OCTOBER 2018 BAD FAITH CASES: COURT FINDS BAD FAITH POSSIBLE EVEN WHEN NO COVERAGE IS DUE (BUT OVERALL, THE LAW ON THIS ISSUE REMAINS UNCLEAR) (Philadelphia Federal)

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This case may provide the clearest statement of the view that Pennsylvania permits statutory insurance bad faith claims to proceed where no benefit is due under the policy. As we have observed previously on this Blog, there is an argument that the Supreme Court’s Metropolitan v. Toy case requires that a benefit be denied as a predicate to bringing a statutory bad faith claim. There are some rare cases where no benefit is due for a purely procedural reason and bad faith claims were permitted to proceed, e.g., the contract claim was time barred. However, the principle set forth in this case, and others like it, appears to go beyond that narrow proposition.

Specifically, the court in this case did a choice of law analysis between Pennsylvania and Wisconsin law. It found a conflict because Wisconsin law requires that “first-party bad faith cannot exist without some wrongful denial of benefit under the insurance contract.” Looking at Pennsylvania law, the court stated, “On the other hand, Pennsylvania’s bad faith statute, 42 Pa. C.S.A. § 8371, has been interpreted to provide that when ‘bad faith is asserted as to conduct beyond a denial of coverage, the bad faith claim is actionable as to that conduct regardless of whether the contract claim survives.’”

The court summed up: “So, while a party may bring a viable bad faith claim under Pennsylvania law based on the insurer’s lack of investigation or failure to communicate even when the purported insured is not covered by the policy see Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 751 n.9 (3d Cir. 1999), such a claim is not viable under Wisconsin law ….” By contrast, in another recent district court case finding no breach of the insurance contract, the court found no bad faith possible, likewise citing Frog Switch: “Count II of Plaintiff’s Amended Complaint … for Insurance Bad Faith is hereby dismissed. In light of the dismissal of the Breach of Contract claim, the Bad Faith claim cannot survive. Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 751 n.9 (3d Cir. 1999) (‘[W]here there was no duty to defend, there was good cause to refuse to defend against a suit.’).”

Under the categories “No coverage due, bad faith still possible” and “No coverage duty, no bad faith”, we list summaries of cases addressing the split on this issue, and a few general comments concerning that split.

In the present case, the court determined Wisconsin law applied, and that there could be no bad faith because no coverage was due under the contract.

Date of Decision: October 22, 2018

Achenbach v. Atlantic Specialty Insurance Co., U. S. District Court for the Eastern District of Pennsylvania CIVIL ACTION NO. 17-534, 2018 U.S. Dist. LEXIS 181146 (E.D. Pa. Oct. 22, 2018) (Beetlestone, J.)

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