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The insurer brought a declaratory judgment action seeking a ruling that life insurance policies were void or voidable.  The insured filed counterclaims, including a section 8371 bad faith claim and a contract based breach of the duty of good faith and fair dealing.

While the court recognized that under some circumstances courts have held that bringing a declaratory judgment action could be statutory bad faith, it found that the counterclaim failed to meet the first prong of a statutory bad faith cause of action because the insurer had not unreasonably denied a claim.  In that case there was no denial of benefits, and there could have been none since a life insurance policy was at issue and the insured was still alive.  In filing the declaratory judgment, the insurer was not unreasonably denying a claim, but was asking the court to pronounce the parties’ legal rights under the policy.

The court recognized that there have been times where Pennsylvania’s state and federal courts have allowed bad faith claims to proceed where there was literally no denial of a benefit; however, the court observed that under Pennsylvania law “while the alleged bad faith need not be the ‘literal act of denying an insured’s claim, “the essence of a bad faith claim must be the unreasonable and intentional (or reckless) denial of benefits.”’” As the court stated:  “In other words, while the statute is not limited to the actual denial itself, the facts surrounding the behavior should demonstrate an unreasonable or reckless avoidance or denial of benefits. For example, courts have found that ‘it is not bad faith to conduct a thorough investigation into a questionable claim.’”

The bad faith count was dismissed where there was “no claim under the Policies prior to [the insurer’s] filing of its lawsuit, nor did any actions occur which would prompt [the insurer’s] obligations under the Policies to be triggered.”

The court also rejected a contract based count of the breach of the duty of good faith and fair dealing.  The fact of bringing the declaratory judgment action and thus “forcing” the insured to defend is not enough to find such a breach.  Nor did the putative falsity of the allegations in the complaint or callousness in bringing the claim state a claim for such a breach.

Date of Decision:  July 30, 2009

Principal Life Ins. Co. v. Weiss, Civ. Action No. 09-cv-840, 2009 U.S. Dist. LEXIS 131300, U.S. District Court for the Eastern District of Pennsylvania (E.D.Pa. July 30, 2009) (Davis, J.)