MARCH 2016 BAD FAITH CASES: NO BAD FAITH IN CASE WHERE PROFESSIONAL LIABILITY INSURER COVERED SUMS IT ALLOCATED TO INSURANCE BAD FAITH CLAIMS AGAINST ITS INSURED – A LIABILITY INSURER – BUT DID NOT COVER SUMS ALLOCATED TO UNCOVERED BREACH OF CONTRACT AND PUNITIVE DAMAGE CLAIMS (Philadelphia Federal)
In United National Insurance Company v. Indian Harbor Insurance Company, the insured was itself an insurance company, which had been sued for bad faith (Insurer-1). The insurer-defendant in this action had issued a professional liability policy (Professional Liability Insurer). Two of Insurer 1’s insureds had been sued, and both of those matters ultimately resulted in bad faith claims against Insurer 1, which were settled.
Professional Liability Insurer contributed to the settlement of one of the claims, but Insurer 1 claimed it was required to pay more. Professional Liability Insurer did not pay anything toward settlement of the second claim on the basis that the professional liability policy’s self-insured retention had not been reached on covered claims. Insurer 1 sought some, but not all, of the settlement it paid from Professional Liability Insurer.
There was no dispute that the “bad faith” claims against Insurer 1 were covered as “Wrongful Acts”; however, breach of contract damages in settlement of the first action were not covered. As to the second settlement, again “bad faith” claims were covered, but punitive damages were not. The parties disputed the applicability of the allocation of sums to the settlement based on covered and uncovered claims against Insurer 1.
The court ruled in favor of Professional Liability Insurer with regard to the amounts contributed towards the settlements, and found that it had the right to allocate the settlements between covered and non-covered amounts pursuant to an unambiguous allocation provision in the policy.
The court noted that under Pennsylvania law, the insured has the burden to prove what portion of each settlement is covered under the policy, and the insured here failed to meet that burden. Thus, summary judgment was granted to Professional Liability Insurer on the coverage issues.
Insurer 1 had also brought a claim for “breach of duties”. While not specifically pleading a legal theory, Insurer 1 alleged that Professional Liability Insurer was liable for “engag[ing] in a pattern or practice of improperly investigating claims, refusing to pay defense costs and demanding improper allocation of loss in violation of its common law and statutory obligations.” It also made allegations against Professional Liability Insurer for “misrepresenting policy provisions, demanding reinsurance information, relying on provisions of the … policy that do not apply, and wrongfully denying payments….”
The court found this adequate to plead both statutory and common law bad faith claims.
As to the second lawsuit against Insurer 1, however, Professional Liability Insurer successfully argued that this claim was barred by the statute of limitations being two years for statutory bad faith and four years for common law contractual bad faith. “[W]here an insurer clearly and unequivocally puts an insured on notice that he or she will not be covered under a particular policy for a particular occurrence, the statute of limitations begins to run and the insured cannot avoid the limitations period by asserting that a continuing refusal to cover was a separate act of bad faith. … Repeated or continuing denials of coverage do not constitute separate acts of bad faith giving rise to a new statutory period.”
The present suit was not instituted until four years after notice had been given that no payment would be made toward the second settlement.
As to settlement of the first action, where Professional Liability Insurer had allocated some payment to Insurer 1, the court found that there was nothing in the record showing bad faith conduct, and summary judgment was granted as to all claims for bad faith. Date of Decision: February 8, 2016