NO BAD FAITH BY DEFINITION IF COVERAGE DENIAL IS REASONABLE (Western District)
“When an insurer’s coverage denial was reasonable ‘on the basis of the plain meaning of the Policy and relevant exclusions and definitions,’ there can be no ‘bad faith’ as a matter of law.”
Unlike the Eastern District’s recent decision in Smith v. AAA Interinsurance Exchange, the Pennsylvania Supreme Court’s decision in Gallagher v. Geico did not void the household exclusion under the facts of this case. The court thus found no UIM coverage due, and because the auto insurer “properly denied coverage, Plaintiffs’ tag-along claims for bad faith and violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 Pa. Stat. Ann. § 201-1, et seq., also fail.”
The insured was injured on a motorcycle she owned. The motorcycle was covered by Progressive. The insured owned two other vehicles covered by Mid-Century, the present defendant. The insured waived UIM coverage under the Progressive policy. She still sought coverage under the Mid-Century policy, relying on Gallagher, because she had not executed a stacking waiver in connection with the Mid-Century policy.
Gallagher does not apply where stacking is not at issue
The insured’s claim against Mid-Century failed. Gallagher stands for the proposition that the household exclusion cannot limit stacking without a stacking waiver. In this case, however, the insured had waived UIM coverage under her Progressive policy, so there was no stacking at issue. Rather, she was seeking primary UIM coverage against Mid-Century. Thus, Gallagher did not apply, and Mid-Century properly relied on the household exclusion to deny coverage.
No coverage due means no bad faith by definition
In dismissing the bad faith claim, the court found plaintiffs could not make out the first prong of the bad faith test, i.e., that the denial was unreasonable. “When an insurer’s coverage denial was reasonable ‘on the basis of the plain meaning of the Policy and relevant exclusions and definitions,’ there can be no ‘bad faith’ as a matter of law.” “Put differently, if Mid-Century properly denied coverage, which the Court finds it did, it could not, by definition, have acted in bad faith by denying coverage.”
Any other putative bad faith claims were dismissed for merely making conclusory allegations.
UTPCPL claim fails for variety of reasons
Lastly, the court dismissed plaintiffs’ Unfair Trade Practices and Consumer Protection Law (UTPCPL) claims for a variety of reasons. First, there was no improper conduct. Next, even if there was misconduct, the UTPCPL only applies to conduct in connection with issuing the insurance policy, not the performance of the insurer’s obligations under the policy after it is issued. Third, even assuming arguendo the plaintiffs could have overcome these two hurdles, they solely pleaded nonfeasance, and the UTPCPL only applies to claims of malfeasance.
No leave to amend was given, and judgment on the pleadings was entered for the insurer.