APRIL 2011 BAD FAITH CASES
PAYMENT DELAY CLAIMS SURVIVES MOTION TO DISMISS AGAINST BOTH INSURER AND THIRD-PARTY ADMINISTRATOR WHERE TPA STATUS AS AN INSURER STILL OPEN (Middle District)

The insured fell ill in December 2005.  She had an insurance policy with the insurer, and she submitted claims for malpractice insurance tail expenses, salary replacement reimbursement, and other expenses related to her place of business.

The insured did not receive payments for all of her claims in a timely fashion, and she filed a Complaint against the insurer for breach of contract and bad faith.  She alleged that the insurer, through its third-party agent, “failed to provide all payments due and owing under the terms and obligations of the defendants under said policy.”  As part of the bad faith claim, she asserted that the insurer “arbitrarily, intentionally, and capriciously delayed and denied all benefits due” under the policy.  The insurer filed a motion to dismiss the Complaint in its entirety.

In the motion to dismiss, the third-party agent argued that it could not be a proper party because it was not a party to the original insurance contract.  The court rejected that argument, as the insured alleged in the Complaint that she paid premiums to both the insurer and the agent and that both defendants assumed obligations to her with respect to the policy.

Concerning the bad faith claims against the insurer and the third party administrator, the court determined recognized that non-insurers are not subject to the bad faith statute.  However, the court found “[t]o the extent that [the TPA] may have been the decision maker on [the insured’s] claims and acted as the insurer, [the TPA] may be liable for breach of contract and bad faith.”

The insured sufficiently alleged that the carrier and potential insurer unreasonably delayed payments and failed to promptly make full payments once they did decide to cover the insured for her losses.  The delay and non-payments supposedly began in March 2007 and continued in the months after, and the court felt that these allegations constituted a legitimate bad faith allegation.  The court therefore denied the insurer and third-party agents’ motion to dismiss miss the Complaint in its entirety.

Date of Decision:  April 12, 2011

Cozzone v. AXA Equitable Life Ins. Soc’y of the United States, No. 3:10cv2388, United States District Court for the Middle District of Pennsylvania, 2011 U.S. Dist. LEXIS 39528 (Apr. 12, 2011) (Munley, J.)