Archive for the 'Reverse Bad Faith' Category

MAY 2012 BAD FAITH CASES: THIRD CIRCUIT AFFIRMS RECISSION OF INSURANCE POLICY WHERE THE INSURED’S APPLICATION CONTAINED FRAUDULENT STATEMENTS, AND NO BAD FAITH IN CLAIMS HANDLING OR IN REASONABLENESS OF DENIAL (Third Circuit)

Published on May 1, 2012 in Reverse Bad Faith. Closed
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In Sadel v. Berkshire Life Insurance Company of America, the insured appealed a decision from the district court, which granted summary judgment to the carrier and rescinded the insured’s disability insurance policies. The original suit arose from bad faith allegations against the carrier stemming from its failure to pay benefits to the insured.
The insured is a pharmacist who owns two stores in Philadelphia. In 2002, he began to see a social worker to treat a prescription drug addiction. In 2005, the insured purchased disability insurance from the carrier, but failed to disclose to the carrier’s agent information about his treatments for drug use and various mental disorders.
In January 2007, the insured lost several fingers during a robbery of one of his pharmacies. While being treated for his injury, he expressed concern about taking pain medication because of his prior addiction problems. He returned to work for a short time, but eventually stopped working in August 2007. As a result, he filed a disability claim with the carrier, which obtained records from the hospital and physician that treated the insured.
This information revealed the insured’s statements regarding his addiction problem, prompting the carrier to deny coverage because of inconsistencies in the insured’s application. The insured sued for bad faith in Philadelphia’s Court of Common Pleas and the carrier removed to federal court and filed a rescission counterclaim. The district court granted the carrier’s motion for summary judgment, rescinding the policy and refunding the insured his initial premiums. The insured subsequently filed this instant appeal.
The appellate court rejected the insured’s argument that an insurer contesting a disability insurance policy beyond the contestability period must satisfy a “higher burden” than ordinarily required in fraud cases. The contestability period, as contained in the policy, expired on February 5, 2007, over two years before Berkshire filed its rescission counterclaim. Rejecting the insured’s argument, the court ruled that the carrier merely needed to prove that “(1) the insured made a false representation; (2) the insured knew the representation was false when it was made or the insured made the representation in bad faith; and (3) the representation was material to the risk being insured,” in order to rescind the policy. The court affirmed the district court’s ruling that the insured satisfied this standard.
The appellate court also ruled that the insured did not present any evidence that the carrier acted in bad faith when investigating his claims. His primary argument was that the insurer acted with unreasonable delay. However, the court ruled that the delay was actually caused by the insured himself, who failed to provide certain information to the carrier. The court also noted that, because the insured knowingly provided fraudulent misrepresentations on his insurance documents, he cannot establish bad faith on the grounds that the carrier lacked a reasonable basis to deny him benefits.
Date of Decision: March 19, 2012
Sadel v. Berkshire Life Ins. Co. of Am., No. 11-1350, 2012 U.S. App. LEXIS 6455, U.S. Court of Appeals for the Third Circuit (3rd Cir. March 30, 2012) (Rendell, J.).

NOVEMBER 2011 BAD FAITH CASES
JUDGMENT WHERE INSURED DID NOT SEND PREUMIUM DURING LIFETIME & MISREPRESENTED HEALTH INFORMATION ON APPLICATION (Middle District)

Published on November 30, 2011 in Reverse Bad Faith. Closed
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In Estate of Genovese v. AAA Life Insurance Company, the court was faced with a carrier’s motion for summary judgment to dispose of an insured’s claim seeking benefits under a life insurance policy.

The case arises from a life insurance policy purchased by the decedent insured. In 2010, the carrier sent the insured a questionnaire asking several health-related questions. As a part of the document, the decedent wrote that she had not used nicotine in over 12 months and signed the form. Moreover, the carrier requested that the insured submit her initial premium payment. The insured submitted credit card information, but the carrier was unable to process the information. The insured was notified that she would be sent an invoice.

The insured died before submitting payment, however. Three days later, the insured’s estate informed the carrier that it would be submitting payment and requested information in order to submit a claim under the policy. The carrier, having already been apprised of the insured’s death, refused to process the insured’s premium and declined payment to the insured’s estate under the life insurance policy. The insured commenced this action in the Court of Common Pleas for Pike County and the carrier removed to federal court.

The court first addressed the issue of the first premium as a condition precedent to the policy. In this case, it was undisputed that the insured must comply with the first premium payment in order to trigger policy coverage. The insured claimed that the policy was in effect because it intended to pay the premium, but was unable to submit payment via credit card. The court disagreed, likening the insured’s attempted payment to a bounced check. It found that a payment is not actually made until the carrier receives the money.

The court also found that the second attempted payment, made after the insured’s death, was invalid because the individual had already died, nullifying any offer of coverage. Furthermore, the court dismissed the insured’s claims that the carrier’s issuance of an insurance certificate created coverage. The fact that the insured did not pay the first premium within 31 days of the offer of insurance, as required under the policy, was enough in itself to void any suggestion that the decedent was insured. The court concluded that summary judgment was appropriate on this issue.

Next, the court addressed the insured’s misrepresentations about smoking on her application for coverage. Specifically, the carrier alleged that the decedent lied when she claimed no use of nicotine within twelve months on the application. On the day of her death, however, the insured’s husband told emergency medical personnel that she smoked “a lot.”

The insured also reported on her application that she had never sought treatment for high blood pressure, tumors, or chest pain. Yet, medical records reveal that the decedent was in fact treated for these ailments prior to submitting its application to the carrier. The carrier claims that, had the insured applied for insurance in good faith, it would have likely been denied.

The estate contested these claims, arguing that she never had a tumor, but a benign nodule that did not result in any treatments. The estate also alleged that her medical records reporting other health issues were incorrect. The court disagreed, finding that, even viewed in a light most favorable to the insured, the instant facts supported a grant of summary judgment to the carrier.

Accordingly, the court denied the claims brought by the insured’s estate and granted summary judgment to the carrier.

Date of Decision: November 21, 2011

Estate of Genovese v. AAA Life Insurance Company, NO. 3:11-CV-348, U.S. District Court for the Middle District of Pennsylvania, 2011 U.S. Dist. LEXIS 134254 (M.D. Pa. Nov. 21, 2011)(Conaboy, J.)

JUNE 2011 BAD FAITH CASES
COMMERCE COURT VOIDS POLICY, FINDS INSURED TO HAVE ACTED IN BAD FAITH UPON MATERIALLY MISREPRESENTING THE NATURE OF THE BUSINESS INSURED (Philadelphia Commerce Court)

Published on June 18, 2011 in Reverse Bad Faith. Closed
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In Certain Underwriter’s at Lloyd’s London v. Wojdalski, defendant Wojdalski, the owner and operator of a construction and remodeling outfit, sought a commercial liability insurance policy with business insurer, Lloyd’s of London.

Shortly after, the insured was installing a new roof atop a Philadelphia building when a roofer’s torch caused a fire destroying the entire building. The building’s insurer covered the building’s losses and then brought a subrogation suit against Wojdalski’s construction company to recover the funds it paid to satisfy the building owner’s claims. Lloyd’s filed for a declaratory judgment, seeking a determination that the policy was void on account of Wojdalski misrepresenting the nature and extent of the risk that was being insured.

Philadelphia’s Commerce ultimately held for Lloyd’s, finding that Wojdalski had materially, and in bad faith, misrepresented the danger involved in his company’s work, thereby voiding the policy.

Lloyd’s acceptance of the insured’s commercial liability insurance application was conditioned upon assurances that the insured would not engage in roofing operations or work with liquid propane gas. After the agreement was reached, Lloyd’s sent the insured a binder outlining the specific activities which were and were not covered, mentioning once more that roofing work was outside the scope of coverage. So when the subrogee insurer sought indemnification from Lloyd’s, Lloyd’s sought a declaratory judgment to void the policy in its entirety, arguing that the entire policy was obtained based upon the false representation that the insured would no longer engage in roofing work (or at least would not seek coverage for liability stemming from such work).

The building’s insurer (the plaintiff in the underlying subrogation action and a defendant in Lloyd’s declaratory judgment action) and Wojdalski argued not just that the policy was valid but that it called for coverage of the underlying incident on the ground that the insured had not made false statements in his application. However, the court found that argument to be fallacious, recognizing that Wodjalski effectively asserted in the application that throughout the term of insurance, the nature of his business would not involve certain operations such as roofing and that he did, in fact, misrepresent himself because he did engage in such business activities as evidenced by the events which led to the underlying subrogation action (i.e. the fire started by a roofing torch).

Thus, because the insured did misrepresent the nature of his business and but for that misrepresentation Lloyd’s would likely not have insured Wodjalski, the misrepresentation was material.

Finally, the court found Wodjalski to have acted in bad faith because he obtained the insurance policy by assuring Lloyd’s that he would refrain from the very activities which he intended to, and did in fact, continue. With that, all three elements to void an insurance contract based on misrepresentation had been met: misrepresentation, materiality and bad faith. Accordingly, the court declared the insurance policy void.

Date of Decision: May 20, 2011

Certain Underwriters at Lloyd’s London v. Wojdalski, Sept. Term 2009, No.01347, Court of Common Pleas of Philadelphia County, 2011 Phila. Ct. Com. Pl. LEXIS 127 (May 20, 2011) (New, J.)

MARCH 2011 BAD FAITH CASES
INSURER HAS TO DEFEND BECAUSE (1) PROFESSIONAL LIABILITY EXCLUSION NOT APPLICABLE TO ALL CLAIMS; AND (2) NO FRAUD IN APPLYLING FOR POLICY (Philadelphia Federal)

Published on March 24, 2011 in Reverse Bad Faith. Closed
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In Hartford Casualty Insurance Company v. New Hope Healthcare, the insured was a health care company that managed a personal care home.  In an underlying law suit, the plaintiff alleged that the insured breached its duty of care to her deceased husband by leaving him unsupervised and allowing him to leave the facility undetected.  The husband was eventually found with severe injuries, and the plaintiff claimed that his weakened physical condition contributed to his death less than two years later.  The plaintiff asserted that the insured was negligent in failing to provide a safe residential environment, failing to allow the decedent to access his living quarters (which led to him leaving the facility), and failing to maintain sufficient staffing to supervise the premises.

The insured was covered by the insurer under a business liability insurance policy.  The insurer brought the current action seeking a declaration that it has no duty to defend or indemnify the insured in the underlying negligence suit. 

The policy stated that the insurer would compensate the insured for damages due to bodily injury, property damage, or personal and advertising injury.  It specifically excluded, however, claims “arising out of the rendering of or failure to render any professional service.”  The insurer alleged that the claims against the insured were for professional negligence, which would fall under the exclusion.

The court therefore had to determine whether the law dictated that the insurer had to defend the insurer under the language of the policy.  The insured felt that the allegations in the underlying action did not involve professional services, but the insurer believed they did.  The court recognized that the duty to defend is broader than the duty to indemnify, noting that “all doubts as to coverage [are] resolved in favor of the insured.” 

It decided that because the exclusion for professional services included only a non-exhaustive list of examples, it was ambiguous, and therefore had to be construed against the insurer.  In one section of the Complaint in the underlying suit, the plaintiff alleged that the insured deviated from acceptable professional standards when treating the decedent.  These claims did fall under the professional services exclusion, and the court held that the insurer had no duty to defend and indemnify the insured for those claims.  The remainder of the original Complaint, however, contained several allegations that did not arise from rendering professional services.  For example, monitoring the premises (including patient rooms) and knowing where the residents were did not require special professional training.  These non-professional services led the court to conclude that the exclusion did not apply to the rest of the Complaint.

Finally, the insurer argued that the insured falsely represented the nature of its business when applying for the policy, but the court did not believe that based on the evidence presented about the policy application and related testimony about the subject.  The court therefore ruled that the insurer was not relieved of its duty to defend and indemnify the insured, and it denied the insurer’s Motion for Summary Judgment.

Date of Decision:  March 16, 2011

Hartford Cas. Ins. Co. v. New Hope Healthcare, Civil Action No. 09-5056, United States District Court for the Eastern District of Pennsylvania, 2011 U.S. Dist. LEXIS 26987, (Mar. 16, 2011) (Savage, J.)

FEBRUARY 2011 BAD FAITH CASES
FEBRUARY 2011 BAD FAITH CASES
SUMMARY JUDGMENT TO INSURER ON BAD FAITH CLAIM WHEN INSURER REASONABLY BELIEVES INSURED FRAUDULENTLY SUBMITTED HIS CLAIM; EXPERT OPINION NOT USEFUL (Third Circuit)

Published on February 18, 2011 in Reverse Bad Faith. Closed
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In Lockhart v. State Farm Mutual Auto Insurance Company, the insured owned a truck.  Under a policy with the insured, the insurer covered the vehicle against theft.  In May 2007, the insured alleged that his vehicle was stolen, and the vehicle was never recovered.  Exceptions to the policy existed if the vehicle was stolen “by or at the direction of an insured” or if the insured “made false statements with the intent to conceal or misrepresent any material fact or circumstance in connection with any claim under [the] policy.”

After an investigation, the insurer denied the insured’s claim, stating that the claim was fraudulent because the insured did not have his vehicle stolen without his knowledge.  The insured then filed a suit, asserting claims for breach of contract and bad faith.  The district court at first granted summary judgment to the insurer on the bad faith claim and denied summary judgment on the breach of contract claim, although it later also dismissed the breach of contract claim. 

The appeal before the Third Circuit, however, only addressed the initial granting of summary judgment on the bad faith claim.

The insured submitted two arguments on appeal.  Fist, he claimed that the insurer denied his claim out of spite for a similar claim he had submitted four years earlier for a stolen automobile.  Additionally, the insured asserted that the district court erred when disregarding his expert witness’s report.  The expert, in his report, stated his opinion that the insurer had no legitimate reason to deny the insured’s claim, and that it only denied the claim in retribution for having paid the insured’s prior claim.

The Third Circuit did not accept either of the insured’s arguments.  The insured had submitted an internal communication from within the insurer where an employee stated that he would not “reward another fraudulent claim from [the insured].”  The court interpreted this communication as the insurer simply demonstrating that it believed that the insured’s current claim was fraudulent, and therefore it had a reasonable basis to deny the claim.  Also, the court agreed with the district court’s determination that the expert opinion did not contribute any useful information other than stating an opinion.  Therefore, the Third Circuit affirmed all of the district court’s orders, including the one granting the insurer summary judgment on the bad faith claim.

Date of Decision:  February 8, 2011

Lockhart v. State Farm Mut. Auto. Ins. Co., No. 10-1992, United States Court of Appeals for the Third Circuit, 2011 U.S. App. LEXIS 2476 (February 8, 2011) (Greenberg, J.)

FEBRUARY 2011 BAD FAITH CASES
INSURER’S MOTION TO DISMISS GRANTED WHEN INSURED’S POLICY APPLICATION CONTAINS NUMEROUS FRAUDULENT MISREPRESENTATIONS (Philadelphia Federal)

Published on February 9, 2011 in Reverse Bad Faith. Closed
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In Sadel v. Berkshire Life Insurance Company of America, the insured was a pharmacist who owned two pharmacies in Philadelphia.  He decided to seek treatment after using unprescribed narcotics from his pharmacy’s supply for about three months.  He was diagnosed with substance abuse disorder and underwent a series of individual and group therapy sessions. 

More than two years after first seeking treatment, the insured purchased a disability insurance policy from the insurer.  On his application, he stated that he never had used narcotics or any other controlled substance, that he never had received counseling or treatment for alcohol or drug use, and that he had not been treated in the past ten years for anxiety, depression, nervousness, stress, or mental/nervous disorder.  Later, he claimed that he did not disclose his use of substances and subsequent treatment because he “breezed through” the application questions with the insurer’s agent, and that he wanted to keep his treatment confidential “because of the stigma in society associated with non-prescription drug use.”

After the insurer’s agent completed the application, he mailed it to the insured, who signed it.  A portion of the contract stated that the insured affirmed that all answers he gave were complete and true to the best of his knowledge.  He was issued the disability insurance policy about two weeks later.

Around two years after being issued the disability policy, the insured was the victim of an armed robbery at one of his pharmacies, where he was shot in the hand.  He had three fingers amputated and allegedly suffered severe emotional and mental distress as a result of the incident.  He returned to work part-time until he was robbed again only a few months later.  Soon after the second robbery, he decided he could no longer work at the pharmacy, put the insurer on notice of a disability claim, and sold one of his pharmacies.

Eventually, the insurer obtained medical records, which divulged that the insured had taken narcotics in the past and sought treatment for it.  The insurer’s claims adjuster notified the insured that it found inconsistencies in his policy application, and she forwarded a memorandum on the issue to the company’s legal department. 

Before the insurer took action or completed its investigation, the insured filed suit, seeking money damages for the disability income benefits.  His Complaint contained counts for breach of contract and bad faith.  The insurer filed a motion to dismiss the entire Complaint.

The insurer asserted that it could properly rescind the insured’s disability policy based on numerous false misrepresentations made by the insured on his application.  The court first noted that “under Pennsylvania law, a life insurance policy is void ab initio where the applicant’s representations are:  1) false; 2) made fraudulently or otherwise made in bad faith; and 3) material to the risk assumed.”  In this case, the insured actually admitted to his treating social worker and acknowledged at deposition that some of his responses on the policy application were fraudulent misrepresentations.  The court therefore determined that the policy could be rescinded by the insurer, and it would not be breaching its contract in doing so.

Concerning the bad faith claim, the insured alleged that there was no reason for denying his disability claim and that the insurer unjustifiably delayed its decision for a long time before inappropriately threatening to rescind the insured’s policy.  The court dismissed the insured’s expert’s opinion that the insurer acted in bad faith as failing to create a genuine issue of material fact or provide clear evidence of bad faith.  The undisputed record showed that the insured took four months to produce documents requested by the insurer for its investigation, and the insurer also had difficulty obtaining documents from the insured’s therapist.  The expert’s report also contained inadmissible legal opinions about Pennsylvania law.  These factors, combined with the insured’s fraudulent misrepresentations creating a reasonable basis to deny him benefits, caused the court to grant the insurer’s motion for summary judgment with respect to the bad faith claim and all other counts in the Complaint.

Date of Decision:  January 28, 2011

Sadel v. Berkshire Life Ins. Co. of Am., Civil Action 09-612, United States District Court for the Eastern District of Pennsylvania, 2011 U.S. Dist. LEXIS 8993, (Jan. 28, 2011) (Goldberg, J.)

 

This case was subsequently affirmed on appeal.

JUNE 2010 BAD FAITH CASES
MAGISTRATE RECOMMENDS SUMMARY JUDGMENT FOR INSURER BASED ON BAD FAITH AND FALSEHOODS OF INSURED IN OBTAINING THE POLICY (Western District)

Published on June 17, 2010 in Reverse Bad Faith. Closed
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In Baer v. Union Security Life Insurance Company, the insured applied for credit life insurance in conjunction with a loan.  When applying for insurance, he answered that he had never been medically advised that he had, or had been treated for, heart disease.  The insured passed away approximately two years after applying for the insurance, and the administratrix of his estate made a request for insurance proceeds.  When the insurer obtained medical records, it learned that the insured had been treated for heart disease on several occasions before the insured filled out the insurance application.

The insurer denied the request for insurance proceeds because the insurer incorrectly answered the question on the application, and the administratrix proceeded to file a Complaint that included Counts for breach of contract, negligence, fraud and deceit, and violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL).

The Magistrate Judge recommended that the insurer’s Motion for Summary Judgment be granted with respect to all counts, ruling that the insured acted in bad faith and deceived the insurer when he wrote that he had not been treated for heart disease on his insurance application.  The Magistrate stated that all evidence demonstrated that the insured had heart disease and was being treated for it, and that his condition did not deteriorate during the relevant time period did not change these facts.  Therefore, because the insurer demonstrated that the insured knowingly made a false statement that was material to the policy on the application, the policy was void, and the insurer had no responsibility to pay the estate of the insured under the policy.

Date of Decision:  September 16, 2008

Baer v. Union Sec. Life Ins. Co., Civil Action No. 07-473, United States District Court for the Western District of Pennsylvania, 2008 U.S. Dist. LEXIS 115420 (Sept.16, 2008) (Mitchell, U.S.M.J.).

JUNE 2010 BAD FAITH CASES
BAD FAITH IS A NECESSARY CONDITION FOR FRAUD ON THE PART OF THE INSURED IN PENNSYLVANIA (Western District)

Published on June 3, 2010 in Reverse Bad Faith. Closed
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In Clark v. Allstate Insurance Company, the plaintiff was the holder of a homeowner’s insurance policy on a home in Beaver County, Pennsylvania.  Plaintiff’s grandfather had purchased the home and purchased the insurance for his grandson.  The policy was renewed every year through October of 2009, and in February of 2009 the house sustained water damage when the pipes froze.

The plaintiff brought suit against the insurer, alleging breach of contract and bad faith when the insurer failed to provide insurance for the water damage.  Defendant alleged fraud in its answer and a counterclaim, alleging that the plaintiff’s grandfather misrepresented himself when purchasing the insurance.  The May 7 opinion addressed only the defendant’s counterclaim.

The defendant’s counterclaim requested rescission and restitution, and the court noted in its opinion that both allegations are actually remedies as opposed to causes of action.  The court dismissed the counterclaims, but it also allowed the defendant to amend its complaint to simply assert a claim for fraud.  The court said that an insureD could be liable for fraud if (1) the representation was false, (2) the insured knew it to be false or acted in bad faith, and (3) the representation was material to the risk being insured.

Date of Decision: May 7, 2010

Clark v. Allstate Ins. Co, Civil Action No. 10-294, United States District Court for the Western District of Pennsylvania, 2010 U.S. Dist. LEXIS 45933, (W.D. Pa. May 7, 2010) (Lancaster, J.).

JANUARY 2010 BAD FAITH CASES
POLICY HELD TO BE VOID AB INITIO DUE TO APPLICANT’S MISREPRESENTATIONS (Middle District)

Published on January 26, 2010 in Reverse Bad Faith. Closed
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In Bonsu v. Jackson National Life Insurance Company, the district court held that the plaintiff’s claims for bad faith and breach of contract failed because the life insurance policy was void ab initio due to the applicant’s misrepresentations in the life insurance application.

The facts underlying this case date back to 2002, when an individual purporting to be Kwaku Asamoah submitted an life insurance application naming his brother, Augustine Bonsu, as the sole beneficiary.  According to the application, Asamoah was thirty-five years of age; had never been diagnosed with a serious medical condition; his driver’s license had never been suspended or revoked; and he had never been convicted of a misdemeanor or felony offense.  Based on the answers he provided, Asamoah was given a “preference plus” policy rating and his semi-annual premium was fixed at $96.90.  On December 27, 2002, the insurer approved the application and issued a $250,000 policy to Asamoah.  

In May 2003, Asamoah allegedly traveled to his native country of Ghana.  On May 13, 2003, however, Bonsu claims that Asamoah died in his sleep of unknown causes. After his allegedly death, Asamoah’s body was never examined by a physician and an autopsy was never performed prior to his burial.  On May 30, 2003, the insurer received a $98 policy premium payment allegedly sent from Asamoah.  Approximately two months later, on July 11, 2003, Bonsu contacted the insurer to report Asamoah’s death.

The insurer’s claims investigator noted several red flags in the case, including Asamoah’s recent application for life insurance, his relative youth and purported good health, and his assertion that he had no preexisting medical conditions.  The insurer started a comprehensive investigation into Asamoah’s death.  The investigator was unable to find any evidence that Asamoah had ever traveled to Ghana, and the alleged death certificate provided by Bonsu was missing important information.  Additionally, the insurer was notified that “Kwaku Asamoah” was a fictitious name used by Bonsu as an alias to commit fraudulent acts, and that Bonsu had been arrested for business fraud, identity fraud, and insurance fraud.

During its investigation, the insurer obtained a copy of Asamoah’s Virginia driving record, which indicated that Asamoah’s license was suspended from September 2001 until March 2002 because of a reckless driving conviction.  In the state of Virginia, reckless driving is a misdemeanor.  Asamoah was convicted of a misdemeanor offense and his driver’s license was suspended approximately one year before he filed the life insurance application, which stated that his driver’s license had never been suspended or revoked and that he had never been convicted of a misdemeanor offense.

On June 14, 2004, the insurer denied Bonsu’s claim for life insurance benefits because of its inability “to independently verify Mr. Asamoah’s death after an extensive investigation of the matter.”  Bonsu, the beneficiary of the life insurance policy, sued the insurer seeking benefits and bad faith damages.  The insurer filed a motion for summary judgment arguing that the life insurance contract was void ab initio due to false statements knowingly proffered by Asamoah during the application process, and asserting that its denial of benefits under the policy was reasonable given the information discovered during the investigation.

Under Pennsylvania law, a life insurance policy is void ab initio when (1) the insured made a false representation; (2) the insured knew the representation was false when it was made or made the representation in bad faith; and (3) the representation was material to the risk being insured.  The court found that the first element was satisfied because an individual purporting to be Asamoah made a false representation on the insurance application when he stated that his driver’s license was never suspended and that he had never been convicted of a misdemeanor offense.  In determining the second element, the court stated that it could presume that Asamoah knew the answers he provided were untruthful due to the short period of time between his license suspension and his false responses, as well as the unequivocal nature of the questions posed and response requested.  The court found that the third element was satisfied because Asamoah’s misrepresentation resulted in a significantly lower premium, and that it was material to the risk assumed by the insurer.  The policy underwriter testified that had Asamoah provided truthful responses to the questions concerning his prior conviction and license suspension, he would have been given a “Standard” policy rating with a higher premium, and not a “Preferred Plus’ policy rating.”

In granting the insurer’s motion for summary judgment, the court concluded as follows: “In sum, a rational juror viewing the record evidence could reach only one conclusion: Asamoah knowingly provided false responses to [the insurer]’s policy questionnaire, and these responses caused [the insurer] to fix Asamoah’s premium at rate below that which he would have received by answering truthfully.  Because his life insurance policy was procured by means of knowing falsehood, Asamoah’s policy was void ab initio.  Without a valid policy, Bonsu’s claims for breach of contract and insurance bad faith necessarily fail, and [the insurer] is entitled  to summary judgment.”

Date of Decision:  January 4, 2010

Bonsu v. Jackson Nat’l Life Ins. Co., Civil Action No. 1:05-CV-2444, United States District Court for the Middle District of Pennsylvania, 2010 U.S. Dist. LEXIS 89 (M.D. Pa January 4, 2010) (Conner, J.)

JANUARY 2010 BAD FAITH CASES
COURT DISMISSES BAD FAITH CLAIM FINDING MATERIAL FALSE REPRESENTATIONS IN LIFE INSURANCE APPLICATION (Middle District)

Published on January 5, 2010 in Reverse Bad Faith. Closed
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In Neiman v. American International Group, Inc., the insurer refused to pay the proceeds of a term life insurance policy stating that the “facts pertaining to past medical history were misrepresented in the application.” The insured failed to disclose that he had cancer. The beneficiary of the policy sued the insurer for breach of contract and bad faith. The insurer alleges that the insured knowingly or in bad faith concealed information concerning his medical history, which was material to its decision to insure him.

The insurer had previously filed a motion for summary judgment. In the court’s memorandum and order denying the motion, the court found as a matter of law that the application contained false representations that were material to the risk undertaken by the insurer. The court denied the motion for summary judgment solely because there was a genuine issue of material fact concerning whether the insured made the statements knowing them to be false or in bad faith.

The insurer filed a motion in limine to dismiss the insured’s claim for bad faith. The court granted the motion to strike the bad faith claim finding that the insurer had a reasonable basis to deny the claim.

Date of Decision: December 7, 2009

Neiman v. Am. Int’l Group, Inc., Civil No. 1:CV-08-1535, United States District Court for the Middle District of Pennsylvania, 2009 U.S. Dist. LEXIS 113483 (M.D. Pa December 7, 2009) (Rambo, J.)