MAY 2018 BAD FAITH CASES: NO BAD FAITH WHERE NO BENEFIT HAS BEEN DENIED (Philadelphia Federal)
Note: This decision was reversed by the Third Circuit on August 2, 2019. A summary of that decision can be found here.
In something of a contrast with today’s first post, the Court’s analysis of the insureds’ breach of contract claim determined the outcome of their bad faith claim.
The facts involved insurance coverage for a car rental. After closely parsing the facts, the Court concluded that there was no viable breach of contract claim against the insurer for failing to provide the insureds with rental car coverage.
On the bad faith claims, the Court first rejected an argument that the insureds could bring a breach of the implied covenant of good faith and fair dealing distinct from their breach of contract claim. After going over the history of this type of claim, the Court concluded “in practice, the covenant of good faith functions ‘as an interpretive tool’ to aid the court in evaluating breach of contract claims but the implied duty is never divorced from specific clauses of the contract.” Thus, any effort to assert this claim independent form the contract claim was rejected.
As to statutory bad faith, the Court cited the well-recognized standards: “To recover for bad faith, a plaintiff must show by clear and convincing evidence that the insurer (1) did not have a reasonable basis for denying benefits under the policy and (2) knew or recklessly disregarded its lack of reasonable basis in denying the claim.” The Court made clear that “the essence of a bad faith claim is the unreasonable and intentional or reckless denial of benefits.” Further, “an insurer may defeat a claim of bad faith by showing that it had a reasonable basis for its actions.”
The Court found that the evidentiary record did not support a finding that a benefit to which the insureds were entitled was denied. “For this reason, the only conclusion which we can now reach is that [the insurers] did not act in bad faith within the meaning of Section 8371 and that judgment is properly entered in their favor as a matter of law….”