FEBRUARY 2012 BAD FAITH CASES: COURT DENIES CLASS CERTIFICATION IN BREACH OF CONTRACT CASE, PREVENTING CLASS-WIDE BAD FAITH ACTION, BUT PERMITS BAD FAITH ACTIONS TO PROCEED INDIVIDUALLY (Western District)
The court decided a carrier’s motion to dismiss its insured’s complaint that alleged breach of contract and bad faith and sought class certification for both counts.
The insured parties brought this action alleging wrongful denial and termination of credit disability benefits under policies held by the carrier. The insureds also bought suit for bad faith denial of their disability claims.
The disputed provision at issue is the meaning of “unable to perform any of the duties of his occupation” as stated in the parties’ insurance policy issued by the carrier and required to receive disability benefits.
The same insurance policy was in issue during a prior class action suit adjudicated in 2011 against the same carrier. In that case, the court found the language of the policy was written as a disjunctive, meaning that an insured claimant could qualify for disability coverage if it met the “any occupation” standard alone.
However, the district court denied class certification for the insured parties. The Third Circuit affirmed this ruling. In the instant case, the carrier argued that the insured’s putative class action breach of contract claim is barred by collateral estoppel as a result of the 2011 Third Circuit ruling. The insured parties disagreed, arguing that this action is about the phrase “any of the duties of his occupation,” not the disjunctive nature of the contractual terms.
The court agreed that the disputed contractual provision in this case is different, but nevertheless found that collateral estoppel precluded class certification because the remaining issues did not meet the requirements of Federal Rules of Civil Procedure 23(a) and 23(b)(3).
The insured disagreed, arguing that the carrier did not meet the “identical issue” prong of the test for collateral estoppel. However, the court reasoned, it would be impossible to interpret the meaning of “any of the duties of his occupation” without considering each potential class member’s occupation individually. The court ruled that each individual class member may pursue its own individual breach of contract claim and denied class certification.
The court next turned to the bad faith allegations, ruling that, without an underlying claim to enforce some right under an insurance policy, a bad faith claim was improper. Because the court had just dismissed the insured’s motion for class certification, there was no underlying insurance claim upon which to attach the bad faith action. The court again ruled, however, that the insureds could pursue bad faith claims individually.
In conclusion, the court granted the carrier’s motion to dismiss the insureds’ class action certification, but denied the carrier’s motion to dismiss the insureds’ individual claims.