Denial of Coverage and Bad Faith

When I meet with a new client involving an insurance claim, one of the first questions I ask pertains to their with insurance policies. Because many persons do not realize what coverages they have purchased, they often fail to make claims or report losses that may be covered.

As an example, a client of mine purchased an airplane for business purposes. Before the plane was sold, the seller had it serviced by an aircraft mechanic.

After the purchase, an error by the seller’s mechanic caused an engine explosion, damaging the propeller and the fuselage. Fortunately, the pilot was able to land the plane and walk away safely.

My client sued the plane’s seller for repair costs, and the seller sought indemnification from the mechanic. Unknown to me, the mechanic had asked his insurance company to provide a defense to the lawsuit, and the insurance company denied coverage under an exclusion in the policy for damage due to the mechanic’s own work. Generally, an insurance company has to pay claims for injuries caused by negligent work but does not have to pay to repair the work itself.

When I learned of this denial of coverage, we turned the case into a bad faith claim against the insurance company. We successfully argued that the damage to the propeller and fuselage was outside of the “own work” exclusion.

After contentious litigation, we eventually recovered more than the original cost of repairs, due to the bad faith of the insurance company.