Article by Adam Murdock, Esq. and Daniel Twilla, Esq.
The Middle District of Pennsylvania recently granted an insurer’s motion for summary judgment with regard to an insured’s bad faith claim where the insured was not forthcoming with key details during the investigation of the claim, in breach of the fraud and material misrepresentation provision of insured’s policy. Goldsmith v. Nationwide Ins. Co., 2023 WL 7224156 (M.D. Pa. Nov. 2, 2023).
In Goldsmith, the insured reported the theft and burning of his truck. During the subsequent investigation into the claim, the insurer identified several concerns, including (1) the vehicle had been stolen and burned; (2) the vehicle was recovered before it was reported stolen; (3) the insured had both keys to the vehicle; (4) the vehicle was equipped with a transponder; (5) the insured had recently been car shopping and offered the truck for trade; and (6) the insured was unsure if the vehicle was at his house at the time of the theft. The insurer also learned that the insured’s daughter had a substance abuse problem. While the insured denied that his daughter took the truck or ever used his vehicles without permission, the insurer received a police report which revealed that the insured told the police that it “may be possible” that his daughter stole the vehicle. The insurer’s investigation also revealed that the insured’s daughter had stolen another vehicle from the insured several years prior. Expert analysis of the vehicle revealed that it was last operated using a properly cut and coded key. As the insured’s report and statements to the insurer were inconsistent, the insurer denied coverage, citing the fraud and misrepresentation provision of insured’s policy.
The district court concluded that the insured could not demonstrate bad faith on the part of the insurer. The district court held that a misrepresentation is material if a reasonable insurance company would attach importance to the fact misrepresented. Further, a misrepresentation is material where it may be said to have been calculated either to discourage, mislead, or deflect the investigation in any area that, at the time, might seem a relevant or productive area to investigate. The district court concluded that a reasonable insurance company would want to know if the insured had any idea who had stolen their car and that the insured’s daughter had stolen from the insured in the past.
While the insured argued that the insurer acted in bad faith by failing to provide any explanation as to motive, by failing to speak with the police regarding inconsistencies, and by failing to consider that the owner’s manual provided alternative methods to make a key, the court found that the insurer was not required to show that the process used to reach its conclusion was flawless or eliminated all possibilities at odds with its conclusion; rather, it need only show it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action.