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In Grudkowski v. Foremost Ins. Co., the court addressed an appeal, with the class action appellee-insureds asserting that the insurance provided them should have been deemed illusory by the lower court.  The Third Circuit affirmed, and denied the request to certify the issue to Pennsylvania’s Supreme Court.

The insured had two policies, each of which had $300,000 in UM and UIM coverage.  The insured elected not to waive stacking, however, the policies contained provisions that limit UM and UIM coverage to accidents that actually involve the covered vehicles, making stacking effectively unavailable.  A putative class action was filed, alleging breach of contract, violation of the Unfair Trade Practices and Consumer Protection Law, and the Bad Faith Statute. There was no breach of contract because stacking can be waived or limited by “clear and unambiguous” policy language….” There was also no actionable unjust enrichment claim.

The Court rejected the UTPCPL claim that the class “justifiably relied on [the insurer’s] representation that they would receive stacked [UM and UIM] coverages . . . .” Although the insured alleges that she and the putative class relied on alleged misrepresentations of the scope of its insurance coverage by accepting the unsigned waiver form whereby she conveyed that she did not waive stacking, any misrepresentation that may have transpired through the insurer’s conveyance of the form “was corrected by the other provisions of the policy which clearly and unambiguously” limited coverage to incidents involving the covered antique cars and hence disclosed that stacking was unavailable.

Dismissal of the statutory bad faith claim under was also appropriate. Section 8371 permits the recovery of damages if, “[i]n an action arising under an insurance policy,” an “insurer has acted in bad faith toward the insured.” The term “bad faith” in section 8371 concerns “the duty of good faith and fair dealing in the parties’ contract and the manner by which an insurer discharged its obligations of defense and indemnification in the third-party claim context or its obligation to pay for a loss in the first party claim context.” Thus, the statute does not “give relief . . . to an insured who alleges that his insurer engaged in unfair or deceptive practices in soliciting the purchase [of] a policy.” Here, because the insured’s allegations concern the sale of policies that allegedly provided illusory coverage, and not the insurer’s actions in discharging its obligations under those policies, there was no section 8371 claim.

Date of Decision:  February 27, 2014

Grudkowski v. Foremost Ins. Co., No. 13-1893, UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT, 2014 U.S. App. LEXIS 3738 (3d Cir. Feb. 27, 2014) (Schwartz, J.)