FEBRUARY 2011 BAD FAITH CASES FEBRUARY 2011 BAD FAITH CASES SUMMARY JUDGMENT TO INSURER ON BAD FAITH CLAIM WHEN INSURER REASONABLY BELIEVES INSURED FRAUDULENTLY SUBMITTED HIS CLAIM; EXPERT OPINION NOT USEFUL (Third Circuit)

In Lockhart v. State Farm Mutual Auto Insurance Company, the insured owned a truck.  Under a policy with the insured, the insurer covered the vehicle against theft.  In May 2007, the insured alleged that his vehicle was stolen, and the vehicle was never recovered.  Exceptions to the policy existed if the vehicle was stolen “by or at the direction of an insured” or if the insured “made false statements with the intent to conceal or misrepresent any material fact or circumstance in connection with any claim under [the] policy.”

After an investigation, the insurer denied the insured’s claim, stating that the claim was fraudulent because the insured did not have his vehicle stolen without his knowledge.  The insured then filed a suit, asserting claims for breach of contract and bad faith.  The district court at first granted summary judgment to the insurer on the bad faith claim and denied summary judgment on the breach of contract claim, although it later also dismissed the breach of contract claim. 

The appeal before the Third Circuit, however, only addressed the initial granting of summary judgment on the bad faith claim.

The insured submitted two arguments on appeal.  Fist, he claimed that the insurer denied his claim out of spite for a similar claim he had submitted four years earlier for a stolen automobile.  Additionally, the insured asserted that the district court erred when disregarding his expert witness’s report.  The expert, in his report, stated his opinion that the insurer had no legitimate reason to deny the insured’s claim, and that it only denied the claim in retribution for having paid the insured’s prior claim.

The Third Circuit did not accept either of the insured’s arguments.  The insured had submitted an internal communication from within the insurer where an employee stated that he would not “reward another fraudulent claim from [the insured].”  The court interpreted this communication as the insurer simply demonstrating that it believed that the insured’s current claim was fraudulent, and therefore it had a reasonable basis to deny the claim.  Also, the court agreed with the district court’s determination that the expert opinion did not contribute any useful information other than stating an opinion.  Therefore, the Third Circuit affirmed all of the district court’s orders, including the one granting the insurer summary judgment on the bad faith claim.

Date of Decision:  February 8, 2011

Lockhart v. State Farm Mut. Auto. Ins. Co., No. 10-1992, United States Court of Appeals for the Third Circuit, 2011 U.S. App. LEXIS 2476 (February 8, 2011) (Greenberg, J.)