Eleventh Circuit Reverses Summary Judgment on Bad-Faith Claim Finding Sufficient Evidence to Demonstrate Insurance Company Should Have Known Experts’ Fire Cause Opinions Were Unreliable

Judge Holding Documents

On February 29, 2016, the U.S. Court of Appeals for the Eleventh Circuit reversed a district court’s grant of summary judgment in favor of an insurance company on a yacht owner’s bad-faith claim. In Atl. Specialty Ins. Co. v. Mr. Charlie Adventures, LLC, 2016 U.S. App. LEXIS 3619 (11th Cir. Ala. Feb. 29, 2016), a 40-foot yacht named “Mr. Charlie” was completely destroyed by a fire that started in its engine room. The owner filed a claim with Atlantic Specialty Insurance Company as it had issued an insurance policy to provide coverage for the yacht. Atlantic denied the claim based on reports authored by a marine surveyor and fire origin and cause investigator it retained to investigate the cause of the fire. In that regard, Atlantic’s experts concluded the fire had been “caused by or resulted from growth or marine life on or in the vessel, which restricted the intake or flow of water to cool the engine and exhaust system.” The insurance policy provided that Atlantic would not pay for damage caused by marine life.

Atlantic filed a declaratory judgment action seeking a declaration that it did not owe coverage for the fire damage. The yacht’s owner counterclaimed, seeking damages for breach of contract and bad-faith for the refusal to pay the insurance claim. Regarding the bad-faith claim, Atlantic asserted that the reports of the marine surveyor and fire origin and cause investigator gave it an arguable reason to deny the claim. The owner disagreed and argued that the opinions of Atlantic’s two experts regarding fire cause should be excluded as unreliable. In support, the owner argued that the experts made incorrect calculations, utilized unreliable information, violated the scientific method and failed to test their theory. The district court agreed and excluded the experts’ opinions, however, granted summary judgment to Atlantic on the owner’s bad-faith claim stating that there was no evidence demonstrating that Atlantic knew or had reason to know that the experts’ reports were unreliable at the time it denied the claim.

The owner appealed arguing the district court erred in determining that the expert reports provided Atlantic with an arguable reason to deny the insurance claim. The Eleventh Circuit agreed holding that there was sufficient evidence to create a triable issue as to whether Atlantic had an arguable reason to deny the claim. In support, the Eleventh Circuit noted that emails between the two experts and Atlantic’s adjuster prior to the denial of the claim shed light on the unreliable nature of the experts’ opinions and their flawed methodology.

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