OCTOBER 2008 BAD FAITH CASES MOTION DENIED BECAUSE OF 6 MONTH DELAY IN QUESTIONING POLICY APPLICATION WHICH WAS USED AS BASIS TO DENY CLAIM ONLY AFTER CLAIM WAS MADE (Philadelphia Commerce)
The corporate insured brought a bad faith counterclaim against its insurer. The corporate insured’s agent, who was authorized to acquire insurance policies on behalf of the insured, went to the insurer and applied for two commercial policies. In two different places, the insurance applications asked whether the applicant was ever arrested for any reason and the agent answered no to this question.
The insurer relied upon the agent’s representations and issued two commercial policies to the insured. Subsequently the insured placed the insurer on notice of a claim arising out of an alleged break in and theft that occurred. As a result, the insurer completed a Proof of Loss alleging damages. The insurer conducted an investigation, part of which was an examination of the insured’s agent under oath. During his examination, the agent testified that he had been arrested on at least three or four prior occasions.
The insurer then filed suit against the insured and its agent and sought a declaration of the rights and obligations of the parties under the two commercial policies.
The insured and its agent responded by filing three counterclaims one of which was a bad faith claim against the insurer. The insurer then filed preliminary objections to the counterclaims. The insured and its agent alleged that the insurer acted in bad faith by permitting six months to elapse without exercising due diligence and investigation relative to the accuracy of their applications for commercial insurance.
Specifically the insured alleged that in denying their claim, the insurer acted with reckless disregard and without a reasonable basis because it accepted insurance premiums under both policies and denied coverage immediately upon learning that a claim was made by the insured.
The Philadelphia Commerce Court found that based on these facts, the insured and its agent may be able to prove by clear and convincing evidence that the insurer denied their claim knowing that it lacked a reasonable basis. The court had previously ruled that the insured had pleaded a claim that the insurer failed to actually cancel the policies because it failed to send a letter of cancellation.
Date of Decision: August 4, 2008
Erie Ins. Exch. v. Sze, Court of Common Pleas of Philadelphia, January Term 2008, No. 4100, 2008 Phila. Ct. Com. Pl. LEXIS 197 (2008) (Abramson, J.)