In Morrison v. Wells Fargo Bank, N.A., the plaintiff, James Elder Morrison, shared a first and last name with another resident of the same town, James Eugene Morrison.  James Eugene Morrison signed a mortgage for his house, which was assigned to Wells Fargo.  Wells Fargo eventually filed a mortgage foreclosure action against James Eugene Morrison, but it incorrectly attached the plaintiff’s property to the action.  The plaintiff eventually subdivided his land, but he was unable to sell one of the lots at full value and could not borrow money against his land due to “the cloud upon the title to the land” created by the incorrect assignment of plaintiff’s property to James Eugene Morrison’s mortgage.

Plaintiff sued Wells Fargo, which subsequently filed a third party complaint against Stewart Title Guaranty Company.  An agent of Stewart Title had served as the settlement agent for the transaction where James Eugene Morrison entered into the mortgage, and the agent had incorrectly identified plaintiff’s property as belonging to James Eugene Morrison.  Stewart Title had then issued a Loan Title Insurance policy, affording title insurance to Wells Fargo against liability.  Stewart Title at first appointed counsel to defend Wells Fargo with regard to the original complaint by plaintiff, but eventually it notified Wells Fargo that it would no longer continue to defend Wells Fargo because its liability was cut off once the mortgage was fully satisfied.  One of the counts in Wells Fargo’s third-party complaint against Stewart Title alleged bad faith when Stewart Title refused to continue to defend Wells Fargo.

In addressing the bad faith claim, the court used its prior conclusion that Stewart Title’s obligations under the policy had indeed terminated once the mortgage was paid in full to hold that there was no possibility of bad faith on the part of Stewart Title.  It was impossible to act in bad faith if the company had no contractual obligation to Wells Fargo at the time.

Date of Decision: May 10, 2010

Morrison v. Wells Fargo Bank, N.A., Civil Action No. 1:09-CV-0324, United States District Court for the Middle District of Pennsylvania, 2010 U.S. Dist. LEXIS 45312, (M.D. Pa. May 10, 2010) (Smyser, J.).

In Kao v. Markel Insurance Company, the insureds owned adjacent multi-unit properties in South Philadelphia.  The properties contained commercial units on the first floor and a total of six residential apartments on the second third floors.  The insureds purchased an insurance policy with the insurers.  The policy contained a “Government Acts Exclusion” that relieved the insurers of obligations to pay for “loss or damage caused directly or indirectly by . . . seizure or destruction of property by Order of Governmental Authority.”

One day, police forcibly entered the insureds’ property with a search warrant, as they had reason to believe one of the tenants was selling drugs from his apartment.  The searches caused damage to the doors of all six residential apartments and one of the first floor offices.  After the insureds made a claim, the insurance adjuster told the insurers that the police search was the reason for the damages.  The insurers then denied coverage under the Government Acts Exclusion before obtaining a copy of the warrant or police report.

While the breach of contract claim survived summary judgment, the bad faith claim did not.  The court noted that there is a high standard for showing bad faith, and the insurers’ interpretation of the exclusion was “not devoid of a reasonable basis.”  At worst, the insurers were negligent in failing to wait to receive a copy of the warrant and/or police report before denying coverage, but there was no knowledgeable lack of a reasonable basis for denying the insureds’ claim.  Therefore, the court granted summary judgment to the insurers with respect to the bad faith claim.

Date of Decision: April 12, 2010

Kao v. Markel Ins. Co., Civil Action No. 09-CV-3249, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 40400 (E.D. Pa. Apr. 12, 2010) (Brody, J.).

In Taylor v. Government Employees Insurance Company, the insured was driving when a man in another vehicle struck her vehicle, causing her multiple injuries (some of which may be permanent).  The driver of the vehicle who hit the insured carried an insurance policy that limited bodily injury liability protection to $50,000, which was far less than the amount for the injuries suffered by the insured.  The insured demanded $100,000 from the defendant, her insurer, under her own insurance policy that provided $100,000 in underinsured motorist coverage.  The insurer had not paid the insured, as it had only offered $15,000 as a settlement.  The insured sued for breach of the insurance policy and bad faith, and the insurer filed a Motion to Dismiss both claims.

With respect to the bad faith claim, the court determined that the complaint alleged that the insured’s injuries were numerous and severe and that the insurer failed to act or acted unreasonably.  Therefore, a jury could reasonably infer that the insurer did not have a reasonable basis for offering only $15,000 out of the $100,000 of insurance coverage, and therefore the court denied the insurer’s Motion to Dismiss the bad faith claim.

Date of Decision: April 29, 2010

Taylor v. Gov't Employees Ins. Co., Civil Action No. 10-914, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 39708, (E.D. Pa. Apr. 29, 2010) (Padova, J.).