OCTOBER 2017 BAD FAITH CASES: JURY FINDS POLICY VOID AB INITIO, AND COURT DENIES POST-TRIAL MOTIONS, ORDERS INSURED TO REMIT $285,000 IN LOSS PAYMENTS AND FEES/COSTS INCURRED, AND INSURER TO REMIT ALL PREMIUMS TO INSURED (Philadelphia Common Pleas)

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The insured filed a claim with his insurer after his commercial property was vandalized. The insured’s adjuster estimated the total damage to be $444,325.71, while the insurer’s estimate was $102,302.45.

The insurer initiated an investigation, and the insured sat for multiple examinations under oath. During the course of these examinations, the insurer found several inconsistencies between the insured’s testimony and his initial application for insurance coverage. Nevertheless, the insurer payed out over $150,000 in claim payments, but did not pay the insured’s estimate. The insured filed suit for the insurer’s alleged failure to pay the full claim.

The insurer filed its answer with a new matter and counterclaims. These counterclaims included claims for (1) declaratory relief under 42 Pa. C.S. § 7531; (2) a violation of the Pennsylvania Insurance Fraud Statute; (3) common law fraud; (4) breach of contract; and (5) reverse bad faith. At the conclusion of a jury trial, the jury returned a verdict in favor of the insurer on both the insured’s claim and the insurer’s counterclaims. Post-trial motions were denied. The Court entered judgment on the verdict, declaring the policy void ab initio, and ordered the insured to pay the insurer $285,094.40 ($157,725.09 in previous claim payments under the policy and $127,369.31 for claim related expenses incurred by the insurer). The Court further ordered the insurer to remit $48,467.55 in premiums paid back to the insured.

In reiterating the rule of fraud in entering insurance contracts, the Court stated, “where the execution of a contract of insurance has been induced by fraudulent misrepresentations of the insured, the insurer may secure its cancellation.” During the trial, the insured admitted that he filed several insurance claims over a three-year period, though in his initial application for the instant policy, he only listed one. The insured also admitted to having a foreclosure action filed against him, even though he did not disclose this in the policy application. The insured also admitted he did not disclose a 2011 conviction for filing false tax returns, or a 2008 tax lien on the insurance application.

In light of this evidence, the Court stated that, “[t]he jury, as the fact finder, determined by a standard of clear and convincing evidence that the Policy was procured by fraud with the intent to deceive . . . and the Court properly declared the Policy void ab initio.” The Court also stated that, “the jury was presented with sufficient evidence to determine, under the clear and convincing standard, that [the insured] committed fraud with intent to deceive when he submitted his application for insurance.”

The insured further argued that the Court erred in failing to require the insurer to produce previous claim files relating to the insured. The Court disagreed, stating that the insured failed to obtain a court order commanding the production of these claim files, and that his post-trial attempt to do so was untimely.

Date of Decision: September 27, 2017

Smith v. United States Liability Insurance Co., Philadelphia Court of Common Pleas, June Term 2016 No. 2354, 2017 Phila. Ct. Com. Pl. LEXIS 292 (C.C.P. Phila. Sept. 27, 2017) (Butchart, J.)

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