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In Haines v. State Auto Property & Casualty Insurance Company, the insured sought coverage from the insurer under a homeowner’s insurance policy arising from a golf cart incident that injured a minor.  The insurer denied coverage contending that it had no duty to defend or indemnify because the golf cart was not used “solely to service an ‘insured’s’ residence”. The policy contained a general “motor vehicle liability” exclusion barring coverage for occurrences involving motor vehicles, however, the exception to the exclusion provided coverage for motor vehicles “used to service an ‘insured’s residence”.  The insureds contend that the golf car was “in the service” of their premises at the time of the incident. 

The insured filed this action seeking declaratory relief and asserting bad faith.  The insured alleged, among other things, that the insurer materially amended coverage to the detriment of the insured, that the insurer did not provide notification of the amendment, and that the amendment was contrary to the insured’s reasonable expectations.  Thereafter the insured sought to amend the complaint to include an claim for violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law, which the insurer opposed.

The insurer contended that the insured failed to state a claim for statutory bad faith because the statute “applies only to conduct in connection with the handling of claims brought under an insurance policy”.  The insurer argued that a failure to provide notification of a change in the policy language itself does not constitute bad faith.

The Court found that the insurer was narrowly interpreting the statute.  The Court noted that the statute also protects the manner by which an insurer discharged its obligations of defense and indemnification.  In other words, the statute encompasses those actions an insurer took when called upon to perform its contractual obligations of defense and indemnification.

The Court stated that the insured’s proposed amended complaint did not rely exclusively on the insurer’s alleged failure to provide notice of policy changes. Rather, the insured’s theory of bad faith included the insurer’s alleged improper notification of an amendment to the policy, and the insurer’s frivolous or unfounded refusal to provide coverage for the incident.  The Court ruled that, therefore, there was sufficient allegation of a bad faith claim.

Date of Decision:  June 22, 2009

Haines v. State Auto Prop. & Cas. Ins. Co., U. S. District Court, Eastern District of Pennsylvania, Civil Action No. 08-cv-5715, 2009 U.S. Dist. LEXIS 52325 (E.D.Pa. June 22, 2009) (Golden, J.)