JANUARY 2016 BAD FAITH CASES: COURT DISMISSES BAD FAITH CLAIM BASED ON THIRD CIRCUIT PRECEDENT AFTER CONDUCTING CHOICE-OF-LAW ANALYSIS TO APPLY PENNSYLVANIA LAW EVEN IN THE FACE OF A NORTH CAROLINA CHOICE OF LAW PROVISION (Western District)
In Alcantarilla v. State Farm Mutual Automobile Insurance Company, the insureds brought an action for breach of contract and bad faith arising out of a claim for underinsured motorist (“UIM”) coverage benefits filed by the insureds. The insureds had renewed their auto policy with the insurer while they were residents of North Carolina. The policy was identified as a “North Carolina” policy and contained a choice-of-law provision stating that the policy was governed by North Carolina state laws.
The insureds ultimately moved to Pennsylvania while the policy was still in force, and were involved in an accident in which one of the insureds was struck by a motor vehicle. The insured’s medical expenses exceeded the amount ultimately recovered from the driver that struck him, and the insured made a claim for UIM benefits under his insurance policy. The insurer refused to pay because the insureds’ UIM coverage did not exceed the driver’s policy limit.
The insureds filed suit, claiming that while the decision to deny coverage may be correct under North Carolina law and the terms of the policy, the more expansive definition of “underinsured” utilized by Pennsylvania should be applied, which would entitle the insureds to a greater amount of coverage. The insureds argued in the alternative that if Pennsylvania law did not apply, then the insurer misrepresented that nothing needed to be done to bring the policy into compliance with Pennsylvania law prior to the insureds’ move. The complaint set forth claims of; inter alia, breach of contract, and breach of fiduciary duty against the insurer and its agent. The claims against the agent were dismissed for lack of personal jurisdiction and the insurer moved to transfer venue from Pennsylvania to North Carolina.
After conducting a choice-of-law analysis, the court concluded that private factors weighed in favor of applying Pennsylvania law, as the insureds now reside in Pittsburgh and chose to litigate there. The court also found that public factors weighed in favor of Pennsylvania law, as no practical considerations existed that would suggest the case should be transferred.
The court ultimately decided that irrespective of the choice-of-law provision in the policy, Pennsylvania law should govern the policy terms as Pennsylvania had the most relevant contacts to the coverage dispute and the greatest interest in having its law applied. In view of that, the court refused to dismiss the breach of contract claim.
The court did dismiss the bad faith claim after noting that the Court of Appeals addressed almost identical allegations of bad faith under Pennsylvania law in another case and found that “the conduct alleged simply does not amount to bad faith.”
The breach of fiduciary duty claim that was plead in the alternative was also dismissed since the court determined that the insurer was required to provide excess coverage under the policy, and accordingly it could not be said that the insurer’s agent misrepresented the terms of the policy when the insureds contacted his office after they had moved to Pennsylvania.