Material misrepresentations by an insured during the course of a carrier's arson investigation represents sufficient grounds to deny coverage under policy terms and defeat a bad faith action.

The plaintiff, a State Farm insured, brought an action against the defendant claiming that State Farm breached the insurance contract and failed to act in good faith in denying his homeowner's claim (pertaining to a house fire). State Farm asserted that the plaintiff misrepresented material facts pertaining to his financial status at the time of loss during the course its investigation. Specifically, the defendant posited that the plaintiff misrepresented whether the house was in foreclosure at the time of the fire and whether the plaintiff was current on all bills. The court noted that "[a] misrepresentation will be considered material if a reasonable insurance company, in determining its course of action, would attach importance to the fact misrepresented." The court found the coverage declination was appropriate. It reasoned, "[m]isrepresentation of foreclosure proceedings in an arson investigation is material, as the proceedings provide a motive for the insured to have participated in arson." The court dismissed the bad faith claim consistent with its finding that the insured committed a "material" misrepresentation.

Case Law Alert - 3rd Qtr 2012