COURT REFUSES TO STRIKE INSURER’S FRAUD IN THE APPLICATION DEFENSE; BUT DENIES MOTION TO SEVER AND STAY INSURED'S BAD FAITH CLAIM (Western District)

Print Friendly, PDF & Email

This case involves a homeowners’ fire loss claim. The carrier refused to pay on the basis that the insureds made material misrepresentations in applying for their policy. The insurer asserted affirmative defenses that the homeowners falsely stated that they did not have knob and tube wiring and that no insurer had ever cancelled the homeowners’ coverage, when in fact, they did have knob and tube wiring and a prior policy was cancelled.

The matters before the court were the insureds’ motion to strike the affirmative defenses as inadequately pleaded, and the insurer’s motion to sever and stay the insureds’ bad faith claim.

The Insurer Adequately Pleaded Fraud as an Affirmative Defense

The court denied the motion to strike. It found that affirmative defenses are measured by Rule 8(c) and do not have to be rigorously articulated. That being said, because fraud is pleaded, there are additional pleading requirements under Rule 9(b) to plead with particularity (other than intent).

Still, measured by these standards, the affirmative defenses are adequate. The insurer pleads that the insureds made written misrepresentations on the application, and that it would never have issued the policy if the insureds stated the true facts in their application. This was sufficiently specific to put the insureds on notice of the grounds for the affirmative defenses.

The Court Refuses to Sever and Stay the Bad Faith Claims

The insurer sought to sever the insureds’ bad faith claims from their breach of contract claim. The court found this unwarranted for the following reasons:

  1. The underlying issues in the two claims overlapped. The court recognized the ultimate issues were distinct on breach of contract and bad faith, but found “they are subject to the same sources of proof and concern the same underlying issues.”

  2. Trying the claims together would not unduly prejudice the insurer. The insurer “failed to show exactly how it would be prejudiced if [the insureds’] claims are tried together.” Further, if discovery disputes arise, the court could properly resolve them at that future time.

  3. Trying the claims together would promote judicial economy. The court stated that “judicial economy strongly disfavors severance in this case.” Turning one case into two cases “would require the Court to schedule deadlines separately for each case and hold two separate trials on claims stemming from the same dispute.” Moreover, the insurer did not provide any valid reason for severance.

Date of Decision: February 6, 2020

Walls v. American Modern Select Insurance Co., U.S. District Court Western District of Pennsylvania Case No. 3:19-cv-80, 2020 U.S. Dist. LEXIS 20088 (W.D. Pa. Feb. 6, 2020) (Gibson, J.)

0 Responses to “COURT REFUSES TO STRIKE INSURER’S FRAUD IN THE APPLICATION DEFENSE; BUT DENIES MOTION TO SEVER AND STAY INSURED'S BAD FAITH CLAIM (Western District)”


Comments are currently closed.