SEPTEMBER 2011 BAD FAITH CASES COURT REJECTS INSURED’S CLAIM THAT CARRIER WAS ADVERSARIAL IN ITS INVESTIGATION (WESTERN DISTRICT)

In Schmitt v. State Farm Insurance Company, the Magistrate Judge’s Report and Recommendation was adopted by the District Court.

The case arose in June 2008 from a water leak caused by a broken water pressure gauge in the insured’s basement.  After submitting its claim to the carrier, the insured began to move damaged items and attempted to salvage clothing that had been soaked by washing them in the laundry room.

Later in June 2008, a property restoration company arrived at the insured’s residence to begin removing damaged items.  While the workers began to discard damaged items, the insured sat and watched, giving approval of items to discard and taking note of everything that was being thrown away.

The insured submitted a claim for $37,979.61.  The carrier determined that the actual cash value of the claim was $24,682.91.  The carrier advanced $3000.00 to the insured while it reviewed the claims.  The carrier also sought records of the insured’s purchases during 2007 and 2008.  However, the insured claimed that these records were destroyed in the loss and told the carrier she could provide other financial records.

In September 2008, representatives of the carrier met with the insured.  At that time, the insured attempted to submit an additional list of items that had been destroyed in the loss.  This list exceeded $10,000.00.  According to the insured, the carrier told her that these items were documented and would be reimbursed.  On September 10, the carrier sent a check to the insured for the remaining $21,682.91. 

On September 23, the insured submitted an additional list of damaged items to the carrier.  During this time, relations between the carrier’s representatives and the insured soured.  On September 29, the carrier submitted the insured’s additional claim to its Special Investigative Unit.  This investigation yielded some doubt as to the additional list of items damaged in the loss.  For example, the carrier was concerned about the large amount of clothing that was claimed on the additional list, as this clothing was in the laundry room when the restoration company arrived.  Moreover, the restoration company testified that it had been instructed by the insured to discard items showing little or no damage.

The carrier then requested that the insured submit to an examination under oath.  The insured claimed that an injury prevented her from taking the examination.  Before the EUO could be scheduled, the insured filed suit against the carrier.  The carrier moved for summary judgment on the bad faith count.

The crux of the insured’s claim is that the carrier treated “the claim investigation process as an adversarial process” by “treating [the insured] as adversaries rather than as policyholders.” 

Citing precedent, the court reasoned that, where a carrier has reason to suspect fraud, it is permitted to examine the insured under oath to determine the truthfulness of its claim.  Moreover, the court held that the carrier did not lack a reasonable basis for denying the insured’s additional claim.  Moreover, the carrier conducted a thorough investigation of the insured’s loss, even looking into the additional claim.

As such, the magistrate recommended to the District Court that it should grant summary judgment to the carrier on the bad faith count.  The District Court adopted the Magistrate Judge’s Report and Recommendation.

Date of Decision: August 12, 2011 (Report and Recommendation)

September 19, 2011 (Adopted by District Court)

Schmitt v. State Farm Ins. Co., No. 09-1517, U.S. District Court for the Western District of Pennsylvania, 2011 U.S. Dist. LEXIS 105834 (W.D. Pa. Aug. 12, 2011) (Lenihan, J.), adopted in Schmitt v. State Farm Ins. Co., No. 2:09cv1517, U.S. District Court for the Western District of Pennsylvania, 2011 U.S. Dist. LEXIS 105836 (W.D. Pa. Sept. 19, 2011) (Cercone, J.)