APRIL 2018 BAD FAITH CASES: NO BAD FAITH WHERE INSURER HAD REASONABLE BASIS TO RESCIND POLICY AND DENY COVERAGE (Western District)

The insured submitted a claim after his home was lost in a fire. Allegedly suspicious circumstances—including that this was the insured’s second home to burn down in less than three years—prompted the insurer to assign the claim to its Special Investigations Unit. In his proof of loss, the insured submitted claims for a Louis Vuitton handbag and a pair of diamond earrings. The insured’s investigator learned the insured’s former fiancé had these items. The insurer consulted with legal counsel, who advised that the insured made a fraudulent material misrepresentation.

Subject to the specific facts at issue, Pennsylvania law allows an insurer to void the entire policy. The insurer filed a declaratory judgment action seeking an order that it owed no coverage to the insured, and the insured brought counterclaims. The insurer successfully moved for summary judgment on the bad faith counterclaims.

The Court ruled that no reasonable juror could find the insurer failed to conduct a reasonable investigation into the claim before denying the claim. Furthermore, the Court reasoned that no reasonable juror could find that insurer lacked a reasonable basis for its denial because the information produced in the insurer’s investigation contradicted the insured’s representations.

The Court stated, “[the insured] failed to present a scintilla of evidence to support his unfounded conjecture that [the insurer] knew of or recklessly disregarded its lack of a reasonable basis for its claim decision.”

Date of Decision: April 11, 2018

American National Property & Casualty Co. v. Felix, U. S. District Court for the Western District of Pennsylvania, Case No. 3:16-cv-147, 2018 U.S. Dist. LEXIS 61020 (W.D. Pa. April 11, 2018) (Gibson, J.)

Thanks to Dan Cummins of the Tort Talk Blog for bringing this case to our attention.