Bad faith is the unreasonable failure of an insurance company to honor the terms of an insurance policy and deal with a policyholder in good faith. Insurance companies who are found to have acted in bad faith can be liable for punitive damages in addition to contract damages. Some states have bad faith statutes called "Unfair Insurance Claims Practices Acts."
Indemnity Insurance Company joins suit to deny Builders Risk coverage to Alabama ship builder for construction defect.
The complaint said that C&G Boat Works Inc. had contracted with Crescent Towing to build Hull 117, a tugboat. The insurers allege that C&G is a Mobile, Ala.-based builder of boats and barges.
The complaint states that Hull 117 was powered by two diesel engines built by General Electric and that during sea trials in September, 2010, the port engine of the boat experienced high bearing temperatures.
According to the insurers, during an inspection, main bearings of the engines reportedly showed signs of damage caused by metal and particulate contamination in both of them. The complaint states that a metallurgical engineering consultant later concluded that the contamination “in all probability” came from oil lines that were supplied by C&G as a result of improper cleaning of those lines after fabrication.
The insurers allege that Northern Assurance Co., one of the plaintiffs, notified C&G on Dec. 7, 2010, that the loss was excluded by provisions of its policy. According to the complaint, C&G asked for reconsideration of the claim, reportedly based primarily on the position that its employee who installed the lubrication piping system had deviated from construction protocol and improperly welded certain joints in the piping system.
According to the insurers, because of the improper welds, the lubrication system was not completely cleaned and damaging metal particles were introduced into the engines. A Nov. 22, 2010, letter from C&G to the insurers attached to the Complaint pegged damages at that time at a minimum of $129,262.
The insurers said they have mutually agreed to submit this coverage dispute to the court and “stipulate that there is a present, justiciable controversy.” They asked the U.S. District Court for the Southern District of Alabama, Southern Division, to declare that no coverage is due to C&G.
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