Page v. Infinity Indem. Ins. Co., No. CIV.A. 13-1118, 2014 WL 413914 (E.D. Pa. Jan. 31, 2014).
Infinity denied its insureds’ claim after the insureds provided most, but not all, of the information Infinity sought in its investigation of possible fraud. The court found Infinity’s investigation reasonable but denied its motion for summary judgment, concluding that Infinity failed to show that the insureds’ non-cooperation was indisputably and substantially prejudicial.
Early on the morning of July 26, 2011, Stephen Page and Keisha Prewitt, a married couple, were informed that their SUV, a 2002 Mercury Mountaineer, was on fire. The vehicle had been parked on the street near their house. Page and Prewitt had an automobile policy covering the Mountaineer with Infinity Indemnity Insurance Company (“Infinity”). They promptly informed Infinity of the incident and filed a claim. In the days following, Page and Prewitt provided an Infinity investigator with requested documents and recorded statements.
This initial investigation uncovered several concerns that caused Infinity to suspect Page and Prewitt were attempting to commit insurance fraud. Among these: a third-party expert found that the fire had been caused by arson; Page and Prewitt had several unpaid loans that had been referred to collection agencies, but had missed no payments on either the Mountaineer or its policy; and Page and Prewitt’s house had allegedly been burglarized three days before the fire, causing them to lose $3,000 in cash and valuables. After Infinity referred the case to its special investigation unit, it also discov- ered that Page had been shopping for cars at various dealer- ships shortly before the fire. When questioned, Page was unable to identify the specific dealerships he visited.
In September 2011, Page and Prewitt informed Infinity that they had obtained counsel, Jay Solnick, and that further inquiries should be directed to Solnick. When Infinity’s special investigator requested that Page and Prewitt provide Page’s June and July 2011 bank statements, the car dealerships visit- ed by Page, and a copy of the police report concerning the earlier robbery, Solnick questioned the need for these items and did not agree that his clients would provide them. Infinity then sent Solnick a letter advising him that Page and Prewitt’s claim could be denied if they failed to cooperate with the investigation and that Infinity would deny the claim if it did not receive the requested items by late October. On November 2, Infinity closed its investigation and denied the claim in a letter to Solnick.
In January 2013, Page and Prewitt filed a complaint against Infinity in Pennsylvania state court, alleging bad faith and breach of contract. Infinity removed the action to U.S. District Court. During his deposition, Page provided the locations of the car dealerships he had visited before the fire. With this information, Infinity reopened its investigation on September 6, 2013 and agreed to pay Page and Prewitt’s original claim on September 30. The parties subsequently settled the breach of contract claim, and Infinity moved for summary judgment on the bad faith claim.
To prevail on a bad faith claim in Pennsylvania, a plaintiff must show, by clear and convincing evidence: (1) defendant had no reasonable basis for its investigative tactics concerning plain- tiff’s claim or its denial of the claim; and (2) defendant either knew or recklessly disregarded this lack of reasonable basis. In its motion, Infinity argued that it had a reasonable basis for both its investigation and denial of Page and Prewitt’s claim as a matter of law.
The court agreed with Infinity that its investigation was reasonable. The likely arson, Page and Prewitt’s outstanding debts, and Page’s car shopping, among other items, were “red flags” that gave Infinity a reasonable basis to investigate Page and Prewitt’s claim to determine whether they had committed fraud.
The court held, however, that Infinity had not shown that Page and Prewitt’s non-cooperation was “indisputably substantial and prejudicial” to Infinity. The court found that whether Page and Prewitt’s withholding of the bank statements or the police report prejudiced Infinity’s investigation were disputed ques- tions for the finder of fact. Further, it found that Page’s failure to supply the names of the specific dealerships he visited did not constitute “substantial non-cooperation” as a matter of law. Therefore, because Infinity could not show that its denial of Page and Prewitt’s claim was reasonable as a matter of law, the court denied Infinity’s motion for summary judgment on the bad faith claim.