Opinion ID: 1789862
Heading Depth: 1
Heading Rank: 2

Heading: investigation of the misrepresentation

Text: Standard Plan also argues that it conducted an investigation by obtaining an MVR report on Lehman Tucker after it received his application on July 20, 1987. Based on this investigation, Standard Plan says, it discovered a misrepresentation of a material fact in that Lehman Tucker had not listed on the application the accident that had occurred on July 1, 1987. Therefore, Standard Plan contends that it had an arguable reason to deny Lehman Tucker's claim and to rescind the binder. The Tuckers' bad faith claim is based on the allegation that Standard Plan failed to investigate whether Lehman Tucker was at fault in the July 1, 1987, accident and whether he had intended to deceive Standard Plan. The Standard Plan application stated that [i]n the event the policy is issued, [Standard Plan] may declare the policy null and void if any of the answers are false and made with the intent to deceive and materially affect the risk which the company assumes by issuing the policy. (Emphasis added.) Therefore, any misrepresentation in the application must be material and made with the intent to deceive before Standard Plan could rescind the policy. United States Fidelity & Guaranty Co. v. Jacksonville State Univ., 357 So.2d 952 (Ala.1978). [6] In Aetna Life Ins. Co. v. LaVoie, 505 So.2d 1050 (Ala.1987), and Continental Assurance Co. v. Kountz, 461 So.2d 802 (Ala. 1984), the Court recognized that an intentional failure on the part of an insurer to determine whether there was a lawful basis for denying a claim could be established by proof that the insurer either intentionally or recklessly failed to properly investigate the claim or to subject the results of the investigation to a cognitive evaluation and review. In Aetna, the Court stated: considering the fact that the decision to deny [the claim] was made without the benefit of `critical' sections of the medical file, the jury could find that the claim was not `properly investigated,' and that there was a `reckless indifference to the facts or to proof.' Aetna, 505 So.2d at 1053. See also, Thomas, supra ; Blue Cross & Blue Shield of Alabama v. Granger, 461 So.2d 1320 (Ala.1984), and Carter v. Old American Ins. Co., 544 So.2d 917 (Ala.1989). Likewise, if Standard Plan's decision to rescind the Tuckers' binder was made without the benefit of critical information needed to make such a determination, then the jury could reasonably find that Lehman Tucker's claim was not properly investigated and that Standard Plan exhibited a reckless indifference to the facts in evaluating the claim. The existence of bad faith must not be determined in a vacuum, but taking into account the particular circumstances existing at the time the insurer denied the claim. We hold that the evidence in this case was such that the jury could have reasonably found that Standard Plan either intentionally or recklessly failed to investigate the nature of the July 1, 1987, accident and whether Lehman Tucker had intended to deceive Standard Plan. One criterion set out in the Standard Plan underwriting guidelines stated that anyone with three or more at-fault motor vehicle accidents within the previous two years was an unacceptable risk. The application Bryant prepared listed two at-fault accidents involving Lehman Tucker. Consequently, the determination of whether Lehman Tucker was at fault in the July 1, 1987, accident and whether he had intentionally tried to deceive Standard Plan regarding that accident would govern whether he was an unacceptable risk as defined by the Standard Plan underwriting guidelines. An underwriter for Standard Plan testified that a number of criteria were considered before Standard Plan would determine whether an accident was not an at-fault accident. Such a determination of fault would usually be made by the agent after reviewing the accident report. According to this witness, if an application did not list an accident that is shown on an MVR, then Standard Plan automatically considered that accident to be an at-fault accident. This witness also testified that it was Standard Plan's usual business practice to rescind binders that had been issued to applicants if it was determined that they had failed to list an accident on the application. When Standard Plan decided to rescind Lehman Tucker's binder on July 29, 1987, it had the following before it: an application dated July 8, 1987, but not mailed in by Insurall until July 15, 1987; the Tuckers' $434 premium payment; an MVR dated April 30, 1987, attached to the application (the information on that MVR matched the information in the application); Lehman Tucker's claim for the accident that had occurred on July 13, 1987, which had been reported by Insurall on July 16, 1987; and the July 23, 1987, MVR, which showed that Lehman Tucker had been involved in an accident on July 1, 1987, that was not reported in the application. The July 23, 1987, MVR did not indicate who was at fault in any of the accidents. Based on the above evidence, the jury could have reasonably found that Standard Plan intentionally or recklessly failed to subject the July 1, 1987, accident to a cognitive evaluation and review in order to avoid paying the claim that Lehman Tucker had filed on July 16, 1987. Therefore, we hold that there was sufficient evidence presented at trial to support a jury finding that Standard Plan had acted in bad faith in failing to investigate the claim.