SEPTEMBER 2014 BAD FAITH CASES: WHERE INSURED GAVE MATERIALLY INACCURATE WRITTEN INFORMATION IN INSURANCE APPLICATION, EVEN IF SHE GAVE CORRECT INFORMATION ORALLY TO INSURER’S AGENT, INSURER HAD A REASONABLE BASIS TO DECLINE COVERAGE, AND SO THERE COULD BE NO VIABLE BAD FAITH CLAIM (Western District)
In Jones v. State Farm Fire & Casualty Company, the insured suffered a fire to a home. At the time, the home was not her primary residence, and it was being renovated. The insured claimed that prior to obtaining the insurance policy at issue, she informed the insurer’s agent of this fact, and further that she had a previous fire. However, her insurance application expressly stated that this home was her primary residence and that she had not suffered any previous losses in the last five years. The carrier sought rescission of the policy based on these alleged misrepresentations. The insured brought a bad faith claim, among other causes of action.
The court stated that the existence of a reasonable basis for denial will defeat a bad faith claim. Further, “[i]n the specific context of a plaintiff challenging the denial of a claim, the insurer can demonstrate its reasonableness by highlighting material misrepresentations on a plaintiff’s application.” The court also stated: “Because insurers are permitted under Pennsylvania law to rescind insurance contracts that contain material misrepresentations, denial on that basis is inherently ‘reasonable’ for purposes of the § 8371 cause of action.”
The court found that even if the insured had made oral representations to the insurer’s agent about the fact that she was not living in the home and that there had been an earlier fire loss, her stating contrary facts in the application contradicted those statements, and gave the insurer a reasonable basis for its decision to deny the claim. “As [the insurer] correctly argues, even accepting as true that [the insured] told [the insurer’s agent’s] employee she had previously had a fire and that the dwelling was not her primary residence, and accepting that [the insurer] knew or should have learned of those statements, [the insurer] nonetheless was confronted with conflicting information. [The insured] intentionally or unintentionally provided untrue information on the rate quote and insurance application forms on which [the insurer] relied.” This provided a reasonable basis for the insurer’s decision, and the bad faith claim was dismissed.
Date of Decision: September 9, 2014
Jones v. State Farm Fire & Casualty Co., Civil No. JFM-14-00185, 2014 U.S. Dist. LEXIS 125601 (W.D. Pa. September 9, 2014) (Motz, J.) (Judge Motz is a Senior Judge of the United States District Court for the District of Maryland)