United States District Court, Middle District of Pennsylvania
February 28, 2002
HERBERT KILMER AND ELSIE KILMER,: HIS WIFE, PLAINTIFFS,
THE CONNECTICUT INDEMNITY COMPANY, DEFENDANT.
The opinion of the court was delivered by: Vanaskie, Chief Judge.
Plaintiffs Herbert and Elsie Kilmer have filed this diversity
action alleging bad faith liability under 42 Pa.Cons.Stat.Ann. §
8371 on the part of defendant Connecticut Indemnity
Company.*fn1 The Kilmers' action is predicated on Connecticut
Indemnity's alleged unreasonable delay in investigating the
cause of the fire which destroyed their property in Solon, New
York, as well as its alleged failure to pay and/or refusal to
negotiate the amount of benefits payable under its insurance
policy. Connecticut Indemnity disputes Kilmers' allegations and
argues that its actions in handling plaintiffs' claim were both
reasonable and in good faith and not in violation of the
applicable law. Currently pending is Connecticut Indemnity's
motion for summary judgment. Because genuine issues of material
fact exist as to whether Connecticut Indemnity's alleged actions
and omissions were both unreasonable and in bad faith,
defendant's motion for summary judgment will be denied.
On May 17, 1991, the Kilmers purchased 1,220 acres of land in
Solon, Courtland County, New York for $700,000. In 1994, the
Kilmers sold approximately 1,000 acres of that land to the
Gutchess Lumber Company for $600,000, leaving approximately 228
acres, on which was situated the Four Seasons Ski Lodge. The
property had not been operating as a ski resort when the Kilmers
purchased the land, and it never became operational subsequent
to their purchase. In May of 1994, the Kilmers listed the
remaining 228 acres of land for sale. The two real estate agents
contracted by the Kilmers to sell the property, Larry Birchard
and Maureen Adams, who were working out of Binghamton, New York,
were unsuccessful in marketing the parcel of land for sale at
the suggested asking price.*fn2
On March 10, 1998, the Kilmers entered into an insurance
contract with Connecticut Indemnity for coverage of the ski
lodge. The policy was purchased through the Kerwick Insurance
Agency. According to defendant, Mr. Kilmer's insurance broker,
Joe Kerwick, was told by Ed Cox, Mr. Kilmer's business employee,
to have the building insured for $400,000. Prior to March 10,
1998, the Kilmer property in Solon, New York, was uninsured.
On July 28, 1998, the insured ski lodge was totally destroyed
by a fire. Subsequent to the fire, on July 29, 1998, Don
Roberts, a claims examiner for Connecticut Indemnity, received a
telefax communication reporting that there was a total loss of
the property in question. On July 30, 1998, Roberts traveled to
the scene of the fire in Solon, New York. According to
defendant, Roberts inspected and photographed the site and then
completed a report detailing his examination of the fire scene.
During his visit to the fire scene, Roberts was informed by Mr.
Kilmer that the property had not generated any income in the
seven years that the Kilmers had owned it. Present at the scene
with Roberts and Kilmer were representatives of the Courtland
County Sheriffs Department and the McGraw Fire Department (the
first to respond to the scene), as well as Gary Kubber, the
adjuster to whom Roberts assigned the claim.
On August 4, 1998, Mr. Kilmer prepared and signed the General
Adjustment Bureau's Standard Fire Claim Form. On August 7, 1998,
Roberts sent a letter to the Kilmers acknowledging receipt of
their claim, and stating that Connecticut Indemnity was going to
continue to investigate the fire due to possible
misrepresentations in the application for insurance, such as the
description of the building and the classification of protection
assigned to the building. According to defendant, in completing
the Kilmers' application for insurance, Kerwick admitted that he
had made a few mistakes on the application. In investigating the
possibility of misstatements on the application of insurance,
Roberts took a statement from Kerwick to determine how the
application was completed. In his statement, Kerwick said:
I had no idea what protection class 6 was, and I
really took a guess. I also put down that it was a
masonry building. I don't know why — Ed Cox did not
tell me it was 100% frame, nor did he tell me
anything about any protection classes.
(Def.'s Affs. & Exs. in Sup. of Mot. for Summ. J., Ex. D.)
After visiting the fire scene, Roberts had hired a private
cause and origin investigator, Dennis Ware, who was allegedly
well-known to the Sheriffs Department for his competence in fire
investigation. On August 31, 1998, Roberts notified his
adjuster, Kubber, that he wanted a status report on Connecticut
Indemnity's cause and origin investigation. On September 1,
1998, Roberts received the report from Ware.*fn3 Attached to
the report was a copy of Ware's laboratory findings and a
statement to Roberts that he was currently in the process of
preparing a written report with regard to the destroyed
On September 30, 1998, Roberts contacted his coverage counsel,
Steven Helmer, Esquire, and informed him that the cause of the
fire was determined to be arson, and that the building was
considerably over-insured. At that point, Kubber arranged for a
background check on Mr. Kilmer.
After reviewing the investigative reports, Roberts requested
that Kilmer file a proof of loss. In his deposition, Roberts
We wanted Mr. Kilmer, based upon the information that
we now had — we
wanted to know Mr. Kilmer's opinion or statement
under oath as to how the fire started, how he
determined, or determined what he considered to be
the actual cash value of this structure, what the
encumbrances might be on the property, any body who
might have an interest in it besides himself. We
wanted to know all of that information.
(Def.'s B.R. in Supp. of Mot. for Summ. J. at 7.)
As of September 1, 1998, Roberts had allegedly asked Kubber to
prepare an "actual cash value" (ACV) estimate of the property.
On October 10, 1998, Kubber was directed by Roberts to work up a
statement of loss with regards to a possible offer to submit to
the Kilmers in the event that Connecticut Indemnity's
investigation determined that there was coverage for the loss.
At that time, the figures were to be kept in the files of both
Connecticut Indemnity and GAB Robbins.*fn4 In his deposition,
Roberts testified that, as of October 10-11, 1998, Connecticut
Indemnity could not offer the Kilmers a settlement because they
needed to gather information necessary for a determination of
responsibility for the loss. Roberts testified:
We were still gathering information. And based upon
the information that we had both in the fire
marshal's report and in the investigations conducted
up to that point, it certainly did not appear that we
were going to be making him an offer of settlement on
October 10th or October 11th of 1998.
(Def.'s B.R. in Supp. of Mot. for Summ. J. at 7.)
On October 23, 1998, Kubber sent the Kilmers a Proof of Loss
form to be returned within 60 days. On November 10, 1998,
Roberts received the Kilmers' executed Proof of Loss. On
November 19, 1998, Roberts contacted Kubber in an effort to
confirm in writing how he was going to proceed regarding the
proof of loss. On December 8, 1998, Connecticut Indemnity
rejected the Kilmers' Proof of Loss. In a letter to the Kilmers,
Roberts provided the following reasons for rejection of the
Proof of Loss:
— A dispute concerning the amount cited in the Proof
— Questions concerning the cause and origin of the
— Incorrect claim for amount of debris removal;
— The occupancy of the building was incorrect;
— The Actual Cash Value of the property was not
— The whole Loss and Damage was not stated.
(Def.'s Mot. for Summ. J. at 3.)
In addition to rejecting the Kilmers' Proof of Loss, Roberts
also requested that the Kilmers appear for an Examination Under
Oath regarding the claim. On January 13, 1999, Connecticut
Indemnity's coverage counsel — Attorney Helmer — conducted the
Kilmers' Examination Under Oath. According to the defendant,
Roberts did not receive the transcript of the Examination Under
Oath until February 10, 1999. On February 12, 1999, Roberts
informed Attorney Helmer that Connecticut Indemnity had decided
to honor the claim and offer a settlement. On February 19, 1994,
before the offer was conveyed, the Kilmers filed this suit.
On March 2, 1999, Attorney Helmer informed the Kilmers'
counsel that the
carrier was making payment in the amount of $162,364 —
Connecticut Indemnity's estimate of the actual cash value of the
property.*fn5 The offer was subsequently rejected by the
According to plaintiffs, following the Kilmers' rejection of
the settlement offer, on April 5, 1999, nearly two months after
the above-captioned suit was filed, current counsel for
defendant made the first mention of the appraisal process
referenced in the insurance policy. The Kilmers maintain that
they promptly agreed to submit the dispute to an
appraiser.*fn7 On May 20, 1999, litigation of this matter was
stayed pending the outcome of a contractual appraisal procedure.
The appraiser, John F. Havermeyer, III, determined that the
total ACV for the property at the time of the fire was
$223,800.*fn8 On December 16, 1999, Connecticut Indemnity
tendered a check in the amount of $61,436 to the Kilmers'
counsel in payment of the difference between what the appraiser
determined was the ACV of the property on the date of the fire,
and the amount previously paid without prejudice by Connecticut
Indemnity to the Kilmers.
Following the Kilmers' acceptance of the independent
appraiser's determination, plaintiffs resumed the litigation of
this matter by asserting, inter alia, that Connecticut
Indemnity's delay in the investigation into the cause and origin
of the fire, as well as its failure to pay the claim and/or
negotiate the amount to be paid, entitles them to an award of
damages under Pennsylvania's bad faith statute. On November 29,
2000, Connecticut Indemnity filed a motion for summary judgment
and supporting brief on plaintiffs remaining bad faith and
punitive damages claims. On December 14, 2000, the Kilmers filed
their answer and opposing brief to Connecticut Indemnity's
motion for summary judgment. The motion is ripe for disposition.
A. Summary Judgment Standard
Summary judgment is appropriate if "there is no genuine issue
as to any material fact and . . . the moving party is entitled
to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see also
Turner v. Schering-Plough Corp., 901 F.2d 335, 340 (3d Cir.
1990). The party moving for summary judgment bears the burden of
showing the absence of a genuine issue as to any material fact.
Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548,
91 L.Ed.2d 265 (1986); Young v. Quinlan, 960 F.2d 351, 357 (3d
Cir. 1992). After such a showing has been made, the nonmoving
party cannot rely upon conclusory allegations in its pleadings
or in memoranda and briefs to establish a genuine issue of
material fact. Rather, the nonmoving party must go beyond the
pleadings and offer specific evidence contradicting the facts
averred by the movant. Lujan v. National Wildlife Fed'n,
497 U.S. 871, 888,
110 S.Ct. 3177, 111 L.Ed.2d 695 (1990); Fed.R.Civ.P. 56(e).
"Once the moving party has carried the initial burden of showing
that no genuine issue of material fact exists, [citation
omitted] the nonmoving party . . . `must make a showing
sufficient to establish the existence of every element essential
to his case, based on the affidavits or by the depositions and
admissions on file'." Pastore v. Bell Tel. Co. of
Pennsylvania, 24 F.3d 508, 511 (3d Cir. 1994) (quoting Harter
v. GAF Corp., 967 F.2d 846, 852 (3d Cir. 1992)). "[T]he mere
existence of some alleged factual dispute between the parties
will not defeat an otherwise properly supported motion for
summary judgment; the requirement is that there be no genuine
issue of material fact." Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)
(emphasis in original). A disputed fact is material when it
could affect the outcome of the suit under the governing
substantive law. Id. at 248, 106 S.Ct. 2505. A dispute is
genuine if the evidence is such that a reasonable jury could
return a verdict for the nonmoving party. Id. at 250, 106
S.Ct. 2505. If the court determines that "the record taken as a
whole could not lead a rational trier of fact to find for the
non-moving party, there is no `genuine issue for trial.'"
Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp.,
475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (quoting
First Nat'l Bank of Arizona v. Cities Service Co.,
391 U.S. 253, 289, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968)). All inferences,
however, "`should be drawn in the light most favorable to the
non-moving party, and where the non-moving party's evidence
contradicts the movant's, then the non-movant's must be taken as
true.'" Pastore, 24 F.3d at 512 (quoting Big Apple BMW, Inc.
v. BMW of N. America, Inc., 974 F.2d 1358, 1363 (3d Cir. 1992),
cert. denied, 507 U.S. 912, 113 S.Ct. 1262, 122 L.Ed.2d 659
(1993)). "Moreover, a court may not consider the credibility or
weight of the evidence in deciding a motion for summary
judgment, even if the quantity of the moving party's evidence
far outweighs that of its opponent." Kostar v. Pepsi-Cola
Metro. Bottling Co., Inc., No. Civ. A. 96-7130, 1998 WL 748306,
*2 (E.D.Pa. October 23, 1998) (citing Big Apple BMW, 974 F.2d
B. Choice of Law
A federal court sitting in diversity must apply the choice of
law rules of the forum state in which it sits. See Klaxon Co.
v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85
L.Ed. 1477 (1941); St. Paul Fire & Marine Ins. Co. v. Lewis,
935 F.2d 1428, 1431 n. 3 (3d Cir. 1991). For both contract and
tort actions, the Pennsylvania Supreme Court has adopted a
flexible approach which combines a "significant relationship"
test with a "governmental interest" analysis. See Carrick v.
Zurich-American Ins. Group, 14 F.3d 907, 909 (3d Cir. 1994);
Melville v. American Home Assurance, 584 F.2d 1306 (3d Cir.
1978); Griffith v. United Air Lines, Inc., 416 Pa. 1,
203 A.2d 796 (1964). Stated another way, the Pennsylvania choice of law
rule requires an examination of the significant contacts as they
relate to the public policies underlying the issues presented in
the litigation. See KNK Medical-Dental Specialities, Ltd. v.
Tamex Corp., No. Civ. A. 99-3409, 2000 WL 1470665, *2 (E.D.Pa.
Sept. 28, 2000) (citing General Star Nat'l Ins. Co. v. Liberty
Mut. Ins. Co., 960 F.2d 377 (3d Cir. 1992)). The weight of the
relevant state's contacts must be measured on a qualitative
rather quantitative scale. See Hartford Fire Ins. Co. v. WSR
Corp., No. Civ. A. 99-6120, 2000 WL 974328, *3 (E.D.Pa. July
14, 2000). Under Pennsylvania choice-of-law precepts, the place
having the most
interest in the controversy and which has the most intimate
connection with the outcome is the forum whose law is
applied.*fn9 See Compl. of Bankers Trust Co., 752 F.2d 874,
882 (3d Cir. 1984) (citing Griffith, 416 Pa. at 22, 203 A.2d
A threshold question in choice of law analysis is whether a
false conflict exists. See Le Jeune v. Bliss-Salem Inc.,
85 F.3d 1069, 1071 (3d Cir. 1996). As explained in Williams v.
Stone, 109 F.3d 890, 893 (3d Cir. 1997), "where the laws of the
two jurisdictions would produce the same result on the
particular issues presented, there is a `false conflict' and the
court should avoid the choice of law question." If there is no
false conflict, the court must ascertain which state has the
greater interest in the application of its law. See Benevento
v. Life USA Holding, Inc., 61 F. Supp.2d 407, 414 (E.D.Pa.
According to New York law, "bad faith requires an
extraordinary showing of a disingenuous or dishonest failure to
carry out a contract." Gordon v. Nationwide Mut. Ins. Co.,
30 N.Y.2d 427, 334 N.Y.S.2d 601, 608, 285 N.E.2d 849 (1972), cert.
denied, 410 U.S. 931, 93 S.Ct. 1374, 35 L.Ed.2d 593 (1973). It
exists "where the wrong complained of is morally culpable, or is
actuated by evil and reprehensible motives, not only to punish
the defendant but to deter him, as well as others who might
otherwise be so prompted from indulging in similar conduct in
the future." Cohen v. New York Prop. Ins. Underwriting Ass'n,
65 A.D.2d 71, 410 N.Y.S.2d 597, 601 (1978) (quoting Walker v.
Sheldon, 10 N.Y.2d 401, 404, 223 N.Y.S.2d 488, 490,
179 N.E.2d 497 (1961)).
Pennsylvania law, however, requires a plaintiff to make out a
lower showing to satisfy its claim for bad faith. Under
Pennsylvania law, in order to recover on a claim of bad faith,
the insured must show, by clear and convincing evidence, that
the insurer did not have a reasonable basis for denying benefits
under the policy and that the insurer knew of or recklessly
disregarded its lack of a reasonable basis in denying the claim.
See The Rector, Wardens and Vestryman of St. Peter's Church v.
Am. Nat'l Fire Ins. Co., No. Civ. A. 00-2806, 2002 WL 5933, *10
(E.D.Pa. Jan. 14, 2002).
The distinction between New York's and Pennsylvania's bad
faith standards was recognized by the Third Circuit in General
Star. In General Star, the court was called upon to resolve a
conflict of law question between New York and Pennsylvania law
on bad faith in settling liability claims. Implicit in the
court's resolution of this question was its understanding that
the choice potentially affected the outcome. 960 F.2d at 385.
The same conclusion is compelled here. Because New York and
Pennsylvania have different standards for evaluating claims of
an insurer's bad faith, it is clear that no false conflict
exists. Accordingly, a choice of law must be made.
Section 193 of the Restatement (Second) of Conflict of Laws
provides guidance on the issue presented here. It states:
The validity of fire, surety or casualty insurance
and the rights created thereby are determined by the
local law of the state which the parties understood
to be the principal location of the insured risk
during the term of the policy, unless with respect to
the particular issue, some other state has a more
significant relationship . . . to the transaction and
the parties, in which event the local law of the
other state will be applied.
In this case, the location of the insured risk — Solon, New
York — is undisputed. This factor is entitled to "greater weight
than any other single contact in determining the state of the
applicable law. . . ." Id. at § 193, comment b.
Section 193 expressly contemplates, however, that the location
of the insured risk is not controlling in all circumstances.
Specifically, the law of the state where the insured risk is
found is not to be applied where "some other state has a more
significant relationship. . . . to the transaction and the
parties, in which event the local law of the other state will be
applied." Id. at § 193.
Plaintiffs assert that Pennsylvania has a "more significant
relationship" in that: (1) the Kilmers are both domiciled and
reside in Pennsylvania; (2) the insurance policy in question was
negotiated in Pennsylvania; (3) the agent through whom the
policy was issued is located in Pennsylvania; (4) the premium
was paid in Pennsylvania; (5) the insurance company who issued
the policy is licensed in Pennsylvania; (6) the insurance
company who issued the policy is competing with other insurance
companies domiciled and doing business in Pennsylvania; and (7)
the Kilmers naturally expected the laws of Pennsylvania to
protect them. Connecticut Indemnity counters the Kilmers'
expectation argument by pointing to the insurance policy. In two
provisions — one dealing with the prohibition of fraudulent
conduct in completing the insurance application and the other
concerning the appraisal process — it is explicitly stated that
New York law would apply. Accordingly, Connecticut Indemnity
argues that the Kilmers knew that the property covered under the
insurance policy was subject to New York's property insurance
In General Star, a Connecticut excess insurer brought an
action in Pennsylvania against a Massachusetts primary insurer
alleging the breach of the primary insurer's duty of good faith
to a New York insured in connection with the handling of a
liability claim in Pennsylvania. 960 F.2d at 378-79. In
determining that New York had a greater interest in the
application of its law than did Pennsylvania, and therefore,
should govern the relations between the relevant parties, the
Third Circuit stated:
Because the protection of insured parties is the
primary public policy behind laws governing duties
owed by an insurer to an insured, Pennsylvania has
little interest in furthering the primary public
policy implicated here: protection of a New York
insured and a Connecticut excess insurer by means of
regulating the conduct of a Massachusetts primary
Id. at 379 (emphasis added).
This rationale supports application of Pennsylvania law in
this case. In General Star, a New York insured's interests
were at stake in litigation in Pennsylvania. In this case,
Pennsylvania insureds are the aggrieved parties. New York would
have little interest in offering protection to the Kilmers;
Pennsylvania would have a compelling interest to do so.
Connecticut Indemnity conducts business in Pennsylvania. It
would not be unfair to require Connecticut Indemnity to abide by
Pennsylvania requirements when administering insurance policies
to Pennsylvania residents, regardless of where the property is
located, just as it was not unfair to apply New York law in
General Star when
dealing with New York insurers who were responsible for handling
the defense of a case filed in Pennsylvania.
Consistent with the Third Circuit's analysis in General Star
is Thiele v. Northern Mut. Ins. Co., 36 F. Supp.2d 852
(E.D.Wis. 1999). In Thiele, two insureds residing in Wisconsin
filed an action against a Michigan property insurer for punitive
damages, alleging that the insurer acted in bad faith in denying
their claim for fire damage to a barn located in Michigan. Id.
at 853. After employing the choice-of-law principles similar to
those used by Pennsylvania courts, the district concluded that
Wisconsin's choice-of-law principles required that Wisconsin law
apply to the plaintiffs' bad faith claims. In reaching this
conclusion, the court stated:
[A]n insurance company that conducts business with
residents of various states should expect to be
subject to the tort laws of that state if the insurer
engages in bad faith with respect to the insurance
policy. Of course, if a company's operation is
national in scope, it may be subject to the tort laws
of many states, but it is "predictable" that if a
tort is committed against a Wisconsin policyholder,
for example, Wisconsin tort law will apply.
Id. at 855.
The fact that the insurance policy refers to New York law with
respect to fraudulent applications and the appraisal process
does not preclude application of Pennsylvania bad faith law. The
laws of separate states may be applicable to distinct issues.
Our Court of Appeals recently recognized that separate analyses
to determine which state's law applies to a bad faith claim and
to an issue of contract interpretation "would normally be
appropriate." Robeson Indus. Corp. v. Hartford Accident &
Indem. Co., 178 F.3d 160, 168 (3d Cir. 1999).*fn10 Quoting
with approval from O'Connor v. Busch Gardens,
255 N.J. Super. 545, 605 A.2d 773, 774 (1992), the Third Circuit observed:
[C]onflict of laws principles do not require that all
legal issues presented by a single case be decided
under the law of a single state. Instead the choice
of law decisions can and should be made on an
issue-by-issue basis, and thus the law of different
states can apply to different issues in the same
Id. at 168.
Applying the relevant Third Circuit case law, and finding the
Thiele court's reasoning persuasive, I conclude that
Pennsylvania's bad faith law should govern this matter. Aside
from the property being in New York, all of the other relevant
contacts suggest that Pennsylvania has the greater interest in
this matter. Pennsylvania clearly has a "more significant
relationship" because: (1) the Kilmers are both domiciled and
reside in Pennsylvania; (2) the insurance policy in question was
negotiated in Pennsylvania; (3) the agent through whom the
policy was issued is located in Pennsylvania; (4) the premium
was paid in Pennsylvania; and (5) the insurance company who
issued the policy is licensed in Pennsylvania. The Third Circuit
has made clear that the protection of insured parties is the
primary public policy underlying laws governing duties owed by
an insurer to an insured. See General Star, 960 F.2d at 379.
In addition, with regard to Pennsylvania's bad faith statute,
courts have held that the "policy behind 42 Pa.C.S.A. § 8371
. . . is that the Pennsylvania legislature was concerned about
protecting its own residents/insured from overreaching insurance
companies." Celebre v. Windsor-Mount Joy Mut. Ins. Co., No.
CIV. A. 93-5212, 1994 WL 13840, *2 (E.D.Pa. Jan. 14, 1994)
(citing Thomson v. Prudential Prop. & Cas. Ins. Co., Civ. A.
No. 91-4073, 1992 WL 38132, *4 (E.D.Pa. Feb. 20, 1992))
("Pennsylvania has a great interest in protecting its
residents from possible misconduct of insurance carriers
operating within its borders.") (emphasis in original).
In conclusion, after employing "a separate analysis to
determine which state's law applies to [plaintiff's] bad faith
claim," Robeson, 178 F.3d at 168, I find that under its
conflict of laws principles, in order to ensure that the insured
parties are protected from the bad faith of an insurer,
Pennsylvania would apply its own local law on the issue of
whether Connecticut Indemnity acted in bad faith in its handling
of the Kilmers' insurance claim. Accordingly, the Kilmers may
invoke 42 Pa.Cons.Stat.Ann. § 8371 as the basis for their
C. Kilmers' Claim Under Pennsylvania's Bad Faith Law
In Klinger v. State Farm Mut. Auto. Ins. Co., 115 F.3d 230,
233 (3d Cir. 1997), the Third Circuit declared that the proper
standard for bad faith claims under section 8371 is set forth in
Terletsky v. Prudential Prop. & Cas. Ins. Co., 437 Pa.Super.
108, 649 A.2d 680, 688 (1994), app. denied, 540 Pa. 641,
659 A.2d 560 (1995).*fn11 In Terletsky, the Pennsylvania
Superior Court applied a two-part test, both elements of which
must be supported by clear and convincing evidence: (1) that the
insurer lacked a reasonable basis for denying benefits; and (2)
that the insurer knew or recklessly disregarded its lack of a
reasonable basis. Id.
To prove their bad faith allegation against Connecticut
Indemnity, the Kilmers point to various pieces of evidence which
ostensibly show the defendant's improper conduct in its handling
of their claim. First, they contend that as of September 1,
1998, Connecticut Indemnity knew that: (1) the structure was a
total loss; (2) the fire was incendiary; (3) there had been
numerous vandalism incidents at the property; (4) Kilmer was
nearly two hours away at the time of the fire; and (5) there was
no evidence as to who may have caused the incendiary fire.
Second, plaintiffs assert that as of October 10, 1998, defendant
knew that: (1) a background investigation had been done on the
Kilmers; (2) the Kilmers owned a great deal of property in
Pennsylvania, Florida, and New York; (3) no judgments were found
against Kilmers; (4) no record of any federal or state
convictions were found against Mr. Kilmer (5) Mr. Kilmer had a
reputation as a hard working man who owned a quarry; and (6)
there was no information reflecting any purpose or need for the
Kilmers to have caused the fire. Third, the Kilmers contend that
bad faith by defendant is exhibited by the fact that Connecticut
Indemnity made no further inquiries with respect to the question
of arson, including failing to: (1) make inquiries into the
Kilmers' assets and liabilities; (2) asking the Kilmers to
income tax returns or other evidence of net worth or debts; and
(3) asking the Kilmers to produce any information at the
statement under oath that would assist in any investigation
relating to alleged arson. And finally, plaintiffs assert that
bad faith is shown by defendant's unreasonable delay in the
scheduling of the examination under oath.*fn12 In support of
their claim, the Kilmers have produced a report from an
insurance practices expert on the appropriateness of defendant's
actions and inactions. In her report, Barbara J. Sciotti,
A.R.M., opines that "[Connecticut Indemnity] conducted a highly
unreasonable investigation that involved dilatory handling and
unreasonable evaluation/negotiation practices, and conscious
disregard for the Kilmer's. Further, [Connecticut Indemnity]
communicated to its insured in a highly unreasonable manner."
(Expert Rep. of Barbara Sciotti at 12.)
While not disputing that a delay occurred in the resolution of
Kilmers' insurance claim,*fn13 Connecticut Indemnity takes
the position that:
all of Connecticut Indemnity's actions in the
handling of the Kilmer claim fell within the ambit of
what an insurer is allowed and required to do under
law. The record demonstrates that after a thorough
investigation, Connecticut Indemnity was faced with a
potentially fraudulent claim. Acting reasonably and
in a diligent manner, Connecticut Indemnity requested
the Plaintiffs to appear for an examination under
oath. Twenty-nine (29) days later, Connecticut
Indemnity decided to honor the claim.
(Def.'s Br. in Supp. of Mot. for Summ. J. at 29.)
This is a close case on whether a jury could find by clear and
convincing evidence bad faith on the part of Connecticut
Indemnity. The delay in this case is not egregious. On the other
hand, Connecticut Indemnity never developed any evidence to
suggest that the Kilmers set the fire. Moreover, Connecticut
Indemnity did not take steps that would ordinarily be pursued to
support a fraudulent claim contention, such as securing income
tax returns of the insureds. It knew that the insureds were not
having financial difficulties and were in the process of
improving the property. Furthermore, the record of Connecticut
Indemnity's communications with its insureds (or more properly
the lack of communication) is unsettling. Finally, there is the
report of the insurance practices expert, who opines that a
six-month delay in conducting the Examination Under Oath of the
insureds was "highly unreasonable," and that Connecticut
Indemnity recklessly disregarded the lack of a reasonable basis
to deny the Kilmers' claim and needlessly prolonged the process.
Summary judgment is not favored in doubtful cases. Velardi v.
Walsh, 40 F.3d 569, 574 (2d Cir. 1994). Whether Connecticut
Indemnity lacked a reasonable basis for its handling of this
claim and effective denial of it until February of 1999 and
whether it recklessly disregarded the lack of a reasonable basis
for its actions are questions on which reasonable minds might
disagree. Accordingly, summary judgment on the issue is
For the foregoing reasons, Connecticut Indemnity's motion for
summary judgment will be denied. An appropriate Order follows.