Greater New York Mutual Ins. Co. v. North River Ins. Co., 872 F. Supp. 1403, 1408 (E.D.Pa. 1995), aff'd, 85 F.3d 1088 (3d Cir. 1996). Nationwide reasonably thought that the Jungs' violated their duty by making a fraudulent statement on the application. Nationwide investigated the claim and acted to protect its interest because of this belief. This conduct, even if it approached the limits of bad faith, cannot form the basis of a cause of action against Nationwide without some further evidence of dishonest purpose or evil motive. Cf. Terletsky, 649 A.2d at 688. Nationwide had a reasonable basis to investigate and deny the claim; therefore, their subsequent and related conduct is not in bad faith.
The law is meant to dissuade an insurance company from using its economic power to coerce and mislead insureds; it does not purport to interfere with an insurance company's right to investigate and litigate the legitimate issue of misrepresentation in an application. Cf. Kauffman v. Aetna Casualty & Surety Co., 794 F. Supp. 137, 141. (E.D.Pa. 1992) (no doubt that insurance company has a right to litigate a claim). Nationwide had a reasonable basis to investigate and deny coverage based upon its belief that the Jungs had made a material misrepresentation. As a matter of law, I hold that, if the insureds initially taint the insurance contract by breaching their duty to the insurer, thereby giving the insurer a reasonable basis on which to deny the claim, the insurer's subsequent actions related to the defense against the insureds' claim cannot constitute bad faith.
Such a result is consistent with the Third Circuit Court of Appeals' directive in Polselli v. Nationwide Mutual Fire Ins. Co., 23 F.3d 747 (3d Cir. 1994). In Polselli, the Court of Appeals remanded the issue of bad faith to the district court, with the instructions that the lower court should consider whether actions by the insured would militate against a finding of bad faith. Id. at 752. The court directed, "specifically, the [district] court should consider whether the early filing of the bad faith suit against Nationwide, even before it completed its investigation, and the cancellation of [insured's] deposition by her attorney . . . contributed to an atmosphere unconducive to settlement." Id.
In light of the Jungs' material misrepresentation on their insurance application, Nationwide's response was not unreasonable or in bad faith. Everything on Plaintiffs' list of ten alleged bad faith acts is closely connected with Nationwide's investigation into and denial of the base claim, and is therefore part and parcel of Nationwide's reasonable response.
Even assuming, arguendo, that these ten things were separately directed at the Jungs and were not connected to the investigation and denial, none of them rise to the independent level of bad faith required by Terletsky. Plaintiffs simply have not presented enough evidence for a reasonable jury to find by clear and convincing evidence that Nationwide acted in bad faith.
There is no evidence that Nationwide had an ill or dishonest motive in its relations with the Jungs, nor do Plaintiffs' allegations describe conduct sufficiently egregious to be considered reckless rather than merely negligent. See Polselli, 23 F.3d at 751. Plaintiffs allege that Nationwide deceived the Insurance Department by not raising a jurisdictional issue for four months and by ignoring an Order to reinstate coverage. However, that Order was the result of proceedings at which Nationwide was not present and did not submit any evidence. Both Nationwide's assumption that it did not have to reinstate coverage in light of its common-law right to rescind a policy due to misrepresentation and Nationwide's reliance on its right to raise issues on appeal are clearly reasonable and cannot amount to bad faith.
Plaintiffs are left with nine allegations of bad faith conduct. These allegations are: failure to assist the Jungs in processing their claim, rejection of the Jungs' proof of loss form, failure to refer the Jungs to pertinent policy provisions, time frame violations, unreasonable and excessive depreciation, misrepresentation of the purpose of a $ 1,000 advance, denial of storage costs, failure to question the Jungs as to the innocence of their misrepresentation, and failure to advise the Jungs that there was a one year statute of limitations in their policy. Plaintiffs' theory is that these actions were motivated by Nationwide's desire to avoid paying the claim for the vandalized property. Of course, since this is presented on a summary judgment motion, the court is required to view the facts and draw inferences in a light most favorable to the non-moving party. Anderson, 477 U.S. at 255. "The court need not accept the non-moving party's legal conclusions," however. Kauffman, 794 F. Supp. at 139. In addition, "the court must inevitably consider the substantive evidentiary burden of the parties that would apply at the trial on the merits." Peer, 1995 U.S. Dist. LEXIS 4045, *12, 1995 WL 141899, *4, citing Anderson, 744 U.S. at 254. Finally, "the non-moving party must raise more than a mere scintilla of evidence in its favor in order to overcome a summary judgment motion . . [and] cannot rely on unsupported assertions, conclusory allegations, or mere suspicions in attempting to survive" the motion. Parasco, 920 F. Supp. at 652 (internal quotation marks and citations omitted).
Plaintiff's theory is too tenuous to support a jury finding by clear and convincing evidence that Nationwide acted in bad faith. Nationwide validly and reasonably investigated the Jungs' claim, then rescinded the policy, within sixty days as required by the UIPA. It gave the Jungs a $ 1,000 advance which it never sought to reclaim. The denial of storage costs was in accordance with the limits in the homeowners' policy. It promptly and fully investigated the claim.
Nationwide acted reasonably in light of the Jungs' misrepresentation, and its rejection of a form, the depreciation taken, and failure to be too helpful do not provide the basis for a jury finding that Nationwide acted recklessly or with an ill-motive.
Plaintiffs rely on a notation in Roger Cranford's
log book on August 31, 1995, that the statute of limitations had passed for the Jungs, and that Nationwide had savings in excess of $ 44,731.57. Though this may have been akin to gloating, gloating is not the same as bad faith. One sentence in a log book cannot support Plaintiffs' theory that Nationwide, throughout this process, acted purposefully and with the intent of avoiding just payment to the Jungs.
I find that Nationwide's response to the Jungs' claim, from the time of its investigation through the litigation, was reasonable. Though it may at times have bordered on negligent, there is not enough evidence to show reckless conduct or ill-motive. No reasonable jury could find otherwise by clear and convincing evidence.
For the reasons set forth above, the court grants Defendants' Motion for Partial Summary Judgment. An appropriate order follows.
BY THE COURT:
Edward N. Cahn, Chief Judge
AND NOW, this 10th day of January, 1997, upon consideration of Defendants' Motion for Partial Summary Judgment on Plaintiffs' Bad Faith Claim and Plaintiffs' Response thereto, it is hereby ORDERED that Defendants' motion is GRANTED.
BY THE COURT:
Edward N. Cahn, Chief Judge