JUNE 2010 BAD FAITH CASES BAD FAITH IS A NECESSARY CONDITION FOR FRAUD ON THE PART OF THE INSURED IN PENNSYLVANIA (Western District)

In Clark v. Allstate Insurance Company, the plaintiff was the holder of a homeowner’s insurance policy on a home in Beaver County, Pennsylvania.  Plaintiff’s grandfather had purchased the home and purchased the insurance for his grandson.  The policy was renewed every year through October of 2009, and in February of 2009 the house sustained water damage when the pipes froze.

The plaintiff brought suit against the insurer, alleging breach of contract and bad faith when the insurer failed to provide insurance for the water damage.  Defendant alleged fraud in its answer and a counterclaim, alleging that the plaintiff’s grandfather misrepresented himself when purchasing the insurance.  The May 7 opinion addressed only the defendant’s counterclaim.

The defendant’s counterclaim requested rescission and restitution, and the court noted in its opinion that both allegations are actually remedies as opposed to causes of action.  The court dismissed the counterclaims, but it also allowed the defendant to amend its complaint to simply assert a claim for fraud.  The court said that an insureD could be liable for fraud if (1) the representation was false, (2) the insured knew it to be false or acted in bad faith, and (3) the representation was material to the risk being insured.

Date of Decision: May 7, 2010

Clark v. Allstate Ins. Co, Civil Action No. 10-294, United States District Court for the Western District of Pennsylvania, 2010 U.S. Dist. LEXIS 45933, (W.D. Pa. May 7, 2010) (Lancaster, J.).