APRIL 2011 BAD FAITH CASES THIRD CIRCUIT DENIES INSURED’S APPEAL OF A BAD FAITH INSURANCE CASE BECAUSE DISTRICT COURT HAD PROPERLY TURNED CASE OVER TO JURY (Third Circuit)
A fire occurred at a 175,000 square foot building owned by the insured. The insured filed a claim with the insurer for over $3.4 million in damages, but the parties disputed the amount of damages for over a year. Eventually the insured filed a Complaint in the district court, alleging breach of contract and bad faith.
The case proceeded to trial, and the jury ruled in favor of the insurer. The insured then appealed, arguing that the district court should have granted its motion for judgment as a matter of law and that the district court incorrectly permitted certain testimony at trial.
At trial, the insurer had asserted that the insured made misrepresentations on its application for coverage. It demonstrated that the building’s sprinkler system was not functional at the time of the fire, as it had last been inspected in the 1990s and the sprinkler heads had been painted over. On its insurance application, the insured had left the section blank that asked about the sprinkler system. Additionally, the building’s prior insurer had cancelled its policy with the insured partially because the insured failed to update that insurer on repairs to the building’s sprinkler system, but the insured only disclosed that non-payment was a reason for the cancellation. Finally, when the insurer’s broker contacted the insured about the blank answer on application, the insured’s broker stated that the building “was sprinklered.”
On appeal, the Third Circuit viewed the evidence presented and determined that the district court did not err in denying the insured’s motion, and it correctly turned the case over to a jury. The insured had presented an argument that the insurer waived its right to assert the misrepresentation defense because it accepted the incomplete application, and this waiver had occurred as a matter of law. The Third Circuit, however, said that this issue was properly was for the jury to decide, and the jury had reasonably concluded that the insurer had not waived its defense.
The insured also argued on appeal that the district court erred in permitting certain testimony, but the Third Circuit found no abuse of discretion in the court’s rulings. Therefore, the court affirmed the district court’s order and upheld the jury verdict in favor of the insurer.
Date of Decision: March 31, 2011
Hered LLC v. Seneca Ins. Co., No. 10-2026, United States Court of Appeals for the Third Circuit, 2011 U.S. App. LEXIS 6703, (March 31, 2011), Submitted Pursuant to Third Circuit L.A.R. 34.1(a), (Fuentes, J.).