MAY 2012 BAD FAITH CASES: COURT DISMISSES CLAIMS AGAINST PARENT OF CARRIER, BUT DECLINES COLORADO RIVER ABSTENTION BECAUSE INSURED’S FEDERAL AND STATE CLAIMS DIFFER (Middle District)

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In Hyjurick v. Commonwealth Land Title Insurance Co. and Fidelity National Financial, Inc., the court heard a carriers’ motion to dismiss bad faith and consumer protection claims brought by the insured party. The case stemmed from the carriers’ conduct in delaying affirmation or denial of the insured’s claim, which arose from issues related to her title to a parcel of land. After waiting for a year to receive notice from the carrier, the insured filed a declaratory judgment action in state court. After another two years passed, the insured filed the instant action, alleging bad faith and consumer protection violations. The carriers moved to dismiss the parent company and also moved for Colorado River abstention, which would block the federal court action.

First, the court examined the carriers’ motion to dismiss the second named defendant, a parent of the title insurance carrier. The crux of the carriers’ defense was that, under Pennsylvania law, a subsidiary company must be an “alter ego” of its parent for a court to permit the insured to pierce the corporate veil. In this case, the parent and the subsidiary title insurance carrier were not acting as a single entity, preventing the insured from alleging bad faith against both companies. In the absence of such proof, the court dismissed the insured’s claims against the parent company.

Second, the court turned to the carriers’ motion for Colorado River abstention, which, if granted, would force the court to abstain from adjudicating the case. The carriers’ argument was based on the parallel state court proceeding that the insured had initiated prior to its bad faith suit. However, the court declined to abstain from hearing the suit, ruling that the insured’s bad faith allegations in both state and federal court were not parallel, but distinct. The claims were not “truly duplicative” because the state court complaint merely used the words “bad faith” to describe the carriers’ conduct, not as an assertion of bad faith liability. In its federal complaint, the insured did include bad faith allegations against the carriers, differentiating this complaint.

The court also observed that held, bad faith damages are distinct from the underlying contract claim against the carriers, and thus the two claims represent different causes of action.

In sum, the court dismissed the insured’s complaint against the parent company and denied the carriers’ motion for abstention, permitting the insured’s bad faith claim to proceed against the subsidiary title insurance carrier.

Date of Decision: April 27, 2012

Hyjurick v. Commonwealth Land Title Insurance Co. and Fidelity National Financial, Inc., No. 3:11cv1282, 2012 U.S. Dist. LEXIS 59087, U.S. District Court for the Middle District of Pennsylvania (E.D. Pa. Apr. 27, 2012) (Munley, J.)

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