COURT ADDRESSES “WHO IS AN INSURER” FOR BAD FAITH PURPOSES (Philadelphia Federal)

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The plaintiff obtained insurance against its tenants failing to pay rent. It allegedly entered a relationship with two entities licensed to provide that insurance. One of those entities denied being an insurer, and moved to dismiss a bad faith claim against it.

The court observed:

“The Insurance Department Act of 1921, as amended, 40 P.S. § 221.3, defines ‘insurer’ as ‘any person who is doing, has done, purports to do, or is licensed to do an insurance business, and is or has been subject to the authority of . . . any insurance commissioner.'” … A party will be deemed to be “doing [an insurance] business” if it engages in any of the following acts:

(1) the issuance or delivery of contracts or certificates of insurance to persons resident in this Commonwealth;

(2) the solicitation of applications for such contracts, or other negotiations preliminary to the execution of such contracts;

(3) the collection of premiums, membership fees, assessments or other consideration for such contracts; or

(4) the transaction of matters subsequent to execution of such contracts and arising out of them.

The Complaint alleged the moving defendant acted in concert with another entity to provide plaintiff with insurance coverage. Specifically, plaintiff claims that both entities “entered into insurance policies pursuant to which Defendants agreed to ‘insure and protect … against tenants failing to pay rent or failing to vacate properties after defaulting on rent or the expiration of their lease.’” Plaintiff also “alleges that Defendants marketed the policies to [plaintiff], that [plaintiff] made thousands of dollars of premium payments under the policies, and that Defendants subsequently sent termination notices as to the policies.” Drawing all reasonable inferences, the complaint alleged the moving defendant solicited the application for an insurance contract, entered into an insurance contract, collected fees and premiums, and “’transact[ed] [in] matters subsequent to execution of [the] contracts and arising out of [it].’”

The moving defendant argued that its contracts with plaintiff do not use the word insurance, that in a related document the moving defendant itself is described as a “named insured,” and that a search of the Pennsylvania Insurance Department’s web site did not include the moving defendant as an insurer. The court rejected all of these arguments.

First, taking all reasonable inferences in plaintiff’s favor, the court found the language in the parties’ agreement sufficient to be considered an insurance agreement, in referencing payment of fees in return for coverage. Second, that the moving defendant was a “named insured” itself in relation to a reinsurer did not define the relationship between the moving defendant and plaintiff. Third, the moving defendant’s absence from the Pennsylvania Insurance Department’s website “does not preclude a reasonable inference that [it] was doing . . . [or] purport[ing] to do . . ., an insurance business and, in that capacity, was subject to the authority of . . . an[] insurance commissioner, even if the insurance commissioner was not actively exercising that authority.” (internal quotations omitted).

While the court denied the motion to dismiss, however, it did not rule on the ultimate issue of fact as to whether the moving defendant was an insurer for statutory bad faith purposes. It simply allowed the case to proceed.

On a final point, the court recognized, but did not resolve, the issue of whether the insuring agreement could expressly limit recovery of attorney’s fees and punitive damages that are otherwise expressly permitted by the bad faith statute.

Date of Decision: December 17, 2019

ABC Capital Invs., LLC v. Nationwide Rentsure, U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-4980, 2019 U.S. Dist. LEXIS 216129 (E.D. Pa. Dec. 17, 2019) (Padova, J.)

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