DECEMBER 2015 BAD FAITH CASES: (1) ISSUES OF DISPUTED FACT ON CLAIMS HANDLING AND COVERAGE SUPPORTED INSURER’S CASE THERE WAS NO BAD FAITH; (2) AN INSURER’S INVESTIGATION INTO WHETHER EXCLUSION APPLIES IS NOT BAD FAITH; AND (3) FILING A DECLARATORY JUDGMENT IS NOT THE EQUIVALENT OF DENYING COVERAGE (Middle District)

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In Bodnar v. Amco Insurance Company, the insured sought reconsideration of the court’s decision granting the insurer summary judgment on bad faith.  The insured repeated a litany of facts in arguing that the court made credibility determinations, which were inappropriate on summary judgment.

The court rejected, this argument, pointing out that the insured misconstrued the prior decision.  It was not that the court made creditability determinations on disputed issues, but that the very existence of so many disputed issues established that the insurer’s decisions were not unreasonable, and therefore the first element of any bad faith case – that there was no reasonable basis to deny coverage — could not be met.  “It was precisely because so many pieces of contradictory evidence existed that we concluded that it could not.”

The court also reiterated the bases for portions of its prior decision.  The court observed that an insurer has a duty to determine whether coverage exists.  It makes no difference whether this duty is framed positively as searching for coverage or negatively as searching for the application of exclusion.  The only issue is whether the investigation into coverage is done in good faith. “In other words, even if [insurer] ‘searched for an exclusion,’ this would not necessarily be in bad faith if the exclusion actually applied … and did in fact bar … coverage.”

The court also addressed the argument that its prior decision was based upon the insurer’s relying on advice of counsel.  There was no advice of counsel put at issue by the insurer, and the court expressly did not rely upon materials that were redacted in reaching its decision.  In this vein, the court stated that whatever the lawyer’s advice had been, it only led to a determination to file a declaratory judgment action, not to deny coverage. “[A] decision to seek a judicial determination on whether coverage existed is not indicative of bad faith or breach of contract, especially when, as here, the implications of the background facts at issue are legally ambiguous.”

Date of Decision:  December 3, 2015

Bodnar v. Amco Insurance Co., No. 3:12-CV-01337, 2015 U.S. Dist. LEXIS 162169, December 3, 2015 (M.D. Pa. December 3, 2015) (Mariani, J.)

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