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 when a fire destroyed his home.
The court found that evidence suggests 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 for losses exceeding $1 million 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) because it identified several red flags suggesting fraud. In particular, it found that 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 investigator Kip Mathena to Felix’s claim, and Mathena hired attorney Joseph Hudock to represent American National in connection with the claim.
Felix’s homeowner’s policy, through American National, contained a fraud provision stating the entire policy is void if the insured willfully conceals or misrepresents any material fact or circumstance concerning his/her insurance.
After Felix’s claim was denied, he submitted a proof of loss to American National on March 10, 2016. He claimed a total of $744,000 in dwelling replacement costs, $60,000 in loss of use costs and $270,000 in loss of contents costs. As part of his proof of loss, Felix provided an itemization of hundreds of personal items he lost in the blaze, particularly a set of 1.5 carat diamond earrings and a Louis Vuitton purse.
On his proof of loss form, Felix stated he had a receipt for his purchase of the lost earrings from Littman Jewelers for $1,906.94 using a credit card, but he did not have a receipt for his purchase of the lost purse from a Louis Vuitton store for $1,358 using a credit card. He confirmed that before the fire, he had purchased the purse for his ex-fiancee, Kelly Madison, but she returned it to Felix after their relationship ended.
On May 31, 2016, Hudock spoke with Madison, who reported she was in possession of a Louis Vuitton purse and a set of diamond earrings from Felix. On the same day, Madison forwarded American National pictures of a brown Louis Vuitton purse and a pair of diamond stud earrings.
Madison also informed Mathena of text messages she received in May and June of 2016 in which Felix asked about the Louis Vuitton purse. She provided the text messages to American National as well, showing that Felix had repeatedly questioned her about where the purse was and pressured her to send him a photograph.
Felix’s “statements to the effect that the purse was destroyed in the fire were made with an intent to deceive and are material…” Hudock then stated in an opinion, also asserting that “[a]lthough [Felix] did not testify that he took back the earrings, it is clear that they were not destroyed or lost in the fire as he claims.”
With this in mind, Hudock concluded these material misrepresentations entitled American National to deny Felix’s entire claim because Pennsylvania follows the majority view that a single fraudulent material misrepresentation can void the entire policy.
After hearing from Hudock and reviewing information gathered during the investigation, American National decided to deny Felix’s claim and file a lawsuit against Felix for a declaratory judgment that American National was not required to provide him with coverage.
On June 23, 2016, American National sent Felix a denial letter that explained it was denying his claim because of material misrepresentations. American National then filed its complaint in court.
American National’s complaint 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.
Felix stated he purchased the Louis Vuitton purse in Madison’s possession for approximately $1,700 in December 2014. He claimed he purchased the second Louis Vuitton purse lost in the fire in cash from a woman outside a Sheetz in Greensburg for $1,358.00 in February 2015. He added that he mistakenly included a credit card payment of $1,358.00 for a Louis Vuitton purse in his proof of loss because he confused which purse he paid for with a credit card.
As for the earrings, Felix explained that when he prepared his proof of loss, he may have mistakenly submitted the receipt for the earrings that Madison owned rather than the earrings that were lost in the fire. He said he obtained the second set of earrings from a goldsmith on Scalp Avenue in Johnstown, but he could not name the goldsmith or provide a receipt. Felix asserted he had purchased the second set of earrings after Madison lost the first set, but never gave them to her because Madison ended up finding the first set.
In her deposition, Madison testified Felix never gave her a second Louis Vuitton purse and stated 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 Jessica Bloom and his sister Becky Shirk, however, testified that they saw a white Louis Vuitton purse and a set of diamond hoop earrings in Felix’s home shortly before the fire.
Felix further explained that on his proof of loss and in previous sworn testimony, he claimed the loss of a white Louis Vuitton purse rather than a brown purse. He stated this is because in February 2015, he and Madison had an intense argument over a prenuptial agreement in which he was intoxicated, and Madison “passed out, hit her head and lost consciousness.”
He explained he “reasonably believed” he had presented the white Louis Vuitton purse to Madison during the argument and that she had returned it to him. However, because of his intoxication and the many items he had purchased for Madison during their relationship, he acknowledged he may have mistakenly stated during his prior testimony that Madison returned the white Louis Vuitton purse when he never actually gave it to her.
“[A]t the time I prepared the [P]roof of [L]oss, I may have mixed up the purchase price and/or the method of payment for the white Louis Vuitton purse with the brown Louis Vuitton purse I purchased for Ms. Madison,” he stated.
In an affidavit, Felix added he purchased two sets of diamond earrings for Madison – a pair of studs and a pair of hoops. He clarified that the diamond earrings lost in the fire were hoops, not studs, and said he never claims to have lost diamond stud earrings in 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.
“Under Felix’s logic, rather than relying on Felix’s own representations in his Proof of Loss, American National needed to confirm with Felix that he only owned one of each item he listed in the Proof of Loss to ensure that he did not actually have two (or three, or four) items similar to those he claimed on the Proof of Loss, but that were not actually destroyed by the fire,”Judge Kim R. Gibson wrote in her opinion. “Surely, American National cannot be faulted for failing to inquire about items that it did not know existed.”
Additionally, Felix seemed to require American National to ask about details of the items, such as the color of the purse and the style of the earrings, that he failed to include in the proof of loss and never mentioned in his two statements under oath, Gibson wrote in the opinion.
“Imposing this burden on insurers would needlessly increase costs of investigating insurance claims,” Gibson wrote. “And if Felix ‘was absolutely certain’ he lost a ‘white purse’ and ‘diamond hoop earrings’ in the fire – as he now claims – he should have conveyed that information to American National during their investigation into his claim.”
In light of this, the court rejected Felix’s assertion that American National lacked a reasonable basis for denying his claim. This is because Felix stated on his proof of loss that he lost a Louis Vuitton purse and a pair of 1.5 carat diamond earrings and affirmed on the proof of loss that he accurately listed the items he lost under the pains and penalties of perjury.
“Based on the information that American National had when it denied Felix’s claim, no reasonable jury could find that American National lacked a reasonable basis for its decision,” Gibson wrote.
Felix further argued that to defeat his breach of contract claim, American National needed to prove Felix violated the fraud provision of his policy by clear and convincing evidence. In response, American National argued Felix committed the alleged fraud when he claimed benefits, not when he first applied for the insurance policy.
The Court agreed with American National that to prevail on its declaratory judgment action and defeat Felix’s breach of contract claim, it needs to prove Felix made material misrepresentations by a preponderance of the evidence.
With this in mind, the court 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. The court also found that no reasonable jury could conclude that American National knew of or recklessly disregarded its lack of a reasonable basis for denying 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 ready for trial, and the parties must comply with a trial order stating that 45 days before trial, each party must submit a brief containing arguments about whether the preponderance of the evidence standard or the higher clear and convincing evidence standard governs American National’s statutory civil insurance fraud claim, Gibson wrote.
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