Guideone Mut. Ins. Co. v. Rock,
1:06-CV-218, 2009 U.S. Dist. LEXIS 54717
(N.D. Miss. June 29, 2009)
On August 27, 2005, the Rocks’ home and two vehicles were destroyed by a fire. The Rocks had a homeowner’s and auto insurance policy with Guideone Mutual Insurance Company. Following the Rocks’ loss, the Rocks filed claims with their insurer for damage to their home, damage to the contents of their home, and vehicle damage.
On July 31, 2006 Guideone denied the Rocks’ insurance claims. Guideone denied the claims based on alleged material misrepresentations regarding Mr. Rock’s criminal history on the homeowner’s insurance policy application, and the Rocks’ failure to comply with their contractual duties throughout the claim investigations, such as concealment regarding their claims, intentional acts, and failure to produce their children for examinations under oath.
Guideone sought declaratory judgment in the U.S. District Court for the Northern District of Mississippi that it was entitled to rescind the homeowner’s insurance policy and had no duty to indemnify the Rocks’ insurance claims. The Rocks filed a counterclaim alleging bad faith throughout the claim investigations and subsequent claim denials. Guideone then filed a Motion for Summary Judgment that the Rocks’ homeowner’s policy was void due to alleged material misrepresentations on the insurance application, that the loss for home and auto was excluded due to material misrepresentations and concealment throughout the claim investigations, that the Rocks failed to perform contractual duties during the claim process, and that its claim investigations and denials did not constitute bad faith. The U.S. District Court for the Northern District of Mississippi granted Guideone’s Motion for Summary Judgment holding that Guideone’s investigation and subsequent claim denials did not constitute bad faith, but denied Guideone’s Motion for Summary Judgment on all material misrepresentation and failure to perform contractual duties issues.
Under Mississippi law misstatements of material fact in insurance applications provide grounds to declare a policy issued in reliance on such statements void. A misrepresentation is considered material if (1) the application contains answers which are false, incomplete, or misleading; and (2) the false, incomplete, or misleading answers are material to the risk contemplated by the policy. The court noted, however, that an insurer cannot rescind a policy for material misrepresentations if an insured acted in good faith, and any false answers were inserted without his or her knowledge. Thus, an applicant had not misrepresented if he or she answered all questions asked. According to the Rocks, Guideone’s agent never asked them the application question whether or not a household member had any criminal convictions, and thus answered all application questions in good faith. The record, however, contained conflicting testimony on whether or not Guideone’s agent asked the Rocks the criminal history question. Therefore, there was a genuine issue of material fact as to whether or not the Rocks misrepresented their criminal history, and Guideone’s Motion for summary judgment was denied on that issue.
The court also denied Guideone’s Motion for Summary Judgment on other grounds and held that there was a genuine issue of material fact as to the Rocks’ alleged concealment during the claims process and intentional acts, and also held that the Rocks’ did not fail to perform their contractual duties by failing to produce their children for examinations under oath.
Guideone claimed they could deny the Rocks coverage based on the Rocks’ home and auto insurance policies’ concealment and intentional acts exclusions. First, Guideone claimed that the Rocks’ inconsistent statements regarding their financial condition amounted to concealment that excluded coverage. Under Mississippi law, in order to deny coverage based on concealment the insurer must establish that the insured knowingly and willfully made false statements that were material. In Mississippi, an insured’s financial matters are material to a fire investigation. However, Guideone used unsworn recorded statements and depositions without providing transcripts as evidence. The court concluded that such evidence was not proper Summary Judgment evidence because it required the court to make impermissible credibility determinations. Second, Guideone claimed that the Rocks’ loss was excluded because the damage was caused by arson. Not only did the Rocks’ policy have an intentional acts exclusion provision, but, in Mississippi arson is a defense to insurer liability even if it is not excluded in the policy. To invoke this defense, the insurer must prove (1) an incendiary fire, (2) motive of the insured to destroy the property, and (3) evidence that the insured had the opportunity to set the fire or to procure its being set. The court declined to grant Guideone’s Motion for Summary Judgment on this issue, however, because inconsistent testimony created a genuine issue of material fact.
Finally Guideone claimed that the Rocks’ failure to produce their children for examinations under oath was a breach of the Rocks’ home and auto insurance policy provisions that required the "insured" to submit to questions under oath. The court concluded, however, that the Rocks’ children were not considered the "insured" under the homeowner’s insurance contract. The Rocks’ homeowner’s insurance policy defined "insured" as "you" and "your" and a spouse in the same household. The court reasoned that this language did not include the Rocks’ children. Likewise, the court concluded that the children did not have to submit for questioning under the auto insurance policy because the auto policy provided that a person seeking coverage must submit to questions, and the parents, not the children, were the persons seeking coverage. Thus, the court denied Guideone’s Motion for Summary Judgment on this basis.
The court ultimately granted Guideone’s Motion for Summary Judgment as to the Rocks’ bad faith counterclaim and held that Guideone’s investigation and subsequent denial of the Rocks’ claims did not constitute bad faith. In Mississippi insurers have a duty to perform an adequate investigation and make a reasonable, good faith decision based on that investigation. The court noted, however, that to show bad faith an insured must show more than mere negligence by the insurer. Instead the insurer must have denied a claim (1) without an arguable or legitimate basis, either in fact or in law, and (2) with malice or gross negligence in disregard of an insured’s rights. In Mississippi a policy exclusion or defense may constitute a good faith, arguable basis for denial. Accordingly, the court held that Guideone’s denials were not done in bad faith because they were based on valid policy provisions, and:
"were not the sort of tortuous conduct" such as "a conscious wrongdoing, dishonest purpose, willful wrong, malice, or reckless disregard of an insured’s rights necessary to support a bad faith claim."
You can read the full opinion here.