ARE THERE MANY KINDS OF STATUTORY BAD FAITH, EVEN WHEN NO COVERAGE IS DUE ? (Western District)
This statutory bad faith opinion issued out of the Western District of Pennsylvania yesterday.
The court finds no coverage based on a one-year suit limitation provision and/or a policy exclusion. Thus, plaintiffs have no bad faith claim based on denial of coverage, as no coverage is due, and that claim is dismissed with prejudice.
The court expressly finds, however, that there are other forms of statutory bad faith cognizable under 42 Pa.C.S. § 8371, beyond coverage denials. It identifies a commonly recognized exception that if the contract claim fails for a technical reason, like exceeding a limitation period, the bad faith claim can still proceed. The court goes beyond this kind of technical exception to recognize further that poor claims handling may be actionable independently, e.g., knowing or recklessly inadequate investigation, even when no benefit is due under the policy.
On this distinct bad faith investigation claim, plaintiffs only plead (1) conclusory allegations, along with (2) a single fact that cannot constitute bad faith standing alone. Thus, the court dismisses the bad faith investigation claim, but without prejudice. Plaintiffs have leave to file an amended complaint on their investigation bad faith claim, even though no coverage is due under the policy.
[Note: As those following this blog know, we have addressed the scope of cognizable claims under section 8371, and raised the question as to whether cognizable claims under section 8371 are limited to cases where first party benefits due have been denied, or where a defense and/or indemnification due have been refused on third party claims. Our analysis always begins with the 2007 Supreme Court decision in Toy v. Metropolitan Life Insurance Company. See, e.g., this post, and this article. The present opinion relies, in part, on the Third Circuit’s unpublished decision in Gallatin Fuels. As discussed in the linked article, Gallatin Fuels does not address Toy. We are also attaching a portion of a brief recently filed in a Philadelphia federal court, from attorney Lee Applebaum, as part of a motion that has now become moot.]