MAY 2012 BAD FAITH CASES: COURT RULES THAT BAD FAITH CLAIM MAY NOT BE PREDICATED UPON CARRIER’S CONDUCT IN DRAFTING AN INSURANCE POLICY, BUT REQUIRES DENIAL OF BENEFITS AFTER ISSUANCE OF THE POLICY (Middle District)
In Sewell v. Liberty Life Insurance Company, the court heard a motion to file an amended complaint by the executrix of the insured’s estate. The case arose from an accidental house fire that killed the insured party, prompting his estate to file suit when the carrier denied benefits under the insured’s accidental death insurance policy. The carrier denied benefits because the insured party was allegedly under the influence of an intoxicant at the time of his death.
An exclusion in the insured’s life insurance policy stated that the carrier “shall not be liable for any loss sustained . . . in consequence of the insured’s being intoxicated . . . unless administered on the advice of a physician.”
In the instant action, the executrix of the insured’s estate sought to amend her original complaint to allege bad faith. Specifically, she sought leave to amend her complaint to allege that the carrier acted in bad faith because the terms of her son’s policy were less favorable to him than they were to the carrier. In response, the carrier argued that leave should be denied on the basis that the proposed amendment would be futile.
Because the executrix’s proposed bad faith claim was premised upon the carrier’s conduct in drafting the insurance policy, as opposed to the unreasonable denial of benefits, the carrier argued that the proposed amendment should be denied as futile. Opposing this claim, the estate asserted that Pennsylvania’s bad faith statute encompasses provisions that may be included in the policy and that her son’s policy contained provisions that were overly broad, amounting to statutory bad faith.
However, the court disagreed with the insured’s estate, reasoning that leave to amend would be futile because “the essence of a bad faith claim [is] the unreasonable and intentional (or reckless) denial of benefits.”
The court relied upon a recent Eastern District of Pennsylvania decision, Mitch’s Auto Service v. State Automobile, where the court stated that bad faith claims pertaining to “the drafting of policy language itself [are] . . . not actionable.” According to Judge Robreno, who authored that opinion, some courts applying Pennsylvania law have extended bad faith beyond the denial of claims, but such cases all involved “bad faith claims related to specific conduct of the insurer following the issuance of a policy.”
Therefore, the court denied the estate’s motion for leave to amend its complaint because the proposed allegations do not set forth that the carrier acted in bad faith regarding its compliance with the terms of the policy as written. Instead, the estate merely raised a dispute over the provisions of the policy itself, and whether they violated Pennsylvania law. As such, the court found for the carrier, ruling that leave to amend would be futile.
Date of Decision: April 25, 2012
Sewell v. Liberty Life Ins. Co., NO. 3:11-01721, 2012 U.S. Dist. LEXIS 57801, United States District Court for the Middle District of Pennsylvania (M.D. Pa. Apr. 25, 2012) (Caputo, J.)