Court Opinion

ID: 815572
Source: CourtListenerOpinion
Date Created: 2013-01-17 20:46:51+00
Date Added: 2024-06-11T15:13:27.630719
License: Public Domain

NOT PRECEDENTIAL

                    UNITED STATES COURT OF APPEALS
                         FOR THE THIRD CIRCUIT
                             _______________

                                 No. 11-4567
                               _______________

                           MICHAEL VERDETTO;
                           DEBORAH VERDETTO,

                                            Appellants

                                       v.

                STATE FARM FIRE & CASUALTY COMPANY
                           _______________

                 On Appeal from the United States District Court
                     for the Middle District of Pennsylvania
                         (D.C. Civil No. 3-10-cv-01917)
                    District Judge: Hon. A. Richard Caputo
                               _______________

                 Submitted Pursuant to Third Circuit LAR 34.1(a)
                               December 14, 2012

     BEFORE: GREENAWAY, JR., GREENBERG and COWEN, Circuit Judges

                            (Filed: January 17, 2013)
                               _______________

                                  OPINION
                               _______________

COWEN, Circuit Judge.
       Michael Verdetto and Deborah Verdetto (the “Verdettos”) appeal from an order of

the District Court granting summary judgment in favor of State Farm Fire & Casualty

Company (“State Farm”). We will affirm.

                                              I.

       We write exclusively for the parties who are familiar with the factual context and

legal history of this case. Therefore, we set forth only the facts that are necessary for our

analysis.

       The Verdettos rented a house in Avoca, Pennsylvania and obtained renters

insurance coverage from State Farm. Halfway through their lease, the Verdettos signed a

lease for a rental house in Forty Fort, Pennsylvania, and moved most of their property into

the Forty Fort house.

       A few weeks after moving into the Forty Fort house, there was a fire at the Avoca

house. The Verdettos contacted State Farm to report the fire, and told their State Farm

claims agent that they still had property at the Avoca house. In addition, they filled out an

inventory form, which indicated that they had lost a large number of valuable items in the

fire, many of them less than two years old.

       Following an investigation, the fire marshal determined that the cause of the fire

was arson. State Farm investigated the Verdettos‟ claim after noting that there were

several “red flags” including: (a) the fire marshal told State Farm that he ruled the fire to

be arson; (b) the Verdettos claimed to have lost numerous expensive items despite having

just moved to a new home; (c) the fire marshal commented that he did not see much

                                              2
personal property at the Avoca house after the fire; (d) the fire marshal informed State

Farm that the Verdettos may have previously been involved in an arson; and (e) the fire

loss was on new business for State Farm, as the house had only been insured for three

months prior to the fire.

       On numerous occasions during the course of its investigation, State Farm sent the

Verdettos an authorization for the release of financial information and telephone records.

It sought this information pursuant to Section I.2(d)(2) of the renters insurance policy,

entitled “Your Duties After Loss,” which states that: “After a loss to which this insurance

may apply, you shall see that the following duties are performed . . . as often as we

reasonably require: provide us with records and documents we request and permit us to

make copies.” (A-256.) This information was to be used by State Farm to rule out the

Verdettos‟ involvement in the setting of the fire. They repeatedly refused to sign the

authorization. State Farm concluded that the fire was caused by arson, and denied

coverage for a lack of cooperation.

       After the denial of the claim, the Verdettos filed suit in state court and State Farm

removed the case to the United States District Court for the Middle District of

Pennsylvania. Following discovery, the District Court entered an order granting summary

judgment for State Farm.1

                                             II.

1
  Our review of a grant of summary judgment is plenary. See United States ex rel. Quinn
v. Omnicare Inc., 382 F.3d 432, 436 (3d Cir. 2004).
                                              3
       The District Court properly granted State Farm‟s motion for summary judgment on

the Verdettos‟ claims of bad faith and breach of contract by their carrier. Under

Pennsylvania law, “[i]n an action arising under an insurance policy, if the court finds that

the insurer has acted in bad faith toward the insured,” the court can award the claimant

interest, punitive damages, court costs, and attorney fees. 42 Pa. Cons. Stat. § 8371. “To

recover for bad faith, „a plaintiff must show by clear and convincing evidence that the

insurer (1) did not have a reasonable basis for denying benefits under the policy and (2)

knew or recklessly disregarded its lack of a reasonable basis in denying the claim.‟” Post

v. St. Paul Travelers Ins. Co., 691 F.3d 500, 522 (3d Cir. 2012) (quoting Condio v. Erie

Ins. Exch., 899 A.2d 1136, 1143 (Pa. Super. Ct. 2006)). The defendant can defeat a

plaintiff‟s claim by showing that it had a reasonable basis to deny the claim. Id. at 523.

       It is not bad faith, however, for an insurance company to “conduct a thorough

investigation into a questionable claim.” Nw. Mut. Life Ins. Co. v. Babayan, 430 F.3d

121, 138 (3d Cir. 2005). Here, State Farm noticed several red flags, most notably that the

fire marshal labeled the fire as an arson and that the property that the Verdettos listed on

their inventory form was not found by the marshal at the site.

       We observe that when confronted with the question of an insured‟s duty to

cooperate, Pennsylvania courts have uniformly held that an insured has the responsibility

to cooperate in good faith with an insurer‟s investigation of a covered loss. See, e.g.,

Habecker v. Peerless Ins. Co., No. 07-CV-0196, 2008 WL 4922529, at *4 (M.D. Pa. Nov.

14, 2008); Ania v. Allstate Ins. Co., 161 F. Supp. 2d 424, 427 (E.D. Pa. 2001); Conway v.

                                              4
State Farm Ins. Co., No. CIV.A. 98-832, 1998 WL 966030, at *1 (E.D. Pa. Nov. 20,

1998); Forest City Grant Liberty Assocs. v. Genro II, Inc., 652 A.2d 948, 951-52 (Pa.

Super. Ct. 1995). Accordingly, the insured‟s failure to cooperate with the insurer‟s

investigation may relieve the insurer from liability under the insurance contract if the

failure is substantial and causes the insurer to suffer prejudice. See Ania, 161 F. Supp. 2d

at 427.

          The Verdettos argue that the District Court improperly granted summary judgment

because, under Pennsylvania law, whether there has been a material breach of an

insurance contract for lack of cooperation “is ordinarily for the jury.” Cameron v. Berger,

7 A.2d 293, 296 (Pa. 1938). While as a general matter this assertion is true, a district

court can nevertheless properly grant summary judgment “if the movant shows that there

is no genuine dispute as to any material fact and the movant is entitled to judgment as a

matter of law.” Fed. R. Civ. P. 56(a). The record is abundantly clear that the Verdettos

repeatedly failed to provide State Farm with financial and telephone records that they

were required to turn over. Based on this unambiguous evidence, the District Court

properly determined that State Farm‟s investigation was prejudiced by the Verdettos‟

failure to cooperate. See Ania, 161 F. Supp. 2d at 427. The District Court properly

granted summary judgment.

                                               III.

          For the foregoing reasons, we will affirm the Order of the District Court.2

2
    We will also grant State Farm‟s motion to strike page A-278 of the Appendix.
                                                5