APRIL 2006 BAD FAITH CASES NO DUTY TO DEFEND IF COVERAGE NOT DUE UNDER POLICY, AND THUS NO BAD FAITH (Third Circuit)
After determining that there was no coverage, the U. S. Court of Appeals for the Third Circuit rejected the bad faith claim against a carrier, which had correctly concluded that its employer’s liability coverage was not invoked under the circumstances of that case. The Court cited its prior case law for the proposition that “’bad faith claims cannot survive a determination that there was no duty to defend, because the court’s determination that there was no potential coverage means that the insurer had good cause to refuse to defend.’”
While recognizing that the duty to defend may be broader than the duty to indemnify, such a duty ends when the insurer can confine the claim to recoveries outside the scope of the insurance coverage. Liberty Mutual had denied coverage under a WC/EL policy, where non-workers’ compensation claims were asserted by USX Corp. employees on the basis of asbestos exposure, and the employer’s liability portion of the policy did not cover claims for bodily injury by disease unless there was a written claim or suit filed within 36 months of the policy period’s end.