Opinion
C.A. No. 03C-06-037 WLW.
Submitted: February 4, 2005.
Decided: March 22, 2005.
Upon Defendants' Motions for Summary Judgment. Denied.
Upon Defendants' Motion for Partial Summary Judgment as to Counts III and IV. Granted.
William D. Fletcher, Jr., Esquire of Schmittinger Rodriguez, P.A., Dover, Delaware; attorneys for the Plaintiffs.
William J. Cattie, III, Esquire of Rawle Henderson, LLP, Wilmington, Delaware; attorneys for the Defendants.
ORDER
Upon consideration of Defendants' motions for summary judgment and both parties' arguments that were presented before this Court on February 4, 2005, it appears to the Court that:
This case arises from a homeowners insurance policy that was entered into by Rosa Fuentes Smith, Carry W. Smith and Chauntel Smith ("Plaintiffs") with Keystone Insurance Company and AAA Mid-Atlantic Insurance Group ("Defendants"). On June 12, 2001, Plaintiff Rosa Smith completed an insurance application at the AAA Mid-Atlantic location by conveying answers to Defendants' insurance agent, Mr. Mosely, who would write her responses onto the application. Plaintiff Rosa Smith completed the insurance application with Mr. Mosely but departed without signing it. Plaintiff Carry Smith returned to AAA Mid-Atlantic Insurance Group the following day and signed the insurance application. The insurance application signed by Plaintiff Carry Smith stated that Plaintiffs had no prior Delaware claims although they actually had a prior Delaware claim as a result of a burglary that occurred on December 16, 2000. Plaintiffs paid the full premium on the insurance policy and received coverage commencing on July 13, 2001 and scheduled to remain effective until July 13, 2002.
On May 19, 2002, Plaintiffs' residence was burglarized and Plaintiffs sought payment under their insurance policy for their losses sustained. Defendants allege to have learned for the first time during their investigation of this burglary that Plaintiffs had sustained an earlier burglary which they failed to report on their insurance application. On June 17, 2002, Defendants informed Plaintiffs that their insurance policy had been rescinded on the basis of their material misrepresentation and concealment in obtaining the policy. On June 19, 2002, Plaintiffs received a cancellation notice from Defendants indicating that their insurance policy would expire on July 13, 2002. On June 26, 2002, Plaintiffs' residence was damaged by fire. Plaintiffs attempted to recover for the damages sustained in the fire under their insurance policy but Defendants have refused to pay for such damages contending that the insurance policy was effectively rescinded on June 17, 2002.
On June 19, 2003, Plaintiffs filed a complaint against Defendants alleging two counts of breach of contract and two counts of breaching the contract in bad faith. Defendants have filed two motions for summary judgment and one motion for partial summary judgment. Defendants contend that summary judgmentis appropriate based upon the material misrepresentation made by Plaintiffs in their insurance application. Pursuant to their insurance contract and 18 Del. C. § 2711, Defendants contend that the insurance policy was legally rescinded on June 17, 2002 due to Plaintiffs' material misrepresentation. Defendants also contend that summary judgment is appropriate because Plaintiffs do not have an expert who can testify to the appropriate standard of care owed by Defendants. Defendants' final contention is that partial summary judgment is appropriate with respect to Plaintiffs' claims for bad faith because a reasonable justification existed for Defendants' decision to withhold payment under the policy. For the reasons set forth below, Defendants' motion for partial summary judgment with respect to Counts III and IV are granted but Defendants' remaining two motions for summary judgment are denied.
Standard of Review
Superior Court Civil Rule 56(c) provides that judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." On a motion for summary judgment the Court examines the record to determine whether any material issues of fact exist. Summary judgment will only be granted when, after viewing the record in a light most favorable to the nonmoving party, no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Summary judgment will not be granted when a more thorough inquiry into the facts is desirable to clarify the application of the law to the circumstances.Material Misrepresentation
Defendants allege that Plaintiffs obtained their insurance policy by misrepresenting and concealing a previous Delaware insurance claim that they submitted as a result of a burglary that occurred in December of 2000. Defendants contend that Plaintiffs not only failed to disclose the burglary on their insurance application but affirmatively misrepresented that they had no Delaware claims in the past three years. Defendants further assert that the policy would not have been issued but for Plaintiffs' material misrepresentation. Because the insurance application contains a material misrepresentation that is attributable to Plaintiffs, Defendants contend that they are legally entitled to rescind their insurance policy pursuant to their insurance contract and 18 Del. C. § 2711. Accordingly, Defendants contend that summary judgment is appropriate because the insurance policy was effectively rescinded on June 17, 2002.Title 18, Section 2711 of the Delaware Code governs representations made in insurance applications. 18 Del. C. § 2711 provides:
All statements and descriptions in any application for an insurance policy or annuity contract by or in behalf of the insured or annuitant shall be deemed to be representations and not warranties. Misrepresentations, omissions, concealment of facts and incorrect statements shall not prevent a recovery under the policy or contract unless either:
(1) Fraudulent; or
(2) Material either to the acceptance of the risk or to the hazard assumed by the insurer; or
(3) The insurer in good faith would either not have issued the policy or contract, or would not have issued it at the same premium rate or would not have issued a policy or contract in as large an amount or would not have provided coverage with respect to the hazard resulting in the loss if the true facts had been made known to the insurer as required either by the application for the policy or contract or otherwise.
A misrepresentation is simply an assertion that is contrary to the facts. Misrepresentation is a question of fact when there is conflicting evidence and a question of law when the evidence is only reasonably susceptible to one interpretation. Although the statement of "No Delaware Claims" made in the insurance application is absolutely a misrepresentation, a factual dispute still exists as to the liability for such statement. Neither plaintiff physically wrote "No Delaware Claims" onto the application. The insurance application was completed by Defendant's Insurance Agent, Mr. Mosely, based upon the alleged statements provided by Plaintiff Rosa Smith. Plaintiff Rosa Smith contends that Mr. Mosely was informed of their prior loss and the name of their previous provider that handled their claim as evidenced by the notation of Donegal Mutual, Plaintiffs' previous insurance provider, on the insurance application. Rosa Smith also contends that she did not sign the application nor verify the truthfulness of Mr. Mosely's writings that purportedly memorialized her assertions. Plaintiff Carry Smith subsequently went to the insurance office for the sole purpose of signing the application. Plaintiff Carry Smith stated that he did not recall observing any writing in the box where the insurance application now reads "No Delaware Claims" prior to signing the contract. Although Plaintiff Carry Smith signed the application, a factual dispute remains as to when the statement "No Delaware Claims" was placed onto the application. Therefore, summary judgment is inappropriate because a material issue of fact exists as to whether this misrepresentation is attributable to Plaintiffs.
1 Restatement (Second) of Contracts § 159; Goode v. Alexander Hamilton Life Insurance Company, 1995 Del. Super. LEXIS 31, at *5.
Goode, 1995 Del. Super. LEXIS 31 at *6.
A material issue of fact also exists as to whether the misrepresentation was material to the issuance of the insurance policy. The Restatement (Second) of Contracts, § 164(2) states "a misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so." Defendants contend that the applicable guidelines would not have allowed the policy to have been issued had Plaintiffs' prior claim been known. Plaintiffs, however, assert that their insurance application is within the permissible limits set by such guidelines even if their prior Delaware claim had been disclosed. Accordingly, a factual dispute remains as to whether an agent adhering to the guidelines would have nonetheless issued the insurance policy having known of Plaintiffs' prior Delaware claim. Because material issues of fact exist concerning the misrepresentation on the insurance application that is allegedly attributable to the Plaintiffs, summary judgment is inappropriate and Defendants' first motion for summary judgment is hereby denied.
1 Restatement (Second) of Contracts § 164(2).
Bad Faith Claims
Plaintiffs' complaint in Count III alleges that Defendants arbitrarily, capriciously, unreasonably, and maliciously delayed and denied payment of coverage benefits for Plaintiffs' fire damage claim. Plaintiffs' complaint in Count IV alleges that Defendants' extreme and outrageous actions in unreasonably delaying and refusing to pay benefits have caused Plaintiffs to suffer emotional distress. Defendants contend that partial summary judgment is appropriate with regards to Counts III and IV of Plaintiffs' complaint because no evidence exists that Defendants have acted in bad faith. Defendants contend that the material misrepresentation contained in Plaintiffs' insurance application created a legitimate dispute regarding Defendants' liability. Because there was a reasonable justification to withhold payment under the insurance policy, Defendants contend that there can be no finding of bad faith as a matter of law. This Court agrees and Defendants' motion for partial summary judgment is granted.Bad faith is only actionable when the insured can show that the insurer's refusal to honor its contractual obligation was clearly without any reasonable justification. "The ultimate question is whether at the time the insurer denied liability, there existed a set of facts or circumstances known to the insurer which created a bona fide dispute and therefore a meritorious defense to the insurer's liability." Further, "the question of bad faith refusal should not be submitted to the jury unless it appears that the insurer did not have reasonable grounds for relying upon its defense to liability."
Tackett v. State Farm Fire and Casualty Insurance Company, 653 A.2d 254, 264 (Del. 1995).
Casson v. Nationwide Insurance Company, 455 A.2d 361, 369 (Del.Super. 1982).
Id.
Defendants withheld payment of Plaintiffs' claims contending that their insurance policy had been effectively rescinded pursuant to their insurance contract and 18 Del. C. § 2711 as a result of the material misrepresentation contained in Plaintiffs' insurance application. Plaintiffs' insurance application specifically stated that no Delaware claims were filed within the past three years when a theft and physical damage claim in excess of $25,000.00 actually occurred within that time period as a result of a burglary. Although Plaintiffs may ultimately be purged from all liability concerning this misrepresentation in the insurance application, the insurance application containing the misrepresentation which was signed by Carry Smith nonetheless gave Defendants reasonable grounds to believe that they could legally rescind the contract. Because Defendants' refusal to honor its contractual obligation was not clearly without any reasonable justification, there can be no finding of bad faith as a matter of law. Accordingly, Defendants' motion for partial summary judgment with respect to Counts III and IV is hereby granted.
Expert Witness
Defendants contend that summary judgment is appropriate because Plaintiffs have failed to produce an expert who can testify to the appropriate standard of care owed by an insurance agent, underwriter or claims adjuster. While expert testimony may be helpful to Plaintiffs in establishing whether Defendants mishandled Plaintiffs' claim, Plaintiffs can be successful on their contractual claims irrespective of the standard of care owed and exercised by the Defendants. Accordingly, Defendants' motion for summary judgment is hereby denied.Based upon the aforementioned reasons, Defendants' motion for partial summary judgment with respect to Counts III and IV is hereby granted and Defendants' remaining two motions for summary judgment are hereby denied.
IT IS SO ORDERED.