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The insurer denied plaintiff’s first party fire loss claim because it concluded that the insured set the fire himself.  The insured brought breach of contract and bad faith claims, and the insurer counterclaimed for insurance fraud.

Eastern District Judge Surrick granted the insurer summary judgment on the bad faith claim, and denied plaintiff summary judgment on coverage and the insurance fraud counterclaim.

A bad faith plaintiff must show that an insurer acted unreasonably in denying a benefit, and either knew or recklessly disregarded the fact that its position was unreasonable.  The insured must prove bad faith by clear and convincing evidence.  The reasonable basis prong is measured objectively, i.e., would a reasonable insurer have denied payment under the facts at issue.  In making this determination, courts “examine the factors that the insurer relied on in evaluating a claim to determine whether the insurer had a reasonable basis for denying benefits.”

Judge Surrick closely examined the record and concluded the insurer has a reasonable basis to conclude the insured himself started the fire.  He found “substantial evidence in that record that reasonably leads to the conclusion that the fire was intentionally set, and that Plaintiff had both the motive and the opportunity to intentionally set it.” Thus, “based on all the information before Defendant at the time, Defendant’s conclusion that Plaintiff had intentionally set the fire was not unreasonable.”

Conversely, Judge Surrick denied the insured’s motion for summary judgment on coverage and the insurance fraud counterclaim.  “Having determined that it was not unreasonable for Defendant to conclude that Plaintiff had intentionally set his property on fire, the issue of coverage is not appropriate for this Court to decide on summary judgment. Nor is there a basis for dismissing Defendant’s counterclaim of insurance fraud at this juncture. These issues are more appropriate for a jury.”

Date of decision:  May 7, 2021

Ly v. Universal Property & Casualty Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 19-1239, 2021 WL 1837468 (E.D. Pa. May 7, 2021) (Surrick, J.)