NOVEMBER 2011 BAD FAITH CASES 3d CIRCUIT AFFIRMS DISMISSAL, FINDING THAT POLICY OCCURRENCE LIMITS ARE GOVERNED BY AGGREGATE MONETARY LIMITS WITHIN A GIVEN POLICY PERIOD (Third Circuit)
The Third Circuit heard an appeal from the district court’s dismissal of an insured’s complaint. The insured is a transportation company whose bus collided with a tractor in July 2006. The numerous personal injury claims stemming from the incident have been resolved. This instant action involves a dispute over the insured’s coverage limits under a policy with its carrier.
Under the “coverage” provision of the policy, the insured had a $4,000,000 aggregate policy limit. The policy defined several pertinent terms, which the insured challenges on appeal. First, the “policy is subject to an aggregate limit of liability… which will be paid under this policy for all losses in excess of the underlying policy limits.” Second, the policy states, “Subject to the above provision respecting aggregate, the Limit of Liability stated in the Declarations as per occurrence is the total limit of our liability for ultimate net loss… as a result of any one (1) occurrence.” Third, the policy holds that “it shall cease to apply after the applicable limits of liability have been exhausted by payments of defense costs and/or judgments and/or settlements.”
Pursuant to these provisions, the carrier paid about $4,000,000 to the insured to effectuate the various settlements arising from the 2006 car accident. After paying however, the carrier informed the insured that it had reached its policy limits. The insured responded by filing suit in the Philadelphia Court of Common Pleas, seeking a declaration of its rights and damages for breach of contract and bad faith. The carrier removed to federal court, which the insured unsuccessfully moved to remand. The district court also dismissed the insured’s substantive claims. The insured filed two appeals to the Third Circuit.
First, the court examined its jurisdiction to decide the instant appeals. The court found that it possessed jurisdiction to hear the insured’s appeal from the dismissal of its case, but found that it lacked jurisdiction to hear the insured’s appeal from the rejected motion to remand.
The Third Circuit approached the substantive issues by distinguishing between the controverted policy terms. It found that “aggregate limits” set the “maximum amount which will be paid under this policy for all losses… occurring during the policy period, while the occurrence limit is the total limit of the carrier’s liability for ultimate net loss.”
Next, the court addressed the insured’s claims. First, it found that the insured’s argument that the policy contained no occurrence limit was unreasonable. As indicated by its annual $9,000 premium, the insured could not be entitled to unlimited coverage. Second, the court found that the insured was attempting to unfairly twist the language of the “limits of liability” provision. The court ruled that the occurrence limit “is subject to… rather than completely subsumed by, as the insured contended the stated aggregate limit, or the maximum amount that” the insured would pay in any policy period.
Therefore, the court ruled, the insured may bring liability claims for an infinite number of occurrences per policy period, but the coverage for each occurrence is limited to $4,000,000, as the carrier argued.