JANUARY 2010 BAD FAITH CASES
COURT GRANTS INSURANCE BROKER’S MOTION FOR RECONSIDERATION AND DISMISSES COUNT FOR CONTRIBUTION (Middle District)

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In Pine Grove Manufactured Homes v. Indiana Lumbermens Mutual Insurance Company, the insured sued Indiana Lumbermens Mutual (“ILM”) for bad faith and breach of contract after ILM refused to apply the proceeds from one of the insured’s other insurance policies to the deductible under the ILM policy. ILM joined its broker, Chamberlin & Reinheimer Insurers, Inc. (“CRI”), as a third-party defendant. The third-party complaint sought indemnification and/or contribution “with respect to the breach of contract claim.” CRI then filed a motion to strike or, in the alternative, dismiss ILM’s third-party complaint. The court denied both motions in its October 23, 2009 memorandum and order.

A summary of the earlier decision in this case can be found on this Blog.

The court stated that as its insurance broker, CRI was the insured’s agent, and therefore owed CRI a duty of care to act as a reasonably prudent insurance broker. The court held that CRI breached this duty, which caused the indivisible harm that resulted when ILM did not apply the other policy’s proceeds to the ILM policy deductible. Accordingly, the court held that CRI was a joint tortfeasor whose negligence, along with ILM’s bad faith, caused the harm to the insured and as joint tortfeasors, ILM could be entitled to contribution from CRI.

CRI filed a motion for reconsideration. CRI argued that: (1) the court misapprehended the allegations raised in the third-party complaint when it based its analysis on contribution for the bad faith claim, rather than limiting its analysis to contribution on the breach of contract claim, and (2) that the court committed an error in law when it held that CRI can be jointly liable to the insured for bad faith.

The court recognized that it had mistakenly read the third-party complaint as covering the underlying bad faith claim. The court held that ILM could not have a right to contribution on the breach of contract claim because CRI cannot be liable jointly and severally in tort for a claim based on breach of contract theory. The court granted CRI’s motion for reconsideration and dismissed the third-party complaint’s count for contribution on that ground.

The court held that it did not err in holding that CRI and ILM might be joint tortfeasors based on the injury created by the confluence of CRI’s negligence and ILM’s bad faith. Therefore, the court did not grant the motion for reconsideration on that basis.

Date of Decision: December 8, 2009

Pine Grove Manufactured Homes v. Ind. Lumbermens Mut. Ins. Co., Civil Action No. 3:08-CV-1233, United States District Court for the Middle District of Pennsylvania, 2009 U.S. Dist. LEXIS 114772 (M.D. Pa December 8, 2009) (Caputo, J.).

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COURT GRANTS INSURANCE BROKER’S MOTION FOR RECONSIDERATION AND DISMISSES COUNT FOR CONTRIBUTION (Middle District)”


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