Case Bulletin – Federal District Court Considers Effect of an Insured’s Poor English Skills on Claims for Insurance Breach of Contract and Bad Faith
On February 10, 2015 the United States District Court for the Eastern District of Pennsylvania released a new opinion examining aspects of Pennsylvania’s insurance law including breach of contract, bad faith, and insurance fraud. Henriquez-Disla v. Allstate Prop. & Cas. Ins. Co., No. CIV.A. 13-284, 2015 WL 539550 (E.D. Pa. 2015). In Henriquez-Disla, the Plaintiffs purchased a homeowners’ policy with Allstate. When doing so, the husband made a number of misrepresentations, including their move-in date, marital status, and so on. Allstate’s policy excluded coverage for losses in which any insured misrepresented material facts or circumstances. A few months after moving in, the Plaintiffs made separate claims for both theft and fire. A fire marshal reported that the fire appeared to be incendiary and began in the bedroom closet. Allstate denied Plaintiffs’ insurance claims, but claimed it did so due to the Plaintiffs’ material misrepresentations as opposed to the suspicion of arson. Id. at *3 n. 4. The Plaintiffs then filed suit for breach of contract and bad faith. Allstate responded by counterclaiming for insurance fraud. The district court considered both parties’ motions on summary judgment.
First, the court considered whether the incorrect statements made by the husband and his wife were material misrepresentations. In order for a statement to be a material misrepresentation, it must be (1) knowingly false, and (2) material. Id. at * 3. Usually this is a question of fact for the jury, but it can be decided as a matter of law where the facts that were misrepresented are so obvious that reasonable minds cannot differ. Id. The court went through an exhaustive analysis listing all of the alleged misrepresentations and ultimately concluded that none of them could be considered material on summary judgment. One of the central reasons for this ruling was that the husband had a significant language barrier and was not fluent in English. This was mentioned by the court seven different times throughout this portion of the opinion. Therefore, this case seems to suggest that where a non-English speaking individual makes misrepresentations to his insurer, at least at the summary judgment stage, courts may assume that his misrepresentations were due to a language barrier as opposed to a knowingly false misrepresentation.
Next, the court considered whether Allstate’s denial of coverage could be considered bad faith under 42 Pa.C.S. § 8371. The court explained that bad faith places a high burden on the plaintiff, and it cannot be found where the insurer’s conduct was in accordance with a reasonable but incorrect interpretation of the insurance policy and the law. Id. at *9. Thus, an insurance company can show that it conducted a review or investigation that yielded a reasonable foundation for its action. Id. The court explained that “[a]lthough there may be explanations for the [husband’s] inconsistencies, including a language barrier, there were sufficient contradictions in the testimony to justify Allstate’s decision.” Id. Therefore, even though the Plaintiff’s misrepresentations due to his language skills were insufficient to dismiss his breach of contract claim, they were sufficient to deny a claim against his insurer for bad faith.
Finally, the court briefly reviewed the law of insurance fraud in Pennsylvania. 18 Pa.C.S. § 4117. For the same reasons as those given in the breach of contract section above, the court denied making a ruling on summary judgment. However, the court did note that the applicable burden of proof for insurance fraud is unclear. Id. at *12. The court asked both parties to submit briefs arguing whether the proper burden should be clear and convincing or preponderance of the evidence. While no answer was been given, perhaps a decision will be published explaining which burden is correct once this case is concluded.