The insured sued its title insurer for breach of contract, bad faith, and violations of the Unfair Trade Practices and Consumer Protection Law (UTPCPL) among other things. The insurer moved to dismiss. Middle District Judge Rambo found no coverage due, and dismissed the remaining claims as well, all with prejudice.
The title insurer’s right to except certain kinds of coverage in its insurance policy, and then to enforce that language in denying coverage, precludes the insured “from establishing that coverage was denied recklessly and in bad faith, or that [the title insurer] breached the covenant of good faith and fair dealing.” Put another way, a valid and enforceable policy exception or exclusion establishes the insurer’s reasonableness in denying coverage based on that policy language (assuming the exception or exclusion applies to the facts at hand).
The court further observed that the initial coverage denial “was accompanied by a lengthy and not unreasonable explanation for its decision, and it is well-established that an insurer’s refusal to pay benefits under a policy and the communication of its reasons for denying coverage constitute nonfeasance and do not give rise to liability under Pennsylvania’s unfair trade practices statute.” “In Pennsylvania, only malfeasance, the improper performance of a contractual obligation, raises a cause of action under the [UTPCPL] and an insurer’s mere refusal to pay a claim which constitutes nonfeasance, the failure to perform a contractual duty, is not actionable[.]”
This “not unreasonable explanation” also defeated the first element of any bad faith claim.
Date of Decision: April 4, 2022
AMERCO REAL ESTATE COMPANY v. FIRST AMERICAN TITLE INSURANCE COMPANY, U.S. District Court Middle District of Pennsylvania No. 1:21-CV-00628, 2022 WL 1005301 (M.D. Pa. Apr. 4, 2022) (Rambo, J.)