2013 BAD FAITH CASES: PLAINTIFF SUFFICIENTLY STATES CLAIM FOR BAD FAITH UNDER TWOMBLY STANDARDS (Philadelphia Federal)

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Plaintiff, a landscaping company, brought suit against its insurer seeking a declaratory judgment establishing the insurer’s duty to defend plaintiff in an underlying tort action, as well as claims for breach of contract and bad faith as a result of the insurer’s denial of the claim. The underlying claim arose from an individual bringing suit against his condominium association after he slipped and fell on a patch of ice. The condominium association joined plaintiff as a third-party defendant, alleging plaintiff was under contract with the condominium association to perform snow and ice removal, and that plaintiff’s negligence in performing these duties caused the individual’s injuries.

Plaintiff sought coverage under its commercial general liability policy with the insurer, requesting a defense and indemnification if necessary. The insurer denied coverage, and plaintiffs filed suit in state court. The insurer removed the case to federal court based on diversity of citizenship. The insurer then filed a motion to dismiss all of plaintiff’s claims.

In its bad faith action, plaintiff alleged the insurer acted in bad faith by failing to effectuate a prompt, fair, and equitable settlement with plaintiff, failing to timely respond to plaintiff’s claim for benefits, failing to adequately investigate plaintiff’s claim for benefits, compelling insured to seek independent legal representation, and failing to timely provide a reasonable explanation of the basis for the denial of plaintiff’s claim for benefits. Defendant argued the claims were devoid of any factual allegations.

The court concluded plaintiff’s allegations, read in conjunction with the entire complaint, sufficiently stated a claim for bad faith on the basis of a frivolous or unfounded refusal to pay. Plaintiff alleged it submitted a claim, which was improperly denied, and that the insurer refused to pay any part of its defense costs despite repeated demands to be reimbursed. Accepting these allegations as true and construing them in a light most favorable to plaintiff, the claim states a claim for bad faith under Terletsky. Therefore, the motion to dismiss the bad faith claim was denied.

Date of Decision: November 6, 2013

Sabia Landscaping v. Merchs. Mut. Ins. Co., Civil Action No. 13-3820, 2013 U.S. Dist. LEXIS 162247 (E.D. Pa. Nov. 14, 2013) (DuBois, J.).

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