BAD FAITH CLAIM FAILS WHEN COURT DETERMINES THERE IS NO BREACH OF THE DUTY TO DEFEND (Pennsylvania Superior Court)
The insured was sued for physically attacking the underlying plaintiff, while hurling racial epithets. The carrier denied a defense on the basis the alleged injuries resulted from an intentional attack, which was not an “occurrence” under the policy. The insured sought a declaratory judgment that a defense was due, and further asserted breach of contract and bad faith. The insurer counterclaimed with its own request for declaratory judgment.
The case went to trial. After the insured put on her case, the trial court granted the insurer a non-suit. On appeal, the Superior Court affirmed, but applied stricter standards than the trial court in doing so.
The Superior Court reiterated the rule that the duty to defend is defined solely by the allegations in the complaint, and courts cannot consider extrinsic evidence outside the complaint. Here, the trial court permitted the insured to put on evidence of mental incapacity to support her position that the conduct was not intentional. The appellate court ruled the trial court erred in permitting or considering this extrinsic evidence when evaluating the duty to defend, which is solely defined by the four corners of the complaint.
In this case, the complaint itself only alleged intentional conduct, without any mitigating circumstances. Thus, the Superior Court concluded the conduct alleged did not constitute an “occurrence”, and there was no duty to defend on the face of the complaint. [Note: This suggests the case could have been decided on Preliminary Objections or Summary Judgment.]
The Superior Court’s Opinion does not separately address the bad faith claim on the merits. It is clear, however, that once the Court determined there was no duty to defend, the bad faith claim simultaneously failed because the necessary predicate of unreasonably denying a benefit owed under the policy did not exist.