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The Court addressed motions for summary judgment stemming from Plaintiff’s (the insured) Complaint alleging bad faith claims handling.  In an underlying lawsuit, Plaintiff was sued for injuries allegedly suffered by Randy Everetts while he was moving a refrigerator on the insured’s property.  Indian Harbor, through its third party administrator, American Claims Service, Inc., successfully defended the insured in the personal injury lawsuit.

From the very outset, a question arose as to whether the accident occurred during the effective dates of the policy.  Mr. Everetts in his complaint pleaded that the accident occurred one day before the policy became effective, while the insured insisted that the accident happened one day later, when the policy was in effect.

Approximately 18 months after Indian Harbor began defending the case, its third party administrator sent out a reservation of rights letter in which it stated that it would continue to defend the insured but if the facts established that the accident occurred before the inception of the policy, it would have no duty to indemnify the insured.  The insured, upon reading the reservation of rights letter, allegedly became so upset that he suffered a seizure and had to be hospitalized.

After the underlying action was successfully defended, the insured brought a bad faith action against Indian Harbor and its third party administrator alleging that the delay in issuing the reservation of rights letter was due to the failure of Indian Harbor to adequately investigate the coverage issues and that it also had an obligation to locate other insurance for the insured because it knew of the potential that the insured would not be insured under its policy.

Indian Harbor and American Claims filed motions for summary judgment, contesting each of the numerous theories of liability being advanced by the insured including Plaintiff’s bad faith claim.

In granting the motion, the trial court judge found that Indian Harbor and its third party administrator breached no duty to the insured, that it had no duty to find other insurance for the insured and that by successfully defending the insured in the underlying action, Indian Harbor had fulfilled its obligation to its insured.

In addition, the Court held that since no benefits were ever denied under Plaintiff’s insurance policy, section 8371 could not serve as a basis for a bad faith claim.

Date of Decision:  February 15, 2008

Smalanskas v. Indian Harbor, Pennsylvania Court of Common Pleas, Lackawanna County, Docket No. 04 CV 2394, 2008 Pa. Dist. & Cnty. Dec. LEXIS 233  (Feb. 15, 2008) (Nealon, J.)