SEPTEMBER 2011 BAD FAITH CASES NO COVERAGE WHERE INSURED DID NOT RESIDE IN HOME; NO REASONABLE EXPECTATION OF COVERAGE WHERE INSURED MISLEAD CARRIER (Philadelphia Federal)
The court was faced with cross-summary judgment motions stemming from the carrier’s alleged breach of contract and bad faith. During 2009, the insured obtained a homeowner’s insurance policy for a newly purchased property. At the time of purchase, the insured informed the carrier’s agent that he would be moving into the property within “the next few weeks.” The next month, a fire seriously damaged the insured property, revealing a total of $183,058.77 in damages. An investigation that the insured had not been living at the property full time and had misled the carrier when purchasing the homeowner’s policy. The carrier denied coverage upon discovering that 1) the insured had not been residing at the property and 2) that the insured misrepresented material facts relevant to the insurance claim – both in violation of the specific terms of the policy.
In early 2010, the insured filed bankruptcy. As a part of his filing, he denied that any “business, organization” owed him money. Moreover, the insured denied any “losses from fire, theft.” Seizing this testimony, the carrier sought to estop the insured from offering any contrary representations in this litigation. However, the court held that estoppel was inappropriate because the insured’s bankruptcy filing was dismissed and did not qualify as that court’s acceptance of the insured’s factual or legal position.
With respect to the insured’s breach of contract claim, the carrier first argued that it was not required to cover the fire damages because the insured property was not actually the insured’s “dwelling,” as required by the terms of the policy. Second, the carrier claimed that the insured made “multiple misrepresentations of material fact, thereby foreclosing his entitlement to coverage” under the terms of the policy.
The court held that “residency at the insured premises was a condition precedent to [the insured’s] entitlement to coverage,” and the term “residency” is not ambiguous as a matter of law. Applying Third Circuit precedent under Gardner v. State Farm Fire & Casualty Co. to the insured’s testimony, the court ruled that the insured property was not the insured’s “residence” as defined by Pennsylvania law and consequently not covered by the insured’s policy.
However, the insured claimed that coverage was warranted under Pennsylvania’s reasonable expectations doctrine, which permits coverage if a carrier created in the insured a reasonable expectation of coverage under the purchased policy. The court dismissed this argument because the insured never resided in the property – the carrier only implied that the property would be covered if the insured moved into the home within thirty days of the agreement. The insured’s false representation that he intended to move within the thirty day period was what prompted the carrier’s statements. Absent such an intention on behalf of the insured to move into the home, the court held, any potential reliance on the reasonable expectation doctrine was foreclosed. Consequently, the court granted summary judgment to the carrier on the breach of contract claim.
Lastly, the court granted summary judgment to the carrier on the bad faith count because the insured was unable to meet the initial element, that the carrier lacked a reasonable basis for denying benefits. The court held that the carrier’s denial of benefits was “not only reasonably, but correct” under the plain language of the policy.