The Best Defense: Insurer Voids Policy Ab Initio For Fraud, Alleges Reverse Bad Faith Following Claim

insurance-fraud

PHILADELPHIA, Sept. 27 – A state court judge in Philadelphia has upheld a jury finding that a commercial property insurance policy was void ab initio based on the fraud of the insured in the application, requiring the insured to disgorge claims payments, and the insurer to refund premium dollars paid by the insured for the policy.

In Smith v. United States Liability Insurance Co .,  the  insured filed a  vandalism claim with USLIC which wrote a  commercial policy on the property.  USLIC paid  more than  $150,000.00 on the claim , but a public adjuster hired by the  insured disputed that amount, claiming the total damage was  $444,325.71.

During the claims investigation the insured sat for several  examinations under oath.   The insured ultimately sued USLIC for failure to pay the full claim.  USLIC filed an answer and counterclaim seeking, among other things, (1) declaratory relief  (2) a finding that the insured violated the Pennsylvania Insurance Fraud Statute, and committed  common law fraud; (3) a finding that the insured breached the insuring agreement and (4) committed reverse bad faith.

Following jury trial, the jury returned a verdict in favor of the insurer on all claims and counterclaims.  The Court, per Judge Ann Butchart, denied post trial motions, and entered judgment on the verdict, declaring the policy void,  and requiring the insured to pay the insurer $285,094.40 ($157,725.09 in previous claim payments under the policy and $127,369.31 for claim related expenses incurred by the insurer).  The Court further ordered USLIC to return $48,467.55 in premiums to the insured.

Judge Butchart wrote in part that the insured had lied in the insurance application about the frequency of prior claims, withholding this information from the insurer:

“where the execution of a contract of insurance has been induced by fraudulent misrepresentations of the insured, the insurer may secure its cancellation . . . the jury, as the fact finder, determined by a standard of clear and convincing evidence that the Policy was procured by fraud with the intent to deceive . . . and the Court properly declared the Policy void ab initio. . . the jury was presented with sufficient evidence to determine, under the clear and convincing standard, that [the insured] committed fraud with intent to deceive when he submitted his application for insurance.”

 

Smith v. United States Liability Insurance Co., Philadelphia Court of Common Pleas, June Term 2016 No. 2354, 2017 Phila. Ct. Com. Pl. LEXIS 292 (C.C.P. Phila. Sept. 27, 2017) (Butchart, J.)

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Author: CJ Haddick

C.J. Haddick is a Director with the law firm of Dickie, McCamey, & Chilcote, PC, based in Pittsburgh, Pa. He has advised and represented insurers in insurance coverage and bad faith litigation for more than a quarter of a century, and written and spoken throughout the United States on insurance coverage and bad faith prevention and litigation. He is Managing Director of the firm's Harrisburg, Pa. office. Reach him at chaddick@dmclaw.com or 717-731-4800.

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