In Rizk v. State Farm Fire & Casualty, the homeowner was out of town for a few months, and left a friend to set the thermostat so his pipes would not freeze. Bathroom pipes did freeze, resulting in flooding. The insured made a claim and the insurer “would not commit to coverage until it determined whether heat had been maintained in the home.” “Pursuant to the terms of the policy, unless the insured ‘used reasonable care to … maintain heat in the building … [the carrier] would not insure for any loss in an unoccupied structure that resulted from frozen plumbing.”
The insurer’s investigator spoke with the furnace repairman and learned that the furnace had malfunctioned, though the thermostat was set in the mid-50s. The investigator took the position that there was a lack of heat in the home because of an improper thermostat setting, which caused the furnace to malfunction and the pipes to burst. In denying coverage, the carrier stated that “reasonable heat” had not been maintained.
The insured brought a bad faith claim and the insurer sought summary judgment. The insured claimed that the carrier was using the wrong standard to deny coverage, i.e., that there was reasonable heat in the home, rather than whether the insured used reasonable care to maintain the heat. The insurer argued this misrepresented the policy terms and showed inadequate investigation. The insurer argued that the phrases were actually the same; but the court refused to reach that conclusion itself for summary judgment purposes, and left the issue to the jury.
The court addressed the insurer’s claim that the homeowner made fraudulent property loss claims, and the contract should be voided. The policy provided that: “This policy is void as to you and any other insured, if you or any other insured under this policy has intentionally concealed or misrepresented any material fact or circumstance relating to this insurance, whether before or after a loss.” The court stated that “to void an insurance contract for misrepresentation, the insurer must establish that (1) the representation was false, (2) the insured knew it to be false when made or acted in bad faith, and (3) the representation was material to the risk being insured.”
The court observed that in the post-loss investigation context, materiality requires that “the false statement must concern a subject relevant to the insurer’s investigation.”
The court denied summary judgment to the insurer, finding issues of fact on the legitimacy of the property loss claimed, and on an issue of policy interpretation as to whether a certain type of property loss was covered. Further, the court noted favorably the insured’s position that since the coverage denial was based upon a lack of heat, representations about personal property losses were irrelevant to the investigation.
Date of Decision: August 18, 2015
Rizk v. State Farm Fire & Cas. Co., CIVIL NO. 1:14-CV-0619, 2015 U.S. Dist. LEXIS 108988 (M.D. Pa. August 18, 2015) (Caldwell, J.)