“Deep are the sorrows that spring from false ideas for which no man is culpable.” The Connecticut Appellate Court relied on this quote from George Eliot’s novel, Silas Marner, about a man falsely accused of stealing, as partial justification for affirming a trial court judgment holding Travelers Home and Marine Insurance Company liable for $1 million in damages for negligent infliction of emotional distress after Travelers denied a fire insurance loss claim and accused its insured of arson.  The court recognized that while an insurer is not liable for emotional distress caused by the denial of an insurance claim alone, insurance companies may be liable when the emotional distress is caused by unjustified accusations of dishonest, immoral or criminal activity.   Riley v. Travelers Home and Marine Insurance Company, 173 Conn.App. 422 (2017).

Andrew Riley’s Connecticut home suffered fire and smoke damage from a fire that occurred while he was present in the home.  The town fire marshal investigated the fire shortly after it was extinguished and concluded that the fire was caused by an electrical problem inside of a wall of the room where the fire originated.  A kerosene heater and a separate container of Kerosene were located in the same room, which the fire marshal eliminated as a cause of the fire.  Following the fire, the insured submitted a property insurance loss claim to Travelers under his homeowner’s insurance policy.  Travelers assigned one of its fire investigator-employees to investigate the cause and origin of the fire.  Following an investigation, the Travelers fire investigator concluded that the fire was intentionally set, and Travelers issued a denial of coverage letter in which it stated that the insured intentionally caused the fire.  Travelers subsequently claimed that the insured misrepresented material facts and circumstances concerning the loss and made material false statements concerning the loss. 

 The insured filed a lawsuit against Travelers for breach of contract for failure to pay the property loss clam and for negligent infliction of emotional distress.  At trial, the insured introduced evidence that the Travelers fire investigator contacted the town fire marshal on at least two occasions after the fire and urged him to change his conclusion of an accidental fire and classify the fire as intentionally set.  Evidence also showed that the Travelers fire investigator denigrated the state of the insured’s marriage believing it to be a possible motive for arson.  There was also evidence that the Travelers’ fire investigator engaged in a “rush to judgment” investigation of working backward from a predetermined conclusion of arson rather than following the evidence to a logical conclusion.  The plaintiff and other witnesses testified about the insured’s changed emotional state after Travelers accused him of intentionally setting the fire.  The jury awarded the insured more than $1.5 million in damages for the loss to the home and damages for negligent infliction of emotional distress.

On appeal, Travelers contended that an insurer’s denial of coverage was an insufficient basis for establishing a claim of negligent infliction of emotional distress.  While the court agreed that a denial of coverage alone was insufficient for a finding of negligent infliction of emotional distress, it ruled that an insurer may be liable when the emotional distress is caused by conduct separate from the denial of coverage, such as unjustified accusations of dishonest, immoral and criminal activity.  An insurer is required to conduct itself reasonably during an investigation of an insurance claim and it may be held liable for damages when it abuses its right to investigate a claim and causes emotional distress by conducting an investigation that is hasty, incomplete, and ill-reasoned and includes accusations of dishonest, immoral or criminal conduct of an insured.  When an insurer engages in such conduct, it is liable for any emotional distress that is so severe that it might result in illness or bodily harm, regardless of whether there is actual illness or bodily harm.  In Riley, the court concluded it was foreseeable that an insured would suffer emotional distress from false accusations of intentional and criminal conduct, finding “[t]hat an innocent man falsely accused would suffer emotional distress is self-evident” and falsely accusing an individual of arson is abhorrent and reprehensible conduct. Riley v. Travelers, 173 Conn. at. 441. 

The Riley case reaffirms that an insurance company is not liable for consequential damages arising from an insured’s emotional distress caused solely by a denial of an insurance claim. If, however, the insurance company abuses its rights to investigate an insurance claim and engages in separate immoral or unlawful conduct that results in distress which might cause illness or bodily injury, the insurance company faces exposure for damages other than contract damages. The case serves as an important reminder of the potential consequences to an insurance company when it denies an insurance claim based on accusations of dishonest, immoral or criminal activity on the part of its insured.