Archive for the 'PA – Coverage Issues' Category

THE ROLE OF BAD FAITH IN AN EQUITABLE SUBROGATION CASE (Third Circuit – Pennsylvania Law)

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In this case, the Third Circuit addresses the elements of equitable subrogation between insurers, a useful opinion for coverage counsel dealing with insurer vs. insurer disputes.  Here, we only mention the role bad faith played in the court’s analysis.

This case involves the tragic Salvation Army building collapse in Philadelphia, where six people died and thirteen others were injured.  The neighboring property owner had hired a contractor to do construction work on its property. The improperly carried out work ultimately caused the building to collapse onto the neighboring Salvation Army building.

The property owner had a commercial general liability (CGL) policy on which it was a named insured.  The contractor also had its own insurance policy. This policy appeared to provide coverage to the property owner as an additional insured.

Over time, the CGL carrier, through counsel, repeatedly demanded that the contractor’s insurer provide a defense to the property owner as an additional insured.  The CGL carrier stated in one communication that a defense was due to the property owner as an additional insured, and that failure to provide such a defense was bad faith.

The contractor’s carrier eventually agreed to provide a defense to the property owner as an additional insured, under a reservation of rights. Eventually, the additional insured carrier withdrew its defense, and obtained a judgment rescinding its policy based on material misrepresentations the contractor made in the insurance application.

A court eventually found the contractor’s policy void ab initio. The contractor’s carrier, however, already had paid over $667,000 in defense costs for the property owner as an additional insured. The additional insurer brought the present claims for equitable subrogation and unjust enrichment against the property owner’s CGL carrier.

The district court rule in favor of the additional insurer, and had awarded almost all of the damages sought. The Third Circuit affirmed.

On the bad faith related issues, the Third Circuit found the following.

First, an insurer seeking equitable subrogation against another insurer has to show that in providing a defense and coverage, it acted to protect its own interest, and that it did not act as a volunteer.  In this case, while the contractor’s insurer might have believed the policy should have been rescinded, it did not have any judgment to that effect. Moreover, it had been threatened with a bad faith claim by the CGL carrier’s counsel.  The Third Circuit found this sufficient to establish that the contractor’s carrier acted in its own interest, and not as a volunteer, in providing a defense.

Second, the CGL carrier argued that the contractor’s carrier had unclean hands, and therefore could not obtain equitable relief. The Third Circuit rejected this argument. The panel observed that the unclean hands doctrine requires proof of fraud, unconscionable conduct, or bad faith affecting the balance of equities. The court could not find that the carrier’s conduct was unconscionable or affected the balance of equities between the two carriers.

Date of Decision:  April 27, 2021

Berkley Assurance Co. v. Colony Insurance Co., U.S. Court of Appeals for the Third Circuit No. 20-2673, 2021 WL 1625521 (3d Cir. Apr. 27, 2021) (Ambro, Rendell, Restrepo, JJ.)

WESTERN DISTRICT JUDGE WIEGAND ISSUES TWO BAD FAITH OPINIONS: (1) BAD FAITH CLAIM PLAUSIBLE WHERE COVERAGE ISSUES REMAIN OPEN (2) NO BAD FAITH FOR PRE-CONTRACT CONDUCT (Western District)

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On April 16 and 21, 2021, Western District Judge Wiegand issued bad faith opinions.  In the first case, she allowed the claim to proceed, denying a motion to dismiss. In the second, the conduct at issue did not involve any benefit denial, but only alleged pre-contract deception, which is not subject to Pennsylvania’s bad faith statute, 42 Pa.C.S. § 8371.

CASE 1: BAD FAITH CLAIM STATED

In Maronda Homes, LLC v. Motorists Mutual Insurance Company, Judge Wiegand allowed an additional insured’s statutory bad faith claim to proceed, denying the insurer’s motion to dismiss.

The insurer rejected additional insured coverage, asserting (1) that the additional insured endorsement was not triggered through any alleged conduct of the named insured, and (2) that even if triggered, an exclusion applied. The additional insured raised claims for breach of contract, contractual bad faith, and statutory bad faith. The insurer moved to dismiss all claims.

Judge Wiegand first rejected the insurer’s argument that the complaint did not allege any wrongdoing by the named insured that could trigger coverage under the additional insured endorsement.  She also found factual issues remained open as to whether coverage was excluded because the work was (1) completed or (2) put to its intended use. This could not be decided at the motion to dismiss state.

Judge Wiegand did dismiss the breach of the implied covenant of good faith and fair dealing count. “[U]nder Pennsylvania law, a ‘claim for breach of the implied covenant of good faith and fair dealing is subsumed in a breach of contract claim.’” Thus, “a claim for breach of the implied covenant of good faith and fair dealing ‘separate and distinct from a breach of contract claim’ cannot be maintained because ‘the covenant does nothing more than imply certain obligations into the contract itself.’”

By contrast, Judge Wiegand allowed the statutory bad faith claim to proceed. First, she observed that the policy exclusion at issue remained open and undecided, so the insurer could not argue the coverage denial was per se reasonable based on the policy exclusion language.  She then found the insured’s allegations that the insurer “failed to investigate Plaintiff’s tender of the claims, denied coverage despite cooperatively participating in attempts to settle the Underlying Actions, and rejected settlement offers … within the limits of the Policy … are sufficient at this stage to survive Defendant’s Motion.”

Date of Decision:  April 16, 2021

Maronda Homes, LLC v. Motorists Mutual Insurance Company, U.S. District Court Western District of Pennsylvania No. 2:20-CV-01526-CCW, 2021 WL 1518009 (W.D. Pa. Apr. 16, 2021) (Wiegand, J.)

CASE 2: NO STATUTORY BAD FAITH POSSIBLE FOR PRE-POLICY CONDUCT

The second case involved a first party property damage claim, where a swimming pool popped out of the ground due to subsurface water pressure. A policy exclusion clearly excluded coverage for subsurface water pressure causing damages, but the insureds still pursued the claim.  They alleged that prior to purchasing the policy, the insurer’s agent led them to believe the policy would cover them for damages to in-ground pools “from foreseeable types of harm,” which equated to a promise concerning subsurface water pressure damage being covered.

After the coverage denial, the insureds brought claims to reform the policy to cover “pool popping,” for statutory bad faith, and for violation of the Unfair Trade Practices and Consumer Protection Law (UTPCPL). The insurer successfully moved to dismiss all claims.

First, Judge Wiegand found that the policy could not be reformed based on mutual mistake, unilateral mistake, or fraud.  She further found that this was not a case where the reasonable expectations doctrine would permit reformation of clear policy language.

Second, she dismissed the statutory bad faith claim.  As the Pennsylvania Supreme Court made clear in Toy v. Metropolitan Life, the bad faith statute only applies when the insurer had denied a policy benefit.  Deceptive practices used to induce an insured to enter an unfavorable insurance policy do not fall within the bad faith statute’s ambit.

Finally, because the insureds did not plead justifiable reliance, there could be no UTPCPL claim.

Date of Decision: April 21, 2021

Palek v. State Farm Fire & Casualty Company, U.S. District Court Western District of Pennsylvania No. 2:20-CV-00170-CCW, 2021 WL 1561507 (W.D. Pa. Apr. 21, 2021) (Wiegand, J.)

BANKRUPTCY COURT PERMITS BAD FAITH CLAIM TO PROCEED, EVEN AFTER BREACH OF CONTRACT CLAIM DISMISSED (Philadelphia Bankruptcy Court)

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This is a rare bad faith case raised before a Bankruptcy Court in the context of an adversary proceeding.

The bankrupt/insureds brought a first party property damage claim against an excess insurer.  It is not fully clear from the record if the insureds were parties to the excess insurance agreement, which appears to be designed to protect a mortgage holder.  In any event, the court held there was nothing in the record that could establish excess coverage was triggered.  Thus, the court granted summary judgment on the breach of contract claim, finding no excess coverage possibly due that could have invoked the insurance contract’s coverage obligations.

The absence of any benefits being due, however, did not stop the court from analyzing the bad faith claim, and ultimately allowing that claim to proceed.

As discussed many times in this blog, there is a serious issue about whether a statutory bad faith claim can proceed if the insurer has not denied any benefit under an insurance policy, i.e., payment of a first party claim or defense and indemnification under a liability insurance policy. This limitation appears to be the required by the Pennsylvania Supreme Court’s 2007 decision in Toy v. Metropolitan Life.  An article addressing this issue can be found here.  See also this January 2020 post, this March 2021 post, and this January 2021 post questioning whether the non-precedential Third Circuit decision in Gallatin Fuels failed to consider Toy in reaching the conclusion that it was possible to pursue a bad faith claim when no policy was even in effect at the time of the loss.

In the present adversary proceeding, the court chiefly relied on Gallatin Fuels for the proposition that statutory bad faith claims can be pursued even where no benefits are due because there is no enforceable insurance contract, solely based on claims of poor investigation practices and possible misrepresentations during the investigation.

The court also relied on Pennsylvania’s Unfair Insurance Practices Act and Unfair Claim Settlement Practices regulations in finding a potential basis for bad faith. In particular, the court cites, 31 Pa. Code § 146.6 (providing “that every insurer shall complete investigation of a claim within thirty days after notification of the claim unless it cannot reasonably be completed in that time. It further provides that if the investigation cannot be completed within that timeframe, every forty-five days thereafter, the insurer shall provide the claimant with a reasonable explanation for the delay and state when a decision on the claim may be expected.”)

Courts approach violations of the UIPA and UCSP regulations differently, ranging from a complete prohibition on considering their violation in proving statutory bad faith cases, to using those violations as evidence of bad faith.  Our May 2, 2019 post summarizes different approaches courts take in considering UIPA and Unfair Claim Settlement Practices regulations.

Most recently on this Blog, we summarized Western District Magistrate Judge Dodge’s December 2020 Kleinz v. Unitrin opinion. Magistrate Judge Dodge found that since the seminal Terletsky opinion in 1994, “federal courts have uniformly rejected plaintiffs’ attempt to rely on UIPA violations to support bad faith claims.” She found that contrary to the insured’s arguments that some federal cases hold otherwise, “for the past 26 years, case law in federal courts on this issue has been consistent.”  Magistrate Judge Dodge cites, among other cases, the Third Circuit’s opinion in Leach, Judge Gibson’s 2019 Horvath opinion, Judge Fisher’s 2014 Kelman decision (while sitting by designation in the Western District), Judge Kosik’s 2007 Oehlmann decision, and Judge Conti’s 2007 Loos opinion.

Some other recent opinions look unfavorably toward using UIPA and UCSP violations to make the statutory bad faith case. See, e.g., Judge Quiñones Alejandro’s December 2020 White Opinion, and Judge Wolson’s April 2020 Live Face decision. In his March 2020 Clapps decision, Judge Darnell Jones notes that while there is no private right of action under the UIPA or UCSP regulations, there might be some circumstances where their violation might be the premise for a bad faith case.

All that being said, the bad faith claim was allowed to proceed in this case, in light of claim handling conduct that clearly troubled the court.

Date of Decision:  April 15, 2021

In Re Lena D. Lewis, Debtor, Lewis v. U.S. Bank National Association, U.S. Bankruptcy Court for the Eastern District of Pennsylvania No. AP 18-00240-AMC, 2021 WL 1424721 (Bankr. E.D. Pa. Apr. 15, 2021) (Chan, J.)

NO BAD FAITH WHERE INSURER’S POSITION ON COVERAGE WAS CORRECT, AND OTHER ISSUES WERE BELATEDLY RAISED POST-TRIAL (Third Circuit)

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The Third Circuit’s precedential decision focused primarily on what constitutes a sufficient writing to request lower underinsured motorist limits under 75 Pa. C.S. § 1734. That statute only provides there must be a “request in writing”.  After close analysis, the panel determined that such a request can effectively be made in the insurance application itself, without the need for using a specialized form.

“The statute says little beyond that [there must be a request in writing]. But that silence speaks volumes. As we reiterate today, the statute means what it says: an insured can make that choice ‘in writing’ in any writing as long as the choice is clear.”

In this case, the insured requested lower than the maximum UIM limits in her written insurance application.  After suffering a serious injury, and despite the application asking for lower limits and the policy being issued with those lower limits, the insured demanded the maximum UIM limits allowed by statute.

She argued the application request was not binding because she had not filled out a separate form the insurer itself provided, which was designed for the insured to expressly acknowledge she was accepting these lower limits.  The insurer took the position that even without the insurer filling out the acknowledgment form, the written request in the application was sufficient to set lower limits for UIM coverage, and refused to pay full limits allowed by the statute.

The insured sued for breach of contract and bad faith.  The district court agreed with the insured on the policy limit issued, but dismissed the bad faith claim. The case proceeded to trial and jury awarded $1.75 million, which the trial judge molded to $750,000 to meet the UIM maximum, rather than the lower sum requested in the application.

A summary of the trial court’s decision can be found here.

For the reasons stated above, the Third Circuit reversed and found the lower limit requested in the application controlling. It ordered the trial court to mold the verdict to $300,000.

The Third Circuit did affirm the trial court’s dismissal of the insured’s bad faith claim.  The insured tried to attack the bad faith claim’s dismissal, post-verdict, via a motion for reconsideration.

  1. First, the appellate panel agreed with the trial court that the jury verdict was irrelevant to bad faith, and that the trial court should solely look “at the actions and omissions of [the insurer] to evaluate [the insured’s] claim when it was submitted and then processed. [Note:  We recently posted on a New Jersey federal decision similarly rejecting this type of “hindsight” bad faith analysis.]

  2. As the arguments were presented by motion for reconsideration, there had to be some new facts that did not exist or could not have been discovered at the time of the original decision. The Third Circuit agreed with the district court that the insured’s efforts in this regard failed, as the facts she wanted to adduce were not new.

  3. The insured failed to request certain documents in discovery, e.g., the insurer’s Best Practices Manual, and gave no justification. Further, the Rule 26(f) report revealed early on the insurer’s position about the lower limit in the application controlling the UIM policy limits.  Thus, there was no basis for reconsideration involving discovery activities.

  4. In bringing and pursuing her case, the insured did not argue the insurer acted in bad faith on the basis of misrepresenting the scope of coverage, even though she had information allegedly supporting such a claim before trial. Rather, she “chose instead to base [the] bad faith claim on an alleged failure … to investigate the [insured’s] claim.” The court would not allow the insured belatedly to bring up the misrepresentation based claim, finding there should be no second bite at the apple.

  5. The Third Circuit observed that an insurer can defeat a bad faith claim if there “is evidence of a reasonable basis for the insurer’s actions or inaction.” In this case, the insurer believed the application constituted a sufficient writing under section 1734 to reduce UIM coverage limits. The Third Circuit found the insurer’s belief, “not only reasonable but correct.” Thus, its “reliance on the lower UM/UIM coverage limits in informing its investigation and settlement offers was therefore not deceptive.”

Date of Decision:  April 8, 2021

Gibson v. State Farm Mutual Automobile Insurance Company, U.S. Court of Appeals for the Third Circuit No. 20-1589, 2021 WL 1310777 (3d Cir. Apr. 8, 2021) (Hardiman, Pratter, Roth, JJ.)

NO BAD FAITH WHERE “RED FLAGS” EXISTED THAT COULD UNDERMINE COVERAGE; RULE TO FILE COMPLAINT NOT BAD FAITH (Middle District)

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This case involved an auto accident death, and whether the deceased was an insured “family member” under his stepfather’s auto policy.  Coverage depends on whether the deceased resided with the named insured/step-father at the time of the accident.  The stepfather brought breach of contract and bad faith claims, on behalf of his stepson’s estate.

The court denied summary judgment to both parties on the coverage issues, as material facts remained open on the coverage issued.  As Judge Mannion states, “[i]n short, there exist too many disputed material facts as to whether [the stepson] was a ‘family member’ of plaintiff’s household at the time of the accident.”

The court did grant the insurer summary judgment on the bad faith claim, as plaintiff could not meet the clear and convincing evidence standard necessary to prove bad faith.

Judge Mannion observed that during its investigation, the insurer discovered that the stepson might not have met the definition of “family member” under the policy.  There were statements from two people that the stepson with living with his girlfriend and her mother, not the stepfather; that the stepfather had removed the stepson from the policy at issue; and that the deceased had purchased his own vehicle with its own insurance policy, and that policy had an address other than the stepfather’s address at the time of the accident.

While the stepson’s driver’s license and tax returns did indicate he resided with his stepfather, the insurer “certainly had sufficient evidence that showed [the stepson’s] physical residence was at [the girlfriend’s] house.”

Red flags oblige the insurer to investigate thoroughly

Looking at all the circumstances, Judge Mannion observed that “[u]nder Pennsylvania law, insurers are permitted to ‘conduct a thorough investigation’ of a questionable claim without acting in bad faith”, and “[w]here an insurer sees red flags’ that cause concern of insurance fraud and prompt an investigation, the insurer has a reasonable basis for investigation, and is therefore not liable for claims of bad faith.”  Here, the insurer “had more than a reasonable basis to investigate where [the stepson] was really residing at the time of the accident since it had ample evidence to show that he may have moved out of plaintiff’s house months before the accident.”

Under these circumstances, the insurer was “entitled to conduct its own investigation and its finding that [the stepson] was not residing with plaintiff and was not a covered family member as defined in plaintiff’s Policy was reasonably based on evidence it uncovered. Thus, defendant’s denial [of] plaintiff’s UIM claim made on behalf of [the stepson’s] Estate was not an act in reckless disregard of its obligations under plaintiff’s Policy.”

Rule to file a complaint not bad faith

The court also rejected the notion that the insurer acted “outrageously” in filing a rule to file a complaint, after plaintiff had initiated the action by way of writ of summons.  The insurer sought to have a complaint filed because it lacked information, and “instructed plaintiff to file a complaint so that it could develop the facts as to [the stepson’s] residence.” Judge Mannion added, “[i]ndeed, as defendant points out, the court held in Fabrikant v. State Farm Fire and Cas. Co., [a summary of which can be found here] …. that ‘an insurer’s exercising its procedural right to serve a Rule to File Complaint is not bad faith, absent a showing of clear and convincing evidence that such action was taken in bad faith.’” Here the insurer “was obliged to investigate where [the deceased] was physically residing at the time of the accident in order to properly consider plaintiff’s UIM claim, especially since there was evidence that his residence was at [another] house.” [Emphasis added]

Date of Decision:  April 1, 2021

Fuentes v. USAA General Indemnity Co., U.S. District Court Middle District of Pennsylvania, No. CV 3:19-1111, 2021 WL 1225934 (M.D. Pa. Apr. 1, 2021) (Mannion, J.)

NO COVERAGE FOR COVID-19 LOSSES = NO BAD FAITH IN DENYING COVERAGE (Philadelphia Federal)

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On March 30, 2021, Eastern District Judges Beetlestone and Baylson independently issued opinions finding no insurance coverage due for business losses resulting from the Covid-19 pandemic.  In both cases, plaintiffs not only demanded coverage, but asserted bad faith claims against their insurers.

Motions to dismiss were granted in both cases, with prejudice, the courts finding no coverage due for the types of losses claimed. We leave you to read these cases in detail on the issues of physical loss or damage, direct loss or damage, governmental closures, business losses, and the other issues now regularly before the courts on Covid-19 business interruption and government closure claims.

Neither court gave any lengthy address to the bad faith claims, or even an express analysis for their dismissal. By comparison, the breach of contract and declaratory relief claims over coverage were addressed in detail.

The first element of any bad faith claim is that the claim denial is unreasonable.  In dismissing the bad faith claims, with prejudice, it seems fair to infer that because the coverage denial was correct under the policy language, these courts found no bad faith possible, i.e., where the coverage denial is correct under the relevant policy language, it is impossible to prove the carrier acted unreasonably, thus precluding a finding of bad faith.

Dates of Decision:  March 30, 2021

Tria WS LLC, v. American Automobile Insurance Company, U.S. District Court Eastern District of Pennsylvania, No. CV 20-4159, 2021 WL 1193370 (E.D. Pa. Mar. 30, 2021) (Beetlestone, J.) COVID

Chester Cty. Sports Arena v. The Cincinnati Specialty Underwriters Ins. Company, U.S. District Court Eastern District of Pennsylvania No. 20-2021, 2021 WL 1200444 (E.D. Pa. Mar. 30, 2021) (Baylson, J.) COVID

NO BAD FAITH WHERE (1) NO COVERAGE DUE, (2) ALLEGED BAD FAITH COMMUNICATIONS WITH CLIENT WERE EITHER IMMATERIAL OR ACCURATE, AND (3) ANY OMISSIONS IN THOSE COMMUNICATIONS ONLY AMOUNTED TO NEGLIGENCE AT MOST, NOT BAD FAITH (Western District)

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The insured brings this breach of contract and bad faith case based on the insurer’s denying virtually all of her water damage claim, and its allegedly improper claim handling in communications to the insured.  Western District Magistrate Judge Dodge grants the insurer’s motion to dismiss, but with leave to file an amended complaint.

First, the court dismissed the breach of contract claim.  Magistrate Judge Dodge found there was no coverage for the claims pleaded because the damages specifically alleged, when compared to the clear policy language, were not insured losses. There was, however, enough ambiguity in the plaintiff’s allegation that she suffered “resulting damages”, to allow the insured to amend if she could identify any other forms of damages that might be covered under the policy.

As to the bad faith claim, Magistrate Judge Dodge first observed that her contract ruling explained how the coverage denial was proper.  Further, “[t]he bad faith claim does not refer to any circumstances other than [plaintiff’s] contention that [the insurer] failed to communicate all of the policy language to her in one of its letters.” This was of no moment. The policy exclusion language omitted in the letter was irrelevant because the insurer did not rely on the omitted exclusion in denying coverage.

The insured alleged that the insurer also omitted a distinct important policy provision in correspondence to the insured. This was belied, however, by the correspondence itself. The purportedly omitted provision actually was included in the letter. Moreover, even if the omission occurred, this amounted at most to negligence, mistake, or poor judgment, none of which makes out an actionable bad faith claim.

Thus, the motion to dismiss the bad faith claim was granted, but without prejudice.

Date of Decision:  March 19, 2021

Blanton v. State Farm Fire & Casualty Co., U.S. District Court Western District of Pennsylvania Civil Action No. 20-1534, 2021 WL 1060661 (W.D. Pa. Mar. 19, 2021) (Dodge, M.J.)

Our thanks to the insurer’s counsel, Mark A. Martini, of Robb Leonard Mulvihill LLP, for bringing this case to our attention.

INSURER HAD STANDING AS ASSIGNEE TO BRING BAD FAITH CLAIM AGAINST ADDITIONAL INSURANCE PROVIDER; BAD FAITH CLAIM ADEQUATELY STATED FOR FAILURE TO PROVIDE FIRST LEVEL OF COVERAGE AND A DEFENSE UNDER ADDITIONAL INSURED ENDORSEMENT (Philadelphia Federal)

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This case involves a dispute between a defendant’s own insurer and another carrier obligated to provide coverage to defendant as an additional insured.  The issues involved which insurer has the primary coverage/defense obligations, and which was excess.

There were several tenders to the additional insurance provider to assume the defense, which were either ignored or denied.  The defendant’s insurer brought a declaratory judgment action seeking to have the additional insurance provider assume the defense, and to reimburse the defendant’s insurer for attorney’s fees and costs, as well as for the attorney’s fees and costs associated with bringing the declaratory judgment action.

It is also clear from the court’s opinion that a statutory bad faith claim under 42 Pa.C.S. § 8371 was at issue.

There was a motion to dismiss all claims.

There was a duty to defend the additional insured

Among other things, Eastern District Judge Robreno found the underlying complaint adequately alleged facts invoking the additional insurance provider’s duty of defend, when compared to the additional insured endorsement language.  Thus, the additional insurance provider was in error in failing to accept the tenders and assume the defense.

There was standing to bring a statutory bad faith claim as an assignee

The additional insurance provider challenged plaintiff’s standing to bring a section 8371 bad faith claim because it was not the named insured.  Judge Robreno disagreed, citing the Third Circuit’s 2015 Wolfe decision making clear that assignees can bring statutory bad faith claims.

[Note: Earlier in Wolfe, the Third Circuit certified to Pennsylvania’s Supreme Court the fundamental issue of whether bad faith claims can ever be assigned. In the Supreme Court’s own Wolfe decision, assignments were recognized as permissible, but only within limited parameters.  A summary of that case can be found here. The assignment in the present case falls within those acceptable parameters.]

The assignee-insurer pleaded a plausible bad faith claim

Next, Judge Robreno rejected the insurer’s arguments that the complaint was devoid of facts setting out a plausible bad faith claim.

To the contrary, Judge Robreno found the following sufficient:

  1. The complaint alleged the additional insurance provider failed to acknowledge its primary duty to defend, without a reasonable basis, breaching the duty of good faith and fair dealing.

  2. The complaint specifically set out numerous instances where that insurer denied or ignored tender letters.

  3. “Accepting as true all of the allegations in the Complaint and all reasonable inferences that can be drawn therefrom, and based on this record, [the plaintiff] has sufficiently pled that based on the correspondence submitted to [the insurer], [the additional insurance provider] did not adequately investigate, respond, or explain their refusal to defend and potentially indemnify [the insured] in the underlying action.”

The motion to dismiss was denied.

Date of Decision:  March 10, 2021

Liberty Mutual Fire Insurance Co. v. Harleysville Worcester Insurance Co., U.S. District Court Eastern District of Pennsylvania No. CV 20-5093, 2021 WL 909625 (E.D. Pa. Mar. 10, 2021) (Robreno, J.)

NO COMMON LAW BAD FAITH WHERE DENIAL OF COVERAGE FOR LATE NOTICE IS REASONABLE (Philadelphia Federal)

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In this breach of contract and common law bad faith action, on a lawyer’s professional liability policy, the court found a number of bases for denying coverage.  As such, the insurer had a reasonable basis to deny coverage and there could be no bad faith. Thus, the court granted the insurer’s summary judgment motion.

First, because this was a claims made policy, “Pennsylvania law does not require an insurer to demonstrate prejudice when the relevant notice provision is contained in a claims-made policy like the one before us.” The court found the insured did not give the required notice in a timely manner.

Next, to the extent no damages were sought, there was no coverage due under the policy.

In addition, there was no coverage due because some of the claims against the insured did not arise out of legal services, as required by the policy

Further, the court found a number of exclusions applicable, and no coverage was due on this additional basis.

Finally, as to bad faith, the court stated: “That leaves only [the insured’s claims] for breach of contract and breach of the duty of good faith and fair dealing (i.e., bad faith). However, because [the insurer] had a reasonable basis for denying coverage under the policy, we grant summary judgment in favor of [the insurer].” In support, the court cited a 2004 case for the proposition that the insurer should be successful where it “’reasonably believed that [the insured] had forfeited coverage under the Policy by failing to timely comply with the notice provision,’ and ‘[t]hus, the [insurance company’s] actions cannot be the basis for a bad faith claim[.]’”

Date of Decision: March 9, 2021

American Guarantee and Liability Insurance Company v. Law Offices of Richard C. Weisberg, U.S. District Court for the Eastern District of Pennsylvania No. 2:19-CV-05055-KSM, 2021 WL 915425 (E.D. Pa. Mar. 9, 2021) (Marston, J.)

NO COVERAGE DUE FOR COVID-19 CLAIMS, NO BAD FAITH CLAIM POSSIBLE (Middle District)

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Middle District Judge Jones ruled that no Covid-19 coverage was due under an all-risk policy.

He found no “direct physical loss of or damage to property,” eliminating the possibility of coverage for business income losses or claims that the business closure resulted from a government order.  Further, even if covered, the claims were subject to the policy’s virus exclusion.

Thus, Judge Jones held plaintiff failed to make out its claims for breach of contract, declaratory judgment, and breach of the implied duty of good faith and fair dealing, and granted the insurer’s motion to dismiss those claims.  Although not a bad faith case, Judge Jones observed in a footnote, “[s]imilarly, Pennsylvania courts have held that if the insurer properly denied a claim, the policyholder is unable to state a bad faith claim.”

Date of Decision: February 8, 2021

Kahn v. Pennsylvania National Mutual Casualty Insurance Company, U.S. District Court Middle District of Pennsylvania No. 1:20-CV-781, 2021 WL 422607 (M.D. Pa. Feb. 8, 2021)