APRIL 2006 BAD FAITH CASES ACTION STAYED BY FEDERAL COURT PENDING RESOLUTION OF WIDER DISPUTE IN NEW YORK STATE COURT (Philadelphia Federal)
Plaintiff sued an insurance carrier for declaratory relief, bad faith and for breach of contract. The carrier moved to dismiss the action or stay the proceedings, contending that the instant action was only a part of a much larger coverage dispute, pending in New York, involving more parties and issues than were named in the operative Pennsylvania complaint.
In granting the insurer’s motion, the U.S. District Court for the Eastern District of Pennsylvania determined that the outcome of the bad faith and breach of contract claims depended on the resolution of the declaratory judgment claim.
The Court found that the same issues of insurance policy construction, including scope of coverage and construction of the indemnity agreement and its extension, lay at the heart of both the declaratory judgment claims before it, and the New York action. Plaintiff additionally attempted to argue that the bad faith claims would not be adequately adjudicated in New York as those claims may be subject to Pennsylvania’s bad faith statute.
However, the Court disagreed, finding that New York had adopted a common law tort for the bad faith breach of contract by an insurer.