FEBRUARY 2006 BAD FAITH CASES
THIRD PARTY ALLOWED TO PURSUE BAD FAITH CLAIM AGAINST INSURANCE CARRIER FOR INDEMNIFICATION, THOUGH NOT CONTRIBUTION (Philadelphia Federal)

IAP engaged in the business of providing goods and services to the United States Military.  IAP hired defendants to transport twelve modules by sea from Alexandria, Egypt to a port in Jordan, then to Baghdad and Tikrit, Iraq by truck.  IAP and its insurance carrier sued Defendants for breach of contract after they lost the twelve modules and were unable to confirm their whereabouts.

The defendants counterclaimed against IAP’s carrier, arguing that: (1) the carrier was in a position to negotiate the return of the modules (presumably from the thieves that stole them) for a fraction of the amount of IAP’s claimed loss, but chose not to pay the ransom; and (2) the carrier improperly asserted its policy defenses against its insured and that this wrongful adjustment of the claim was also a proximate cause of IAP’s loss.  In short, despite their third party status, the defendants asserted a bad faith insurance claim.

Plaintiff’s filed a Motion to Dismiss on the basis that the carrier had no duty the defendants to act in good faith since they were not a party to the insurance contract.  However, the Court ruled that the defendants may assert a bad faith claim against the carrier for indemnification, but not for contribution.  The Court reasoned that Pennsylvania law only allows a right of contribution among joint-tortfeasors.

Since the defendants’ alleged wrong was losing the modules, and the carrier’s alleged wrong was not recovering the lost modules or otherwise covering the loss, the wrongs were separate from each other in nature and time.  Therefore, they were not joint-tortfeasors as a matter of law and there is no right of contribution.

Conversely, the defendant was permitted to pursue its counterclaim for indemnification under a bad faith theory against the carrier despite its third-party status.

Date of Decision: February 8, 2006

IAP Worldwide Servs. v. UTi United States, Inc., United States District Court for the Eastern District of PA, No. 040-4218, 2006 U.S. Dist. LEXIS 4766 (E.D. Pa. Feb. 8, 2006) (Savage, J.).