NOVEMBER 2014 BAD FAITH CASES: EXCESS INSURER HAD NO DUTY TO POST APPEAL BOND AND COULD NOT BE LIABLE IN BAD FAITH FOR FAILING TO DO SO; COURT OBSERVES THAT PROOF OF BAD FAITH IS MORE DIFFICULT WHERE LAW AT ISSUE ON COVERAGE IS UNSETTLED (Philadelphia Federal)
In the most recent decision in Charter Oak Ins. Co. v. Maglio Fresh Food, which has been discussed at length in previous postings in 2013 and 2014, the Court addressed claims against the excess insurer after holding a short non-jury trial. It concluded that under the unique circumstances of that case, the excess insurer did not owe a duty to post a supersedeas bond for purposes of the insured’s taking an appeal of a jury verdict that would likely put the insured out of business.
The court found that any duty to post a bond was not clearly either within the realm of the duty to defend or the duty to indemnify, being a kind of hybrid. However, the larger issue was that the excess insurer’s duty to make any payment was not triggered, because even though underlying carrier paid out its full policy limits, it did not do so in connection with the one covered claim.
Thus, its full limit was not exhausted for purposes of triggering the excess insurer’s duties concerning the covered claim.
The court discussed bad faith throughout its opinion, in dicta and on the issue at hand. As to the latter, as no duty was triggered to post the bond, there could be no bad faith in refusing to do so.
The Court also observed that because the lawsuit presented questions of unsettled law, this made it more difficult for the insured to show bad faith because “an insurer’s denial of a claim does not constitute bad faith if it is based on a reasonable legal position in an unsettled area of the law.”
The Court more generally provided its observations on the differences and commonalities between contract based bad faith claims and statutory bad faith, which is tort based in nature.