DECEMBER 2017 BAD FAITH CASES: NO BAD FAITH WHERE PLAINTIFF FAILS TO PLEAD KNOWLEDGE OR RECKLESS DISREGARD OF LACK OF A REASONABLE BASIS TO DENY COVERAGE, EVEN THOUGH COVERAGE WAS DUE (Western District)
This case arises out of a fatal automobile accident, involving the son-in-law of the named insureds. The named insureds are the parents of the deceased’s wife, who is listed as a “household driver”. Following the accident, the insurer refused to pay her stacked UIM benefits, arguing that she does not reside with the named insureds and is thus not a “relative” under the policy. The insureds then sued for breach of contract and bad faith, among other claims. The insurer moved to dismiss under Federal Rule of Civil Procedure 12(b)(6).
In making the coverage determination, the Court found that “relative” in the policy includes “child”, and while “child” was not defined in the policy, it could reasonably be interpreted to include the deceased’s wife. Thus, the Court denied the insurer’s motion to dismiss the breach of contract claim.
However, the Court granted the insurer’s motion to dismiss the bad faith claim, without prejudice, finding the insureds failed to provide any “allegation that [the insurer] knew or recklessly disregarded [a] lack of a reasonable basis when it denied [stacked] coverage.” For the same reasons, the Court also dismissed the insureds’ fraud claim. The Court further dismissed the insureds’ unjust enrichment claim with prejudice, ruling that such a claim is inappropriate where the relationship of the parties is governed by an express contract. The Court offered the insureds leave to file an amended complaint.