In Moss Signs, Inc. v. State Automobile Mutual Insurance Company,  the insured initiated suit against the insurer stemming from alleged accidental damages to the insured’s building including damages arising from vandalism.  The insured was a corporation whose business operations were covered under a commercial insurance policy issued by the insurer. The policy coverage included various accidental damages, including damages arising from vandalism. The insured filed a claim for water damage to its building.  The insurer investigated and based on the report of an expert, denied the claim.  In response the insured provided additional information to suggest that causes other than normal wear and tear, specifically vandalism, contributed to the water damage.  The insurer did not attempt to investigate these allegations of vandalism.  The insured again approached the insurer and asked what evidence the insurer was relying on to dispute the claim.  According to the insured, the insurer admitted that if the damages in question, were caused by and/or contributed to by vandalism, they would be covered under the policy.  However the insurer still refused to cover the damages. 

The insured commenced a multiple count suit in the Court of Common Pleas, Alleghany County. The insurer filed notice for removal to the United States District Court for the Western District of Pennsylvania, which was granted. The insured asserted a bad faith claim in Count II  alleging that the insurer breached its duty to exercise good faith and fair dealing by minimally investigating its claim even after supplemental information was provided about the possibility of vandalism and untimely refused to pay for the loss.   The insurer then filed a motion to dismiss this claim. Count V of the insured’s claim pertains to the Pennsylvania Unfair Insurance Practices Act and Unfair Claims Settlement Practices Regulations.   The insurer argued that the claims should be dismissed because Pennsylvania law does not recognize a separate cause of action for common law bad faith based on a breach of the duty of good faith and fair dealing. The court agreed with the insurer that should the insured eventually establish that it failed to act in good faith, the bad faith statute provides a basis for the insured to recover and therefore the bad faith claims in Count II are duplicative of those stated in Count V. The court found that the insured  successfully stated a breach of contract claim alleging that the insurer failed to comply with the terms of the policy first by initially denying the claim, then by refusing to reconsider its decision.  The court also found that the insured successfully stated a statutorily based claim, alleging that the insurer’s actions have resulted in its liability under the bad faith statute. The insured’s claims go beyond simple refusal of coverage but also allege poor investigation and hiding of information by refusing to explain why it did not accept its evidence of vandalism.   These two claims are independent of each other and the insured could possibly succeed on both.  Therefore the court held that since the insured can achieve its goals without separately alleging a tort claim for breach of an implied covenant of good faith and fair dealing, this claim should be dismissed in its entirety with prejudice.  The court therefore granted the insurer’s motion to dismiss with regard to Count II and IV and denied such in all other respects. 

Date of Decision: April 2, 2008

Moss Signs Inc. v. State Auto Mutual Insurance Co., 2008 U.S. Dist. LEXIS 26770 (W.D. Pa. April 2, 2008) ( Standish, J.)

J.M.A.

In Silberman & DiFilippo, P.C. v. Westport Insurance Company  the insured initiated suit against the insurer based upon a dispute regarding the applicability of an insurance policy issued by the insurer,  to claims in a lawsuit brought against the insured. The insured law firm had a Lawyers Professional Liability Insurance policy with the insurer.  A civil action was brought against the insured and an employee of the insured. The  civil action involved the alleged certification or acknowledgement by the insured, as a notary public, of a signature on a document that the insured did not witness.  Specifically the claims in the action were against both the insured and an employee of the insured who certified , as a notary, that someone signed something when she did not actually witness him do so.  The insured sent a copy of the complaint to their insurer seeking both defense and indemnity. The insurer informed the insured that it would provide a defense under  reservation of rights and also suggested they consider getting a personal attorney as well.  The insured engaged in settlement discussions of the suit but before final settlement was reached advised the insurer of the settlement negotiations and asked the insurer to contribute to the settlement and/or assume the claim without reservation of rights.  The insurer refused both requests. 

The insured filed suit against the insurer alleging breach of contract, bad faith, and breach of fiduciary duty.  The insurer filed a motion to dismiss the breach of contract claim or in the alternative summary judgment. The insurer argues that this should be dismissed because the Notary Exclusion in the policy precludes coverage for the claims asserted against the insured and the employee of the insured in the civil action. The insured claims that their employee was not an “insured” within the meaning of that term as defined in the policy.  The insured further argues that their employee was not acting within the scope of her employment when she notarized the Guaranty.  The court found that there was a potential for the claims against the insured in the complaint to come within the Policy’s coverage despite the existence of the Notary Exclusion.  The court also found that the insured stated a claim that the insurer breached the duty to indemnify since whether the insured’s employee was actually working within the scope of her employment when she notarized the Guaranty is still in dispute and is critical to the determination of whether the insurer had a duty to indemnify.  Therefore the court denied the insurer’s motion to dismiss in its entirety.

Date of Decision: March 14, 2008

Silberman & Difilippo, P.C. v. Westport Ins. Co., 2008 U.S. Dist. LEXIS 20381 (E.D. Pa. Mar. 13, 2008)( Padova, J.)

J.M.A.

In Santer v. Teachers Insurance And Annuity Association,et al.  the insured filed a second motion to compel the insurer to produce certain training documents. The insured filed a bad faith claim against the insurer and now seeks to obtain materials related to training that the insurer provided to its claims department representatives concerning bad faith insurance practices, insurance litigation in general, and privacy rights.  The insurer objected to the production on the grounds of attorney client privilege.  The court found that the documents are privileged because the insurer’s  in-house attorneys prepared the materials for the purpose of answering their clients questions concerning how statutes and court decisions in the areas of bad faith, insurance litigation and privacy affect the way the insurer handles the claim.  The materials are communications from an attorney to a client that reflect communications from the client to the attorney for the purpose of securing an opinion of law. Therefore the court denied the insured’s second motion to compel production of these documents. 

Date of Decision:  March 25, 2008

Santer v. Teachers Ins. & Annuity Ass’n, 2008 U.S. Dist. LEXIS 23364 (E.D. Pa. Mar. 24,2008) (Golden, J.)

J.M.A.