Evidence Establishing Probability that Insured Set Fire to His Own House Sufficient to Defeat Bad Faith Claim


No Bad Faith if Preponderance of Evidence Exists That Insured Was an Arsonist

A fire at the home of Plaintiff Leo Ly caused extensive property damage. Defendant Universal Property and Casualty Insurance Company denied Plaintiff’s claim under his homeowner’s insurance policy, citing to an exclusion for loss caused intentionally by the insured. Defendant believes that Plaintiff started the fire himself to recover insurance proceeds to aid with his financial distress. In Leo Ly v. Universal Property & Casualty Insurance Company, Civil Action No. 19-1239, United States District Court For The Eastern District Of Pennsylvania (May 7, 2021) Mr. Ly sued for bad faith denial of his claim. The insurer asserted a counterclaim for insurance fraud against Plaintiff.


In 2013, Plaintiff purchased the property for $1.00 from his sister. Plaintiff took out a suspicious $180,000 mortgage on the property unnecessary to cover the purchase of the property. On May 9, 2017, Defendant issued Plaintiff a one-year insurance policy for this property. The insurance policy included an exclusion for “Intentional Loss,” defined as “any loss arising out of any act an ‘insured’ commits or conspires to commit with the intent to cause a loss.”

On March 5, 2018 five years after the purchase Ly was unable to pay his mortgage, was in poor financial condition, and although he claimed to be gambling in New Jersey evidence showed he was near the house at the time the fire was discovered at about 2:30 a.m.

After the fire, Plaintiff submitted a claim to Defendant who, after completing its investigation, denied the claim because of the policy’s “Intentional Loss” exclusion and because of insurance fraud.


Plaintiff argued that Defendant denied his insurance claim in bad faith. Under Pennsylvania’s bad faith statute: “In an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the insured, the court may take all of the following actions: (1) Award interest on the amount of the claim from the date the claim was made by the insured in an amount equal to the prime rate of interest plus 3%. (2) Award punitive damages against the insurer. (3) Assess court costs and attorney fees against the insurer.” [42 Pa. Cons. Stat. § 8371.]

To prevail on a bad faith claim, the plaintiff must present clear and convincing evidence (1) that the insurer did not have a reasonable basis for denying benefits under the policy and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis. Clear and convincing evidence has been defined as evidence that is so clear and direct as to permit the trier of fact to reach a clear conviction, without hesitancy, as to the truth of the facts at issue.

Based on all the information before Defendant at the time, Defendant’s conclusion that Plaintiff had intentionally set the fire was not unreasonable. There is substantial evidence in that record that reasonably leads to the conclusion that the fire was intentionally set, and that Plaintiff had both the motive and the opportunity to intentionally set it.

To begin with, the record contains considerable evidence that the fire was intentionally set. For example, during the fire, an arson canine unit alerted at 3 locations. In addition, the Fire Marshal of the Lower Southampton Township noted that the fire had two separate and unconnected areas of origin.

Also, Defendant hired EFI Global to conduct an origin and cause investigation of the fire. After examining the property damage, EFI Global concluded that the fire was intentionally set.

The record also contains significant evidence that Plaintiff had a financial motive for intentionally setting his property on fire. Plaintiff’s tax returns show little to no income in 2015 and 2016. Plaintiff’s property tax records show that he did not pay his property taxes in 2016 or 2017. Plaintiff had also missed a couple payments on his mortgage just prior to the fire. His bank records from March 2018 show that his checking account at times was overdrawn. Finally, the record contains substantial evidence that Plaintiff had the opportunity to intentionally set his property on fire.

The issue was not whether some evidence in the Defendant’s record supported coverage; the issue is whether the Defendant’s record as a whole reasonably justified denial of coverage.

Based on all the information before the court the Defendant’s conclusion that Plaintiff had intentionally set the fire was not unreasonable. The canine alert coupled with the Fire Marshal’s observations and the EFI Global Report suggest that the fire was intentionally set. Plaintiff’s financial records suggest that Plaintiff needed money. Plaintiff’s E-ZPass and bank records suggest that he was in the vicinity of his property at the time the fire began contrary to his sworn testimony.

Because Plaintiff has not shown by clear and convincing evidence that Defendant lacked a reasonable basis to deny the claim, Defendant is entitled to summary judgment in its favor on the bad faith claim. Accordingly, Defendant’s motion will be granted.

After reviewing all the documents submitted by the parties, Plaintiff’s entitlement to coverage continues to be questionable but must be determined by a jury.

The issue of coverage and insurance fraud are more appropriate for a jury to decide. Accordingly, Plaintiff’s Motion was denied and trial will be limited to whether the fire was intentionally set by the insured or was entitled to the benefits of the contract of insurance.


Arson-for-Profit is usually proved by circumstantial evidence. Although there existed substantial circumstantial evidence that Ly set the fire because he had a motive, opportunity and ability to set the fire and because there was no accidental cause for the fire. An attempt to defraud an insurer and obtain a few hundred thousand dollars for a fire at a house that cost the insured $1; that he mortgaged for $180,000; coupled with the circumstantial evidence outlined by the court defeated the suit. Mr. Ly should try to find a way to avoid a trial and consider himself lucky that no one has charged him with the crime of arson or insurance fraud.

© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

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