AUGUST 2009 BAD FAITH CASES FILING DECLARATORY JUDGMENT ACTION BEFORE A CLAIM BECOMES RIPE DOES NOT CONSTITUTE BAD FAITH, NO BENEFITS DENIED (Philadelphia Federal)
In Principal Life Insurance Company v. Minder, Plaintiff sued Defendant seeking to have a life insurance policy on the life of Defendant’s father, who is still living, declared void. Defendant, in his counterclaim asserted, inter alia, that Plaintiff acted in bad faith because it had no reasonable legal or factual basis for seeking a declaration that the policy was void or voidable. Specifically, Defendant stated that Plaintiff filed the suit in order to wrongfully avoid its obligations and duties under the policy, and that Plaintiff had no reasonable legal or factual basis for its requested relief. The Court carefully reviewed the Pennsylvania Supreme Court’s decision in Toy v. Metropolitan Life Insurance Company, 928 A.2d 186 (Pa. 2007). (Toy has previously been discussed on this blog.)
The Court stated that Toy made clear that allegations of bad faith are strictly limited to those actions an insurer took when called upon to perform its contractual obligations of defense and indemnification or payment of a loss.
Since Defendant’s father is still alive, no claim for benefits has been made under the policy. It is, therefore, impossible for Defendant to state a claim for bad faith because there is no allegation that Plaintiff acted in bad faith in the handling a claim or in the denial of benefits.
Consequently, the Court ruled that filing a declaratory judgment action concerning the parties’ rights and obligations under an insurance policy prior to the time a claim becomes ripe is not tantamount to the denial or mishandling of a claim. As a result, Defendant’s counterclaim for bad faith was dismissed.
Date of Decision: July 1, 2009
Principal Life Ins. Co. v. Minder, U.S. District Court, Eastern District of Pennsylvania, Civil Action No. 08-5899, 2009 U.S. Dist. LEXIS 56568 (E.D.Pa. July 1, 2009)(Bartle III, J.)