Reasonableness of Insurer’s Coverage Decision Determined by Evidence Available at Time of Decision

The Eighth Circuit Court of Appeals recently held that, under Iowa law, an insurer is not liable for breach of contract or bad faith if its coverage decision was objectively reasonable at the time it was made.

In Hallmark Specialty Ins. Co. v. Phoenix C & D Recycling, Inc., No. 20-1339, 2021 WL 2197068 (8th Cir. June 1, 2021), a fire originated from a pile of biofuel material on an insured’s power plant, causing alleged damage to buildings, wiring, equipment, and other materials.

The insurer paid for a portion of the insured’s equipment losses, but not for removal and installation of wiring and equipment because the policy did not require such payment until damaged property had been repaired or replaced.

While the insurer eventually paid for these items, the insured contended that the insurer should have made these payments at the time of the initial claim.

The insurer also hired an accounting firm in anticipation of the insured’s business interruption claim, and the firm requested relevant information from the insured.