Robert Luse and Kay Luse sued Liberty Mutual Fire Insurance Company for Statutory Bad Faith. In this First-Party case, the Luses suffered a fire in their home. They were the Policyholders on a LibertyGuard Condominium Policy. After the fire, Liberty conducted an investigation and determined that the Luses' house was liveable. Mr. Luse experienced a deterioration in his health, apparently, and "a drop in his oxygen saturation levels." Mr. Luse was being treated by a respiratory therapist but there was no evidence that Liberty knew this at the time. The Luses sued Liberty for an alleged Bad Faith Investigation, among other things, under 42 Pa. C.S.A. ยง 8371. Luse v. Liberty Mutual Fire Insurance Co., Download Luse v. Liberty Mutual Fire Insurance Co. (M.D. Pa. Case No. 1.09.CV.1221, Opinion Filed July 7, 2010) also published as 2010 WL 2698342 *1-*2 (M.D. Pa. July 7, 2010)(Westlaw subscription required to access Westlaw).
The Federal Court noted that the Pennsylvania Statute does not define "Bad Faith," but that Pennsylvania State Case Law has defined that term. It means, for purposes of Section 8371, "'frivolous or unfounded refusal to pay proceeds of a policy which imports a dishonest purpose and means a breach of a known duty (i.e. good faith and fair dealing), through some motive of self-interest or ill will; mere negligence or bad judgment is not bad faith.'" Luse, 2010 WL 2698342 at *4. "In addition, there is a heightened burden of proof in bad faith claims, and a plaintiff must demonstrate by clear and convincing evidence that an insurer acted in bad faith." Id.
The Federal Court held that Liberty's investigation in this First-Party Case was not "Bad Faith" under the Pennsylvania Statute and granted Liberty's Motion for Summary Judgment. With regard to LIberty's investigation, the Court reviewed the record and summarized its holding in this conclusion, in pertinent part:
Liberty was under a duty to reasonably investigate all claims, and the undisputed facts in this case suggest that they met this obligation. If Plaintiffs believed they needed to be relocated due to health concerns they should have raised this issue when they contacted Liberty. Instead, they mentioned nothing until August 10, 2007, at which time passing comment was made that individuals in the house had respiratory issues. No request was made that they be relocated, and the cleaning that was requested was immediately authorized. It was not until the call from Ms. Shultz [Mr. Luse's respiratory therapist] on August 24, 2007, that Liberty became aware of Mr. Luse's health condition, after which, Liberty immediately undertook to have the family relocated. Plaintiffs have failed to present that there are genuine issues of material fact, which if resolved in Plaintiffs' favor would allow a reasonable jury to conclude, by clear and convincing evidence, that Liberty acted in bad faith. Therefore, summary judgment for Liberty will be granted.
Id. at *6. [Emphasis added.]
It may be that the same result in this particular case would have been reached on the same record if the burden of proof had been by a preponderance of the evidence instead of by clear and convincing evidence.
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