STATUTORY BAD FAITH CLAIMS NOT SUBJECT TO ARBITRATION (Pennsylvania Superior Court) (Non-precedential)

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This case involved the arbitrability of statutory bad faith claims.  The Superior Court relied upon its 23-year old decision in Nealy v. State Farm Mutual Auto Insurance Co., 695 A.2d 79 (Pa. Super. Ct. 1997) to resolve the issue, rather than looking at the usual principles regarding arbitrability.

The court states, “we need not address [the insurer’s] contention the bad faith claim fell within the scope of the arbitration agreement. The record does not demonstrate that the trial court found the claim to be outside the scope of the agreement; rather, it found Nealy to be binding.”

In Nealy, the Superior Court stated, “bad faith claims pursuant to Section 8371, ‘are distinct from the underlying contractual insurance claims from which the dispute arose.’” Thus, “section 8371 ‘provide[s] an independent cause of action to an insured that is not [dependent] upon success on the merits, or trial at all, of the contract claim.’”

The Nealy court then held, “Both this Court and our sister federal courts have decided a myriad of cases that impinge in some respect upon the workings of § 8371. No court, however, has squarely decided the question of whether an arbitration panel is vested with the jurisdiction to entertain such a claim. After careful consideration, we conclude that original jurisdiction to decide issues of § 8371 bad faith is vested in our trial courts.”

The court then rejected the insurer’s arguments against Nealy’s application. First, it found Nealy was not limited to UM/UIM cases. Next, the court found the complaint clearly pleaded bad faith bad on post-breach conduct, “and thus is temporally and factually distinct from its breach of contract claim.” Finally, the court ruled Nealy remained good law.

Date of Decision: September 29, 2020

KEB Hana Bank USA v. Fidelity National Title Insurance Company, Superior Court of Pennsylvania No. 207 EDA 2020, 2020 WL 5796159 (Pa. Super. Ct. Sept. 29, 2020) (Colins, McLaughlin, Panella, JJ.)

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