M.M. v. Allstate Insurance Company, MIA No. 27-1001-12-00005 (July 16, 2012).

September 3, 2014

Insurer acted in bad faith by not investigating a claim on the grounds that a pollution exclusion applied when that exclusion did not in fact apply.

 

The MIA found that Allstate acted in bad faith by refusing to investigate a claim on the grounds that it believed it did not have to pay the claim under an exclusion. Upon hearing the circumstances of the claim, Allstate immediately concluded that the claim fell under a pollution exclusion. Allstate therefore did not investigate it. The MIA concluded that the pollution exclusion did not apply. It therefore concluded that Allstate’s failure to investigate was bad faith.

 

Plaintiff lived at 52 Sherwood Ave., Cockeysville, MD (“the Residence”). Plaintiff had a Renters Policy with Allstate with a $15,000 cap. The Residence had an oil-burning hot water heating system. (Op. 3.)

 

On December 15, 2011, 150 gallons of heating oil were delivered to the Residence and pumped into an above ground fuel tank. The tank’s bottom was in the basement. And the tank’s bottom had a hole, through which the oil leaked into the basement. (Op. 3-4.)

 

Plaintiff made a claim the same day. Allstate denied the claim under a pollution exclusion. (Op. 4.) Plaintiff secured counsel. Allstate declined to contact Plaintiff’s counsel or make further inquiry into the claim. (Op. 4-5.)

 

Plaintiff argued that his claim was covered under peril #12 of the policy. (Op. 6.) That peril provides coverage for:

 

Bulging, burning, cracking or rupture of a steam or hot water heating system, an air conditioning system, an automatic fire protection system or an appliance for heating water.

 

(Op. 5.) Plaintiff argued that since his claim was covered, Allstate had failed to investigate it properly.

 

Allstate, meanwhile, made two arguments. First, it argued (only after receiving Plaintiff’s complaint) that peril #12 did not cover the Plaintiff’s harms. Second, it argued that even if it did, the pollution exclusion applied. (Op. 6.)

 

The pollution exclusion excludes losses:

 

caused by or consisting of… (11) Vapors, fumes, acids, toxic chemical, toxic gasses, toxic liquids, toxic solids, waste materials or other irritants, contaminants or pollutants.

 

(Op. 3). Allstate had not investigated the claim because it felt the pollution exclusion applied.

The MIA first held that peril #12 covered the incident. Allstate had argued that the hole in the bottom of the heating oil tank was not a “rupture in a heating system.” The MIA rejected Allstate’s argument based on a dictionary definition of “rupture.” According to the MIA, the hole in the tank counted as a rupture. (Op. 15-16.)

 

The MIA then concluded that Allstate had failed to act in good faith by not investigating a claim covered by its policy. (Op. 16-17.)

 

The MIA then addressed Allstate’s contention that the pollution exclusion applied. Allstate argued that the pollution exclusion applied to any heating oil spill. The MIA found that the language was ambiguous because a reasonable layperson could assume the exclusion only applied to pollutants. (Op. 17-19.)

 

Plaintiff requested $5000 in attorneys fees because this was one third of the requested recovery. The MIA noted, however, that Plaintiff had merely calculated one third of the recovery and not actually provided a bill. The MIA decided to award $5000 anyway, plus some interest anyway, because that was a fair award.

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