DECEMBER 2012 BAD FAITH CASES: COURT DENIES LEAVE TO AMEND COMPLAINT BECAUSE INSUREDS LACKED STANDING TO BRING COMMON LAW BAD FAITH CLAIM (Western District)

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In Norco v. Allstate Ins. Co., the insureds sought to amend their complaint to include common law bad faith claims after the district court previously adopted a magistrate’s Report and Recommendation denying their statutory bad faith claims for lack of standing as guardians at litem. (See this blog). The court also dismissed a statutory bad faith claim brought by the third-party, on behalf of whom this coverage action was initiated, because, in the context of a third-party negligence claim, a statutory bad faith claim must arise from the carrier’s duty to defend and/or indemnify its named insured.

First, the court ruled that the common law bad faith claim as to the third-party was improper because it sought damages in the amount of the reduction in settlement it incurred when it was forced to retain outside counsel. The court rejected such an amendment because the claim was a mere attempt to recast attorney’s fees, which are not recoverable in a breach of contract claim, as consequential damages.

Second, the court rejected the amendment of the named insureds’ common law bad faith claim because such a claim was predicated on lost earnings from time spent attending court proceedings and conferring with the carrier. The court ruled that these are not the type of compensatory damages typically awarded in common law bad faith claims based upon an insurance contact and that such damages would not restore the injured third-party to the position he was in prior to the carrier’s alleged bad faith conduct.

Lastly, the court reiterated the rationale of its previous opinion, holding that the third-party insured cannot assert the existence of a duty owed to him and the named insureds lack standing to bring a common law bad faith claim. As such, the motion to amend was denied.

Date of Decision: October 26, 2012

Norco v. Allstate Ins. Co., No. 2:11-cv-1453, 2012 U.S. Dist. LEXIS 154070, U.S. District Court for the Western District of Pennsylvania (W.D. Pa. Oct. 26, 2012) (Lenihan, M.J.)

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