SEPTEMBER 2007 BAD FAITH CASES INSURER NOT LIABLE IN BAD FAITH WHEN INSURED MADE MATERIAL MISPRESENTATIONS (Philadelphia Federal)

In Wezorek v. Allstate Insurance Company, the United States District Court for the Eastern District of Pennsylvania ruled that the insurer did not act in bad faith in denying coverage.  The insured applied for a Deluxe Plus homeowner’s policy with the insurer.  In its application, the insured represented that the premises was less than 40 years old.  When the insurance application was reviewed by Allstate’s underwriting department, it was determined that the premises was more than 40 years old and, as such, the premises did not qualify for a Deluxe Plus homeowner’s policy.  Accordingly, Allstate forwarded a notice of cancellation to the insured, which provided that the policy would be cancelled within 60 days of the date of issuance.  Two days before the homeowners insurance policy was to be cancelled, the residence was damaged by a fire.  After the insured filed a claim, Allstate conducted an investigation.  Allstate found that the insured had misrepresented, inter alia, that the residence was less than 40 years old, the date of purchase, that the residence would be occupied within 30 days, and that the residence had prior insurance.  Allstate, thereafter, forwarded a letter to the insured advising that Allstate voided the insurance policy ab initio.  The insurer filed the instant suit alleging breach of contract and bad faith.  The Court found that Allstate had a reasonable basis for rescinding the policy based on the material misrepresentations in the application.  The Court, therefore, concluded that because Allstate rescinded the insurance policy based on material misrepresentations that were known to the insured and Allstate performed a reasonable and proper investigation, it had not acted in bad faith.

Date of Decision:  August 7, 2007

Wezorek v. Allstate Ins. Co., United States District Court for the Eastern District of Pennsylvania, No. 06-1031, 2007 U.S. Dist. LEXIS 57321 (E.D. Pa. August 7, 2007)(Rice, M. J.)

H.P.M.