JUNE 2013 BAD FAITH CASES: COURT FINDS INVESTIGATION INTO POTENTIAL MATERIAL MISREPRESENTATIONS SUFFICIENT TO DEFEAT A CLAIM OF BAD FAITH (Philadelphia Federal)
Plaintiffs brought suit against their insurance carrier (the “carrier”) for bad faith over a coverage dispute for a fire that occurred in their home and damaged the property and their personal items. While there was no dispute that the homeowners policy issued by the carrier was in effect at the time of the fire, the carrier denied coverage based on alleged material misrepresentations made by the plaintiffs in reporting the claim. During the investigation of the claim, plaintiffs provided inconsistent statements regarding which family members were living in the home, how the fire was discovered, and plaintiffs’ own actions which may have increased the risk.
Based on these inconsistencies, the insurer chose to deny coverage. Plaintiffs claimed that the insurer had used the plaintiffs’ language barrier to provoke inconsistent statements during the investigation, and was over emphasizing immaterial facts to deny coverage.
However, the court found the carrier conducted a fair and reasonable investigation, and the issues investigated, including whether the wife was currently residing in the home, how the husband discovered the fire, whether former aggrieved tenants had a motive to start the fire, and whether the home’s state of inhabitability per the Philadelphia Department of Licenses and Inspections substantially increased the risk of fire were all relevant to determining coverage in a house fire.
As such, the court stated plaintiffs had failed to meet their burden of producing clear and convincing evidence the carrier lacked a reasonable basis for denying the claim. Because the carrier did not act without a reasonable basis or know or recklessly disregard its lack of a reasonable basis in deny coverage, the court granted summary judgment in favor of the insurer on the bad faith issue.