JANUARY 2015 BAD FAITH CASES: COURT REFUSES TO UNIVERSALIZE BAD FAITH FROM SIMPLE DENIAL OF COVERAGE IN THE ABSENCE OF SPECIFIC EVIDENCE OF BAD FAITH (Philadelphia Federal)
In Easy Corner, Inc. v. State National Insurance Company, the court made clear the significance of a bad faith’s plaintiff’s need to prove something more than negligence, or that an insurer was simply wrong on coverage. In that case, the court granted summary judgment to the insurer because the plaintiff could not do so; and to allow the case to proceed on plaintiff’s theory would make every incorrect denial of an insurance claim bad faith.
As the court observed, an insurer’s conduct need not have been fraudulent, but “mere negligence or bad judgment is not bad faith.” An insured must ultimately show that “the insurer breached its duty of good faith through some motive of self-interest or ill will.” Thus, in “opposing a motion for summary judgment, the insured’s burden is “commensurately high because the court must view the evidence presented in light of the substantive evidentiary burden at trial.”
The plaintiff’s burden of proof is clear and convincing evidence. In the case at hand, the plaintiff essentially argued that the insurer was wrong in denying coverage, “must have or should have known as much, and therefore … must have acted in bad faith.” However, the plaintiff did not point to any “facts of record showing that Defendant’s denial of coverage rose above ‘mere negligence or bad judgment’ or that Defendant acted out of self-interest or ill will.” Of note, the court then states: “Rather, under Plaintiff’s reasoning, virtually every incorrect denial of insurance coverage would constitute bad faith merely by virtue of being incorrect.”
The court emphasized that “mere insinuation is not enough”. The court’s examples of bad faith conduct that could constitute evidence of bad faith included: misrepresenting policy terms, foot dragging in investigations, hiding information from insureds, shifting the basis on which to deny claims, making unreasonable assumptions, inexcusable periods of inactivity, inadequate communications, and a jury’s finding that the insurer violated the Pennsylvania’s Unfair Trade Practices and Consumer Protection Law.