DENIAL CANNOT BE IN BAD FAITH WHEN THE INSURED’S COVID-19 COVERAGE CLAIM IS REJECTED (Philadelphia Federal and New Jersey Federal)

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The following summaries of two recent Covid-19 coverage cases only address the bad faith issues in those cases. We quote the courts’ clear statement of the law on bad faith in Pennsylvania and New Jersey, made after finding no coverage due in these Covid-19 business loss cases.

First, is Judge Rufe’s recent decision in Infinity Real Estate v. Travelers:

But because Defendant had a reasonable basis for denying Plaintiff’s claims, the denial could not have been in bad faith. See Rancosky v. Wash. Nat’l Ins. Co., 170 A.3d 364, 373 (Pa. 2017) (citations and quotations omitted) (Finding bad faith requires that the insurer “did not have a reasonable basis for denying benefits under the policy.”).

Date of Decision:  September 13, 2021

Infinity Real Estate, LLC v. Travelers Excess and Surplus Lines Company, No. CV 20-6398, 2021 WL 4169417 (E.D. Pa. Sept. 13, 2021) (Rufe, J.)

A virtually identical approach is taken in New Jersey District Judge Martini’s  resolution of a bad faith claim, after finding no coverage for the insured’s Covid-19 business loss claims. Judge Martini states:

[U]nder New Jersey law, to state a claim for bad faith denial of insurance coverage, Plaintiffs were required to show that: “(1) [Defendant] lacked a reasonable basis for its denying benefits, and (2) [Defendant] knew or recklessly disregarded the lack of a reasonable basis for denying the claim.” …. A denial of coverage is, by definition, not made in bad faith where the claim itself is “fairly debatable.” …. Here, because the Court has already determined that Plaintiffs’ claim was not, as a matter of law, covered under the Policy, it stands to reason that Plaintiffs’ claim was “fairly debatable” and Defendant’s denial of coverage therefor was reasonable.

Date of Decision:  August 26, 2021

OTG Management PHL LLC v. Employers Insurance Co. of Wausau, U.S. District Court District of New Jersey, No. 2:21-CV-01240-WJM-MF, 2021 WL 3783261 (D.N.J. Aug. 26, 2021) (Martini, J.)

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