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Federal Jury Rejects Bad Faith Claim, Voids Policy Based on Insured’s Material Misrepresentations

Blogs, Insurance Coverage

A jury in United States District Court, District of Connecticut returned a unanimous defense verdict on July 28, 2011 in the case of The Estate of Frederick Mali and Lucretia Mali v. Federal Insurance Company, Case. No. 3:06-CV-0147 (D. Conn.). I

The case arose from an April 1, 2005 fire that destroyed a barn on the insured’s 400 acre estate in Litchfield County, CT. The property contained two buildings; a main house and a large post-and-beam barn that contained a small living area. The insureds, who reside in New York City, used the property as a weekend retreat. Following the fire, the insureds, who had a Masterpiece homeowners insurance policy with Chubb/Federal Insurance Company (“Federal”) which included replacement cost coverage, filed an insurance claim exceeding $2.3 million for the reconstruction of the barn and its contents.

Federal contended that during the adjustment of the claim, the insureds made numerous misrepresentations concerning the size of the living area and the quality of construction of the barn. Ultimately, the insureds commenced litigation against Federal in August 2005, asserting claims for declaratory judgment, breach of contract and common law and statutory bad faith.

Prior to trial, Federal was able to exclude evidence that the insureds attempted to rely upon to show bad faith, including evidence of the insurer’s loss reserves concerning the claim. You may read the Court’s ruling granting Federal’s Motion in Limine. The court’s decision concerning the inadmissibility of evidence relating to loss reserves should be helpful to insurers defending similar spurious claims here in Connecticut and elsewhere.