MARCH 2017 BAD FAITH CASES: SPLIT IN RELEVANT CASE LAW IS NOT AN ABSOLUTE DEFENSE TO A BAD FAITH INTERPRETATION OF POLICY LANGUAGE CLAIM, AS REASONABLENESS REMAINS THE MEASURE (Philadelphia Federal)
The interesting part of this case involved the court’s subtle distinction when lack of clarity in the relevant case law on how to interpret the insurance policy language at issue provides a bad faith defense. The specific issue was application of an intentional act exclusion to a violent assault fact pattern, where the insured claimed he was too drunk to know what he was doing.
The insurer argued “that an insurer does not act in bad faith if it relies on a reasonable interpretation of unsettled case law,” and cited at least three opinions supporting its position that the exclusion applied to the fact pattern at issue. The court described this argument as “incomplete”.
The court stated: “Supporting authority, though highly relevant, does not automatically defeat a bad faith claim. This was made clear by J.H. France Refractories Co. v. Allstate Insurance Co., 534 Pa. 29, 626 A.2d 502 (1993). There, the Pennsylvania Supreme Court found that [the insurer] had not acted in bad faith in denying coverage where it had relied on an ‘excessive pluralism and disparity . . . in the decisions of the many courts which ha[d] entertained similar litigation.’ …. But the Court did not hold that the mere existence of disparate decisions precluded bad faith—instead, it took care to note both that it did ‘not regard the issues presented in this case as simple ones’ and that each of the varying approaches other courts had taken ‘seem[ed] reasonable from some point of view.’ …. Indeed, bad faith claims are highly ‘fact specific,’ … and their touchstone—‘reasonableness’—only ‘has meaning in the context of each case[.]’”
After observing this subtle distinction in how to analyze the effect of disparate case law on bad faith claims, the court still ruled in the insurer’s favor, finding its position reasonable. Thus, there was no bad faith.