Pennsylvania Court Awards Summary Judgment to Insurer Accused of Bad Faith

By | May 7, 2018

A judge in the U.S. District Court for the Western District of Pennsylvania awarded summary judgment to an insurer accused of bad faith after denying a man’s claim for losses exceeding $1 million.

The court found that evidence suggested the insurer conducted a reasonable investigation into whether the losses actually occurred before denying the claim. The case comes after American National Property and Casualty Company denied Daniel Felix’s claim under his homeowner’s insurance policy when a fire destroyed his house in January 2016.

After American National received Felix’s claim, it assigned his case to the Special Investigations Unit (SIU) for red flags suggesting fraud. In particular, it found Felix’s previous home had burned down less than three years earlier under similar circumstances and resulted in Felix filing an insurance claim with American National, receiving a payment of more than $400,000.

The SIU assigned SIU investigator Kip Mathena to Felix’s claim, and Mathena hired attorney Joseph Hudock to represent American National in connection with the claim.

After Felix’s claim was denied, he submitted a proof of loss to American National with an itemized list of hundreds of personal items he lost in the blaze, particularly a set of 1.5 carat diamond earrings and a Louis Vuitton purse.

He confirmed that before the fire, he purchased the purse for his ex-fiancee, Kelly Madison, but she returned it to him after their relationship ended. Hudock then spoke with Madison, who reported she was in possession of a Louis Vuitton purse and a set of diamond earrings from Felix. Madison forwarded American National pictures of a brown Louis Vuitton purse and a pair of diamond stud earrings. She also informed Mathena and American National of text messages she received in May and June of 2016 in which Felix had repeatedly asked about the Louis Vuitton purse and pressured her to send a photo.

Hudock concluded Felix’s material misrepresentations entitled American National to deny his entire claim because Pennsylvania follows the majority view that a single fraudulent material misrepresentation can void the entire policy. American National denied the claim and filed a lawsuit against him. Its complaint filed in court contained a claim for declaratory judgment that Felix’s policy is void because of his material misrepresentations and a claim against Felix for civil insurance fraud. Felix responded by filing an answer and counterclaims against American National for breach of contract and statutory bad faith.

During his deposition, Felix testified that before the fire, he had two sets of purses and earrings: one set in Madison’s possession, which the fire did not destroy, and one set in Felix’s house, which were lost in the fire. He stated that when he prepared his proof of loss, he may have mistakenly claimed the wrong purse and set of earrings were lost in the fire.

In her deposition, Madison testified Felix never gave her a second Louis Vuitton purse, and she had no knowledge about whether Felix purchased a second pair of earrings for her. Madison also stated she had no knowledge of whether Felix actually lost a Louis Vuitton purse and diamond earrings in the fire. Felix’s friend and sister, however, both testified that they saw a white Louis Vuitton purse and a set of diamond hoop earrings in Felix’s home shortly before the fire.

To succeed on a statutory bad faith claim in Pennsylvania, the insured must prove the insurer did not have a reasonable basis for denying benefits under the policy, and the insurer knew of or recklessly disregarded its lack of a reasonable basis in denying the claim.

Because Felix stated on his proof of loss that he lost a Louis Vuitton purse and a pair of 1.5 carat diamond earrings, affirming he accurately listed the items lost under the pains and penalties of perjury, the court rejected his assertion that American National lacked a reasonable basis for denying his claim.

The court also granted summary judgment in favor of American National on Felix’s bad faith claim, as it found no reasonable jury could conclude that American National failed to conduct a reasonable investigation or lacked a reasonable basis for its decision to deny Felix’s claim.

As a result, the court granted American National’s motion for partial summary judgment pertaining to all claims of bad faith, and Felix’s statutory bad faith claim was dismissed along with his breach of contract claim to the extent it asserts a common law bad faith claim.

The claims that remain are American National’s claim for declaratory judgment, American National’s claim for civil insurance fraud and Felix’s counter-claim for breach of contract to the extent it asserts a breach of contract claim rather than a bad faith claim. The case is prepared for trial.

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Insurance Journal West May 7, 2018
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