurance Exchange, MIA # 13-00015 (Oc-tober 16, 2013)
Insurer acted in bad faith by failing to pay to replace damaged business property once it became clear that repairs had failed.
The MIA found that Erie had acted in bad faith by not paying to replace Mayorga’s coffee roaster once all parties realized that repairs had failed. The MIA found that Erie’s attempts to avoid liability for the failed repairs was “underhanded.” The MIA did not, however, find that Erie had acted in bad faith by asking for more time to resolve the business interruption claims.
Mayorga imports, roasts, and packages raw coffee beans for wholesale customers and operates retail locations in the Mid-Atlantic. They had insurance from Erie that covered everything from fires to business interruption when their larger coffee roaster —a Diedrich CR 120— had a fire. Complicating matters, the Diedrich CR 120 was no longer in production and spare parts were not available easily. (Op. 5.)
Mayorga reported the loss the day it occurred. Erie sent two adjusters and a cause-and-origin expert to inspect the damages. Mayorga provided records showing they had properly maintained it. Erie began gathering the data and experts necessary to handle the business interruption claim. (Op. 5-6)
Mayorga solicited a bid from Probat Burns, a (among other things) commercial coffee roaster vendor. Probart burns said it could install a similar system in about two months. Diedrich, the original manufacturer, said it could deliver a current model in 20 weeks for $250,000.
Erie hired Industrial Loss Consulting, Inc. to meet with a Diedrich technician and inspect the roster. Industrial Loss said repair was the best offer and included an estimate from its own consultant, K&A Industries. They felt a new product would take 16 to 18 weeks. Repairs, meanwhile, would take two weeks and cost only $18,500, plus another $20,000 to $25,000 depending on whether the controls were salvageable. Mayorga disliked Industrial Loss Consulting and K&A’s report and instead got a bid from Diedrich. Diedrich estimated it would take them $29,058 and three to four weeks to repair the roaster, plus another $39,375 and four to five days. (Op. 7-8).
All parties, in short, agreed that the roaster was repairable, but disagreed on cost and the cost of replacing the control system. The parties agreed that K&A would visit to determine whether the controls could be salvaged. Erie decided to go with Diedrich because Diedrich would get the whole thing done in one go. Over the next few months, Mayorga submitted more invoices for repairs and for lost income. (Op. 8-10)
Then, on August 31, 2011, Erie assigned the claim to another claims adjuster, “PG”. PG promptly completely disavowed any prior agreements between the previous adjuster and Mayorga. (Op. 10.)
By October, the repairs had failed. Erie asked Industrial Loss for its opinion. Mayorga asked Diedrich. (Op. 10-11.)
After another exchange of information, Erie ask Mayorga for more documentation to support its Business Interruption and Extra Expense claims. Mayorga finished providing all the requested information by July 18, 2012. On September 19, Erie’s forensic accountants sent it back because of some discrepancies. (Op. 11.)
On October 15, Mayorga asked for another $300,000 in partial payment for its Business Interruption loss. Erie denied the claim, citing policy language stating it only covered directly related damage, and the shorter of the business interruption losses from the time of loss to the time of repairs or one year. It then argued that since faulty repairs and/or maintenance were excluded, Erie was not on the line for Mayorga’s losses. (Op. 12.)
The parties never the less continued collaborating. Erie continued to gather new information about the claim until May 21st, when Erie informed Mayorga that it would neither accept nor reject Mayorga’ Sworn Statement in Proof of Loss. Erie instead asked for more information, although it did not specify exactly what. Mayorga responded with a bad faith claim. (Op. 12-13.)
Mayorga argued that Erie persuaded Deidrich to repair the roaster because the repair would end Erie’s obligation, knowing “full well” that the repairs might fail. Erie further assigned the loss to five different adjusters over two years and maintained no continuity between them. One adjuster even disavowed his predecessor’s work. Erie had continued delayed investigation by demanding new information. Finally, Mayorga contended that Erie could not choose to neither accept nor reject Mayorga’s Sworn Statement of Proof of Loss under Maryland Law. (Op. 13-14.)
Erie denied everything. It claimed that it nvestigated promptly and retained the right experts. It also alleged that Plaintiff never cooperated, never provided requested information, and continually required extensions. Erie further denied pressuring anyone into choosing repair over replacement. (Op. 14-15.)
The MIA first determined that Erie had acted in bad faith by refusing to pay for the replacement of the roaster as a business property claim. Erie had already acknowledged an obligation to put the roaster back into its condition before the fire. Erie’s attempt to dodge this obligation by claiming that it did not have to repair the roaster was “deliberately underhanded.” Since more than a year had gone by since it became clear the roaster was inoperable, Erie had an obligation to pay the claim. (Op. 16-17.)
The MIA then determined that Erie had to pay the Business Interruption and Extra Expense claims, but had not acted in bad faith by denying them in the first place. The MIA felt that it was an extremely complex matter and that Erie was not unreasonable in asking for more time. (Op. 18).
Plaintiff did not provide adequate documentation for a fee reward, so the MIA determined what award was reasonable. In light of the time involved, the quality of the work, and the legal issues at play, the MIA awarded $43,000. (Op. 21)