Monthly Archive for April, 2010

APRIL 2010 BAD FAITH CASES
COURT REJECTS ARGUMENT THAT BAD FAITH COULD EXIST IN THIS CASE EVEN IF THERE WAS NO COVERAGE OBLIGATION (Middle District)

The insured argued at one point that the bad faith claim could proceed even if the Court ruled that there was no coverage obligation under the insurance contract.

While citing a few cases for this proposition, this result is only found in exceedingly rare scenarios, and not where the breach of contract claim is dismissed on the basis that the insurer has no duty to provide coverage under the policy.

The court did order the declaratory judgment issue on coverage decided prior to trial, but refused to sever and stay discovery of the bad faith claims.

Date of Decision: March 22, 2010

Amitie One Condo. Ass’n v. Nationwide Prop. & Cas. Ins. Co., Civil Action No. 1:07-CV-1756, United States District Court for the Middle District of Pennsylvania, 2010 U.S. Dist. LEXIS 26867 (M.D.  Pa. Mar. 22, 2010) (Conner, J.).

APRIL 2010 BAD FAITH CASES
COURT DENIES INSURER'S REQUESTS FOR SEVERANCE - BIFUCATION AND STAY OF BAD FAITH CLAIM; AND FOR STAY OF DISCOVERY (Middle District)

In Amitie One Condominium Association v. Nationwide Property & Casualty Insurance Company, the insurer denied coverage for losses to the insured’s property as a result of sinkhole activity.  The insured sued for breach of contract and bad faith seeking monetary damages and a declaratory judgment.  After two years of discovery, the insurer moved to sever and stay the insured’s bad faith claim, and to stay discovery on that claim, until the contract claim was resolved.

The insurer argued that (1) it would be prejudiced and judicial resources would be wasted if the bad faith claim and breach of contract claim were litigated simultaneously; (2) staying discovery on the bad faith claim would moot certain discovery disputes; and (3) allowing discovery to proceed on the insured’s bad faith claim at the same time as the parties are litigating the contract claim “is tantamount to letting the Plaintiff have a copy of the Defendant’s ‘playbook.’”

The Court granted the insurer’s motion insofar as the court would hear the declaratory judgment action before proceeding with the other issues, but denied the remaining requests.  There was presumably a jury demand for at least the bad faith portion of the case; however, it appears from an Order issued the day after this Opinion that the Court was going to decide the declaratory judgment action on coverage/breach of contract on dispositive motions, staying its pre-trial and trial schedule dates on all other issues (though allowing the case itself to otherwise proceed on discovery and as to both claims).

Thus, the court held that it would resolve the insured’s claim for declaratory judgment prior to trial on the remaining issues.  The court explained that if it resolved the insured’s declaratory judgment in the insurer’s favor, the decision would dictate the resolution of the insured’s bad faith claim as well, thereby conserving judicial resources. The court denied the insurer’s request to sever and stay discovery on the insured’s bad faith claim stating it was not persuaded that the mere existence of discovery disputes warranted a stay.  Additionally, the court held that considerations of convenience and economy outweighed any prejudice to the insurer particularly in light of the significant overlap between the claims.

Date of Decision: March 22, 2010

Amitie One Condo. Ass’n v. Nationwide Prop. & Cas. Ins. Co., Civil Action No. 1:07-CV-1756, United States District Court for the Middle District of Pennsylvania, 2010 U.S. Dist. LEXIS 26867 (M.D.  Pa. Mar. 22, 2010) (Conner, J.).

APRIL 2010 BAD FAITH CASES
NO BAD FAITH WHERE BUILDER’S RISK INSURANCE POLICY DID NOT COVER LOSS AT MANUFACTURING FACILITY (Western District)

In 151 First Side Associates, L.P. v. Peerless Insurance Company, the parties disputed the coverage of the Builder’s Risk Insurance Policy that the carrier issued to the insureds for the construction of residential condominiums.  The insureds had entered into a subcontract with High Concrete Innovations (“High Concrete”) to fabricate and erect concrete panels for the project.  High Concrete was not a named insured under the policy.  A fire destroyed High Concrete’s manufacturing facility and the concrete panels, which were awaiting delivery on the subcontract.  The insureds filed claims under the policy for (1) soft costs; and (2) extra expenses and overtime attributed to the loss of the concrete panels.  The insurer denied both claims.  The insureds sued the carrier alleging claims of breach of contract and bad faith pursuant to 42 Pa. C.S. § 8371.  The insurer filed a motion for summary judgment.

The insurance policy contained a Soft Cost, Extra Expense and Rental Income Endorsement, which provided that the insurer would pay for soft cause expenses and extra expenses “that arise out of a ‘delay’ resulting from direct physical loss or damage to a building or structure described on the Soft Cost Schedule that is caused by a covered peril.”  The “Property Covered” provision of the policy only covered material and supplies “at the jobsite.”  However, under the Supplemental Coverages, the policy provided coverage for certain property located at “storage locations.”  The insureds argued that the supplemental coverage policy provision expanded the coverage beyond the loss or damage that occurred “at the jobsite” to certain property located at “storage locations.”

The court held that the language of the policy was not ambiguous and under the plain meaning of the language the High Concrete production facility was not a “storage location” under the policy.”  The mere fact that the concrete panels were damaged post-production but pre-delivery did not transform a manufacturing facility into a “storage location.”  Further, the court found that the expansion of coverage under Soft Cost, Extra Expense, and Rental Income Endorsement was very specific and did not cover expenses related to a loss at a storage location.

Because the policy did not cover the insureds’ claims, the court held that the insurer did not breach the contract of insurance when it denied the  claims.  Since the insured was not in breach of contract, the insureds’ bad faith claim failed.

Date of Decision: March 11, 2010

151 First Side Assocs., L.P. v. Peerless Ins. Co., No. 2:08cv79, United States District Court for the Western District of Pennsylvania, 2010 U.S. Dist. LEXIS 23093 (W.D. Pa. Mar. 11, 2010) (Cercone, J.).