On December 23, 2008, the Court of Appeals for the Sixth Circuit rendered an opinion in Smith v. Allstate Indemnity Co1. At issue was whether the District Court erred in granting Allstate's motion for summary judgment on Plaintiff Panzie Smith's claim of bad faith.
On May 7, 2004, a fire subsided and then rekindled, destroying the Smiths' home. Smith immediately contacted Allstate, which began an investigation that same day. Aside from the numerous discrepancies about the cause of the fire and the contents of the Smith residence, Allstate noted that the Smiths "had a strong financial incentive to burn their home and ample opportunity. And most importantly, an outside investigator hired by Allstate determined that an intentional act caused the rekindle"2. As a result, Allstate refused to pay Smith's claim.
Smith sued Allstate for breach of contract and tortious bad faith in refusing to indemnify her. Allstate was granted summary judgment on Smith's bad faith claim. Subsequently, at trial, the jury rejected Smith's breach of contract claim and returned a verdict in favor of Allstate finding that Smith had misrepresented her claim. Smith appealed.
On appeal, the Court of Appeals considered the District Court's dismissal of the bad faith claim. Smith relied upon the Ohio Supreme Court's decision in Zoppo v. Homestead Ins. Co. to support her claim of bad faith3. The Court in Zoppo found that the insurer had acted in bad faith because it had relied exclusively on evidence indicating arson without considering the possibility that other individuals may have been to blame. The Sixth Circuit distinguished Smith's claim from Zoppo because of Smith's failure to account for numerous misrepresentations. For example, Smith claimed that the fire destroyed assets totaling approximately $58,000, but four years earlier in 2000, the Smiths' had valued their property for bankruptcy purposes at a mere $560.
In its opinion, the Court explained:
On a motion for summary judgment, Ohio law directs courts to assess bad-faith-denial-of-coverage claims from the perspective of what information motivated the insurer's denial. Viewing the evidence in the light most favorable to the insured, courts ask whether "the claim was fairly debatable and the refusal was premised on either the status of the law at the time of the denial or the facts giving rise to the claim"41.
Given this standard, the Court found that there was a strong "probability that the fire resulted from the intentional act of the insured5. The Court stated that "Allstate did not have to conclusively establish arson; it could deny coverage in good faith so long as the claim was 'fairly debatable'6. As such, the Sixth Circuit affirmed the District Court's decision. This opinion reaffirms that the Sixth Circuit will follow the "fairly debatable" standard in considering bad faith claims asserted under Ohio law.