Montgomery v. Federal Ins. Co.
| Decision Date | 02 November 1993 |
| Docket Number | Civ. A. No. 92-0041. |
| Citation | 836 F. Supp. 292 |
| Parties | R. Alexander MONTGOMERY, Plaintiff, v. FEDERAL INSURANCE CO., Defendant. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Richard L. Scheff, Catherine E. Pappas, Douglas L. Overtoom, Montgomery, McCracken, Walker & Rhoads, Philadelphia, PA, for plaintiff.
Eric D. Freed, Cozen and O'Connor, Philadelphia, PA, Thomas McKay, III, Cozen & O'Connor, Westmont, NJ, for defendant.
Presently before the Court is the motion for summary judgment of defendant, Federal Insurance Company, pursuant to Rule 56 of the Federal Rules of Civil Procedure. This matter stems from the complaint of plaintiff, Mr. R. Alexander Montgomery, alleging claims of breach of contract, fraud, bad faith, conversion and tortious interference with contract against defendant pursuant to defendant's denial of an insurance claim made by plaintiff. Plaintiff filed the insurance claim when part of his collection of military orders, insignia and medals (the "Collection") valued at approximately two million dollars was allegedly stolen. Defendant has filed a counterclaim in this case alleging that plaintiff's claim was fraudulent and that defendant should recover attorney's fees, costs of investigation and costs of suit, pursuant to the Pennsylvania Insurance Fraud Statute, 18 Pa.C.S.A. § 4117.
In its motion, defendant states the following reasons why summary judgment should be granted in its favor. First, that plaintiff cannot prevail on the breach of contract claim because the evidence clearly shows that plaintiff misrepresented and concealed facts in order to obtain insurance coverage, and therefore has violated the concealment and fraud clause of the insurance policy, as well as Pennsylvania common law. Second, that based upon the evidence of fraud committed by plaintiff, there was good cause to deny plaintiff's claim and thus plaintiff's bad faith claim must fail. Third, there is no evidence to support plaintiff's claims of fraud or tortious interference with contract. Fourth, plaintiff paid the insurance premiums out of a contractual obligation, thus plaintiff's claim of conversion does not satisfy the requisite elements of that tort. Plaintiff's response to the motion for summary judgment raises several reasons why summary judgment should be denied with respect to all of these issues, except that plaintiff now stipulates that summary judgment is appropriate with regard to the tortious interference with contract claim (Count V of plaintiff's complaint).
In considering a motion for summary judgment, the court must consider whether the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, show there is no genuine issue as to any material fact, and whether the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c). The court is required to determine whether the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). In making this determination, all reasonable inferences must be drawn in favor of the nonmoving party. Anderson, 477 U.S. at 256, 106 S.Ct. at 2512. While the movant bears the initial burden of demonstrating an absence of genuine issues of material fact, the nonmovant must then establish the existence of each element of its case. J.F. Feeser, Inc., v. Serv-A-Portion, Inc., 909 F.2d 1524, 1531 (3rd Cir.1990), cert. denied, 499 U.S. 921, 111 S.Ct. 1313, 113 L.Ed.2d 246 (1991) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986)).
This is a case that involves claims of fraud by both parties. According to plaintiff, he is the victim of two "crimes" because his two million dollar Collection has been stolen and because defendant never intended to insure plaintiff and will not now pay out the insurance proceeds owed to him. According to defendant, plaintiff has committed insurance fraud by concealing the fact that his Collection was counterfeit and by now filing an insurance claim for the stolen items.
This saga began when plaintiff, an 82 year old man, began collecting various military orders, medals and insignia in late 1970. By 1983, he began to pursue a more directed goal with regard to his Collection when he met Mr. Alexander Tenzer, a man who held himself out as an expert in medals and decorations. An arrangement was made whereby Mr. Tenzer began to find various medals for plaintiff to purchase, he would then obtain the medals and sell them to plaintiff, making a commission in the process. Over a period of a couple of years, plaintiff paid at least $1,832,755.97 to Tenzer in connection with these sales. By 1985, plaintiff's Collection had been appraised at $4,352,085.00 by another medal expert, Mr. John Gross.
It was at this time that plaintiff decided to sell his Collection, in part to provide a lump sum of money to his wife in case he predeceased her, and in part because he owed a substantial amount of money due to his pursuit of the Collection. In order to liquidate the Collection, he began to contact various auction houses in London, England through Mr. Peter Wesley-Burke, a distant relative who acted as plaintiff's agent. However, when representatives of various auction houses, such as Sotheby's, Inc., Spink and Son, Christie, Manson & Woods ("Christie's") and Glendinings, began to inspect his Collection for possible purchase, they concluded that the majority of pieces in the Collection were not authentic, and therefore they could not purchase the Collection. However, at the same time, plaintiff sold other pieces of the Collection and received offers to sell other pieces, in part from some of these same auction houses. However, despite numerous efforts undertaken by plaintiff and Wesley-Burke to sell the Collection throughout the years, the majority of it remained unsold.
Sometime in July 1990, plaintiff filed an insurance claim with defendant, claiming that a substantial part of the Collection, worth nearly two million dollars, had been stolen. Plaintiff claims that he entrusted the medals with Mr. Tenzer, the man from whom he originally bought the medals, with the hope that Tenzer could find a suitable buyer for the Collection. Plaintiff states that while Tenzer was authorized to exhibit the Collection, he was not authorized to dispose of or sell the Collection. When it appeared that a potential buyer, the Sultan of Brunei, was interested in viewing the Collection, plaintiff requested Tenzer to return it. Apparently Tenzer promised to do so, however, first he stalled and then he claimed he had sent it to another medal expert in Germany. Plaintiff never received the Collection from Tenzer. In October, 1991, defendant denied plaintiff's insurance claim.
Defendant first claims that summary judgment on plaintiff's breach of contract claim is warranted because defendant was entitled to rescind the insurance policy due to plaintiff's misrepresentations and fraudulent concealment.1 Plaintiff makes several arguments in response to the motion for summary judgment on the breach of contract issue. First, plaintiff asserts that the insurance policy is a "valued" policy which means that it cannot be rescinded due to alleged misrepresentations based on value. Plaintiff essentially argues that because in valued policies the parties agree upon the value of the insured item, and because defendant had the opportunity to ascertain the value of the Collection by performing its own appraisal and did not do so, defendant cannot now deny the claim based on any alleged misrepresentations. Second, plaintiff argues that there are genuine issues of material fact regarding the elements of defendant's claim of misrepresentation. Third, plaintiff argues that defendant was not justified in relying upon the representations of plaintiff and Mr. Wesley-Burke. Finally, plaintiff argues that he had no obligation to disclose the opinions of the auction houses regarding his Collection because fraud only deals with misrepresentations of material facts and not opinions. Because we agree that defendant has not sustained its burden in showing that no genuine issue of material fact exists with regard to its fraud claim, we need not reach all of plaintiff's arguments here.2
In order to rescind an insurance policy for fraud or misrepresentation in Pennsylvania, an insurer must prove three elements. First, the insurer must prove that the representation was false. Second, the insurer must prove that the insured knew the representation was false when it was made or that it was made in bad faith. Finally, the insurer must prove that the representation was material to the risk being insured. New York Life Ins. Co. v. Johnson, 923 F.2d 279, 281 (3rd Cir.1991); American Franklin Life Ins. Co. v. Galati, 776 F.Supp. 1054, 1059 (E.D.Pa.1991); United Nat'l Ins. Co. v. J.H. France Refractories Co., 417 Pa.Super. 614, 612 A.2d 1371, 1377 (1992) allocatur granted, 533 Pa. 646, 622 A.2d 1377 (1993); A.G. Allebach, Inc. v. Hurley, 373 Pa.Super. 41, 540 A.2d 289, 294 (1988). Further, a representation is material if the insurer would not have insured the party had it known about the concealed information, if the information would have caused the insurer to demand a higher premium or if the information would have affected the insurer's ability to evaluate the degree and character of the risk. New York Life, 923 F.2d at 281; American Franklin, 776 F.Supp. at 1060, Allebach, 540 A.2d at 295. Moreover, the representation does not even have to relate to the claimed disability for which benefits are sought, as long as the representation is relevant to the risk assumed. American Franklin, 776 F.Supp. at 1060, n. 9 (citations omitted).
Defendant's claims of fraud center around two...
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