MAY 2010 BAD FAITH CASES
NO BAD FAITH WHERE INSURER DENIED UIM BENEFITS PURSUANT TO A “REGULAR USE” EXCLUSION (Middle District)

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In Costello v. Government Employees Insurance Company, the court considered the insurer’s motion for judgment on the pleadings with respect to the insured’s underinsured motorist insurance (“UIM”) coverage and bad faith action.  The insured had a private automobile insurance policy with the insurance carrier, which included UIM coverage of $100,000.00.  On February 22, 2007, the insured was seriously injured in a car accident while driving a vehicle owned by the Commonwealth of Pennsylvania within the scope and course of his employment with the Commonwealth.

On October 22, 2007, the insured notified the insurer of his accident.  The insurer processed the insured’s first party benefit claim and began paying medical and wage loss benefits arising out of the accident.  On October 17, 2007, the insured’s counsel notified the insurer of an underinsured motorist claim and requested a copy of the insurance policy.  On November 12, 2007, the insurer provided the requested materials and raised the possibility of a “regular use” exclusion that could defeat the insured’s UIM claim.  Beginning in December 2007, the insured’s counsel repeatedly requested the insurer to provide the policy language that established the regular use exclusion.  Finally, on March 6, 2008, the insurer directed the insured’s counsel to the policy language containing the exclusion.  The policy contained an exclusion from UIM coverage “[w]hen using a motor vehicle furnished for the regular use of you, your spouse, or a relative who resides in your household, which is not insured under this policy.”

Between March 2008 and September 2008, the insured provided various information requested by the insurer, including a report regarding the insured’s use of the Commonwealth vehicle, information concerning the accident, and his medical records.  In July 2008, the insured’s UIM claim handlers began reviewing the insured’s claim for UIM benefits.  On April 20, 2009, the insurer advised the insured that it was declining any UIM payment pursuant to the regular use exclusion.  The insured subsequently filed suit asserting claims for bad faith and breach of contract.

The insurer sought judgment on the pleadings on the basis of its regular use exclusion.  The insured argued that that he did not regularly use the Commonwealth vehicle and only used the vehicle for “official business purposes.”  The court found that the insured regularly and habitually used the Commonwealth vehicle, and therefore, the regular use exception clearly applied to the situation.

The court dismissed the insured’s bad faith claim holding that the insurer had a reasonable basis for denying the claim, namely, the regular use exclusion.  The court found that that the insurer performed a reasonable investigation into whether the regular use exception applied and took substantial steps to determine the insured’s use of the Commonwealth vehicle.

Date of Decision: March 25, 2010

Costello v. Gov’t Employees Ins. Co., Civil Action No. 3:CV-09-1246, United States District Court for the Middle District of Pennsylvania, 2010 U.S. Dist. LEXIS 28511 (M.D. Pa Mar. 2010) (Vanaskie, J.).

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NO BAD FAITH WHERE INSURER DENIED UIM BENEFITS PURSUANT TO A “REGULAR USE” EXCLUSION (Middle District)”


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