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I have been pleasantly surprised by the tremendous response to the article I posted yesterday on Insurance Claims and Issues Blog, "LEAKING SINK IN UTAH IS EXCLUDED, BUT NOT 'MORAL HAZARD.'" So pleased, in fact, that I am going to continue my discussion here of both the holding and the record in the Utah case.
The Magistrate Judge's holding was straight-forward enough. First, an exclusion applied to bar coverage. The exclusion barred all coverage for damages caused by seepage and leaking over a prolonged period, and the exclusion barred coverage under the homeowner's policy at issue when applied to the record in Wheeler v. Allstate Ins. Co., No. 2:12-cv-193-BCW, 2015 WL 5714392, *6-*10 (D. Utah September 29, 2015)(Wells, USMJ).
The Magistrate Judge based this ruling firmly on "the plain meaning of the insurance policy." Wheeler v. Allstate Ins. Co., No. 2:12-cv-193-BCW, 2015 WL 5714392, *7 (D. Utah September 29, 2015)(Wells, USMJ). "Therefore, based upon the plain language of the insurance policy, as well as case law from this district, the Court finds [that the exclusion] is not fairly susceptible to the interpretation Plaintiff suggests. Accordingly, the insurance policy is not ambiguous." Wheeler v. Allstate Ins. Co., No. 2:12-cv-193-BCW, 2015 WL 5714392, *7 (D. Utah September 29, 2015)(Wells, USMJ).
Since the policy language was unambiguous, no extrinsic evidence could alter its terms or change its meaning. As applied to the undisputed facts on the record of this case, the exclusion applied and barred coverage:
Therefore, the Court finds as a matter of law that the insurance policy is not ambiguous and Allstate did not breach the insurance contract by failing to cover Plaintiff's loss to his cabin. Accordingly, the Court finds that Plaintiff is not entitled to recovery for the loss sustained to the cabin.
Wheeler v. Allstate Ins. Co., No. 2:12-cv-193-BCW, 2015 WL 5714392, *10 (D. Utah September 29, 2015)(Wells, USMJ).
Second, falling in line with the overwhelming majority view in this country, the Magistrate Judge ruled that where there is no insurance coverage, there cannot be an insurance bad faith claim. The Magistrate Judge once again also considered the evidence properly in the record and concluded that there was no bad faith claim handling under the facts. Wheeler v. Allstate Ins. Co., No. 2:12-cv-193-BCW, 2015 WL 5714392, *11 (D. Utah September 29, 2015)(Wells, USMJ).
Early in the opinion summarizing the posture and record of this case, the Magistrate Judge quoted from a report drafted by Allstate's expert. The Magistrate Judge did not, however, refer to the report in making any rulings. Clearly, the "expert" report was proffered as extrinsic evidence for the purpose of testifying to an opinion that, after review of the policy language at issue in this case, the policy language could only be understood as a bar against "morale hazards." (In writing my article on Insurance Claims and Issues Blog, I understood that this expert person was trying to refer to "moral hazards" because that would make sense, but a reader wrote to me to point out that the testimony proffered in the Wheeler case referred to "morale hazards" and not to "moral hazards.")
Clearly, this unsupported invention of drafting history was not only unnecessary to understand the language of the exclusion, but this opinion was inadmissible extrinsic evidence offered to vary the terms of an unambiguous insurance contract. Despite the report's proffered written opinion that "morale hazards" are not covered under homeowner's policies, and the hazard of seepage and leakage at issue in this case was a "morale hazard," Wheeler v. Allstate Ins. Co., No. 2:12-cv-193-BCW, 2015 WL 5714392, *4 (D. Utah September 29, 2015)(Wells, USMJ), the Court ignored the opinion and the expert's opinion had no effect on the outcome.
In the end, the "morale/moral hazard" dichotomy in the expert's report was inadmissible extrinsic evidence in this case, seemingly proffered but perhaps not fully proof-read.
Please Read The Disclaimer. ©2015 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with 2015 Supplements), including Section 11:1 which addresses the general rule that where there is no coverage for first-party claims, there cannot be a first-party bad faith claim in the ordinary case. All rights reserved.