SEPTEMBER 2008 BAD FAITH CASES
NO BAD FAITH WHERE LAWYERS FAIL TO DISCLOSE PRECONTRACT NEGLIGENCE, COVERAGE EXCLUDED, REASONABLE BASIS TO DENY CLAIM, INVESTIGATION TIMELY (Philadelphia Commerce)

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The Philadelphia Commerce Court found that there could be no coverage under a claims made policy where a law firm failed to report a former employee/lawyer’s admitted negligence in failing to timely file a claim for a client, based upon a policy exclusion and for material misrepresentation/omissions to the carrier.  There were also claims that the carrier should be estopped from denying a duty to defend and to cover.

The carrier provided counsel for a limited time, telling the insured/defendant law firm to find a replacement lawyer.  This claim was likewise rejected, as there was no conduct alleged on the insurer’s part which could have created such an estoppel in favor of the lawyers.

There was also a bad faith claim based on an alleged delay in completing the insurance investigation, failing to timely communicate results of the investigation, failing to instruct the defendant law firm to withdraw, and denying coverage one year after suit began, with discovery expiring and a trial looming.

The court found there was a reasonable basis to deny benefits under the policy, over which there was no dispute by plaintiff.  The insurer kept the insured lawyers fully advised at all times as to reserving rights and potentially denying coverage.  A six month delay between a reservation of rights letter and actual denial of coverage, during which time there was investigation and the decision to deny, was not bad faith.

In a final footnote, the court cited myriad cases holding that where there was an absence of any duty to defend or indemnify there can not be bad faith in any event.  The court also remarked on the fact that a defense was provided.

Date of Decision:  July 18, 2008

Cordisco, Bradway & Simmons v. Gulf Ins. Group, February Term 2007, No. 111 (C.C.P. Philadelphia  July 18, 2008) (Bernstein, J.)

L.A.

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NO BAD FAITH WHERE LAWYERS FAIL TO DISCLOSE PRECONTRACT NEGLIGENCE, COVERAGE EXCLUDED, REASONABLE BASIS TO DENY CLAIM, INVESTIGATION TIMELY (Philadelphia Commerce)”


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