MAY 2018 BAD FAITH CASES: COURT ALLOWS FOR POSSIBILITY OF SECTION 8371 BAD FAITH CLAIM FOR CLAIMS HANDLING, EVEN THOUGH NO COVERAGE IS DUE (Middle District)

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In this action, the Court found that there was no insurance coverage due for a variety of reasons, and dismissed an insured’s breach of contract claim. However, the Court still gave the insureds leave to file an amended complaint asserting common law and statutory bad faith claims.

The Court cited the general standard that a bad faith plaintiff has (1) to show that there was no reasonable basis to deny coverage and (2) the insurer knew or recklessly disregarded this fact. However, the Court then set forth a second standard: “A plaintiff may also make a claim for bad faith stemming from an insurer’s investigative practices, such as a ‘lack of a good faith investigation into facts, and failure to communicate with the claimant.” It appears to be this second standard, treated here as an independent basis for a section 8371 claim even if no coverage is actually due under the policy, on which an amendment was allowed. The Court did recognize that section 8371 does no cover alleged bad faith in soliciting a policy and dismissed that claim outright.

As to whether a bad faith claim can exist when no coverage is due under a policy, and there is no breach of any duty to defend or indemnify, see this article previously posted on our blog.

Date of Decision: May 15, 2018

Frantz v. Nationwide Insurance Co., U.S. District Court Middle District of Pennsylvania No. NO. 3:18-CV-0509, 2018 U.S. Dist. LEXIS 81817 (M.D. Pa. May 15, 2018) (Caputo, J.)

The plaintiff did file an amended complaint, including a new bad faith claim.  This claim was subsequently dismissed with prejudice on September 4, 2018.

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