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In CRS Auto Parts, Incorporated v. National Grange Mutual Insurance Company, the court granted the insurer partial summary judgment, in relevant part, on the bad faith claim because it was time-barred under the statute of limitations and under all of the alternatives proposed by the insured.

The case stems from the insurer’s refusal to pay benefits under a workers’ compensation policy because it stated there was no policy in effect at the time of the accident. A federal court found otherwise in a declaratory judgment action and the insured filed in federal court for bad faith, breach of contract, and fraud. In mediation, the parties stipulated that the insured’s previously filed state court action would be withdrawn and that there would be a tolling of any statute of limitations defenses to claims raised in that state court action. The insurer then filed the instant motion for partial summary judgment with its argument for the bad faith claim being based on the statute of limitations.

The insured’s federal complaint did not specify which type of bad faith, statutory or breach of contractual duty of good faith, so the court considered both and held that the claim was time-barred under either. Statutory bad faith has a limit of two years and contractual has a limit of four years. The action begins accruing when the harm occurs and the insurer’s letter denying coverage in August of 2003 occurred more than four years prior to the federal case being filed in April of 2008.

The insured proposed three alternative bases for considering the bad faith claim to be timely but all three were rejected by the court.

First, the discovery rule did not apply because the insurer specifically denied coverage in its letter of August of 2003 and the insured admitted knowing this at that time, not at some later date.

Second, the bad faith claim was determined to be insufficiently pled in the state court complaint so the stipulation on tolling the statute of limitations for the state court claims did not apply, and there was nothing to provide notice to the insurer of the subsequent federal bad faith claim.

Again, the court considered both statutory and contractual bad faith claims. It found that the three counts in the state complaint did not explicitly or implicitly raise statutory bad faith because there was no mention of a lack of a reasonable basis or reckless disregard of such a lack. The court also found that there was no contractual bad faith allegation under the breach of contract count because there was no mention of a contractual covenant of good faith and fair dealing and there was no allegation against the insurer for breach (as there were against other defendants in that action). There was nothing in the state complaint to give the insurer notice of the fifty-two allegations of bad faith put forth in the federal complaint.

In the alternative, the insured asserted it would have been allowed to amend its state court complaint even if the statute of limitations had expired but the court held that the amendment would have been a new cause of action, not a mere amplification of facts, so it would have been denied.

Third, the argument that the federal complaint contained separate and on-going counts of bad faith with corresponding new statutes of limitation was rejected because all of the counts related to the original denial of coverage for which the statute of limitations had expired. The first thirty counts were related directly to the denial and the other twenty-two were related to subsequent litigation but that litigation stemmed directly from the original denial.

The court granted the partial summary judgment, dismissing the bad faith claim, since it found the claim to be time barred and could find no basis for a new statute of limitations to begin.

Date of Decision: February 2, 2009

CRS Auto Parts, Inc. v. Nat’l Grange Mut. Ins. Co., CIVIL ACTION No. 08-2022, 2009 U.S. Dist. LEXIS 7763 (E.D. Pa. Feb. 3, 2009)(Buckwalter, S.J.)