MAY 2012 BAD FAITH CASES: CONTRACT BAD FAITH CLAIM DISMISSSED, BUT STATUTORY CLAIM STILL VIABLE, AND COURT PERMITS IMPLIED WARRANTY CLAIMS (Philadelphia Federal)

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In Nova Financial Holdings, Inc. v. Bancinsure, Inc., the court heard a carrier’s motion to dismiss several allegations related to its denial of the insured’s claim. The suit stemmed from a series of illegal transactions undertaken by the insured’s employees in 2009 and 2010. The insured argued that its policy with the carrier covered the actions of its employees. The policy stated that the carrier would cover illegal acts committed with “the manifest intent to (a) cause the [insured] to sustain such loss, or (b) to obtain improper financial benefit for the Employee.”

After the carrier denied coverage for the unlawful acts of the insured’s employees, the insured sued, seeking declaratory relief and alleging breach of contract, breach of good faith and fair dealing, statutory bad faith, and breach of implied warranty. The carrier moved to dismiss the breach of good faith and fair dealing, declaratory judgment, and breach of implied warranty claims.

The court first turned to the insured’s breach of good faith and fair dealing claim. It reasoned that the claim should be dismissed because the insured’s breach of contract action precludes a separate claim emanating from the duty of good faith and fair dealing. Such a claim is essentially the same as a breach of contract suit. The court also rejected the insured’s argument that Pennsylvania’s bad faith statute creates an affirmative duty of good faith and fair dealing. Such a claim should be dismissed, the court held, because the bad faith statute is actually proscriptive in nature. However, even absent the ability to expand on the bad faith statute, the insured could still pursue the statutory bad faith claim within its proscriptive limitations.

The court also reasoned that the insured’s request for declaratory judgment should be denied. The court held that the insured’s claim was duplicative of its breach of contract claim. The court also stated that the insured can still attain full relief through its breach of contract claim because the dismissal of a declaratory judgment does not force the moving party to suffer any prejudice.

With respect to the insured’s implied warranty claims, the court held that the party stated viable “common law” claims and ruled against the carrier’s motion. The insured pleaded claims for breaches of the implied warranty of fitness for a particular purpose and breach of the implied warranty of merchantability. Since Pennsylvania has recognized implied warranty claims outside of the UCC, the court did not have to address whether the policy was a good.

Date of Decision: April 17, 2012

Nova Financial Holdings, Inc. v. Bancinsure, Inc., No. 11-07840, 2012 U.S. Dist. LEXIS 53800, U.S. District Court for the Eastern District of Pennsylvania, at *1 (E.D. Pa. Apr. 17, 2012) (Kelly, J.).

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