INSURER’S AGENT CAN BE DIRECTLY LIABLE FOR BAD FAITH CONDUCT IN BREACH OF CONTRACT, AND NEGLIGENCE IN CLAIM HANDLING, EVEN IF NOT A PART OF THE INSURANCE AGREEMENT (New Jersey Federal)

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The district court allowed the insured to pursue claims against the insurer’s agent, even though the agent was not party to the insurance policy, where the policy was underwritten by Lloyds and effected through the agent.

The complaint alleged there was a delay in payment undisputedly due the insured after the claim was submitted. This unwarranted and unjustified delay allegedly caused the insured to suffer extra-contractual consequential damages.  The insured alleged the insurer was liable for breach of contract and bad faith in delaying payment.  The claims against the insurer itself, however, were not before the court.

Rather, the insured wanted to bring distinct claims against the insurer’s agent as a claims handler. The insured asserted the agent was independently liable for failing to timely process the claim and for failure to make undisputed payments promptly, leading to the consequential extra-contractual damages.  The insured also brought a negligence claim against the agent for failing to meet its duty of care in claims handling. The insured contended the agent’s “conduct contributed to or caused Plaintiff’s damages and therefore, [the agent] is potentially liable to Plaintiff in contract for its bad faith.”

The court permitted all of these claims to proceed.

Citing the New Jersey Supreme Court’s seminal Pickett v. Lloyds opinion, the district court found the insurer’s agent could be “liable to the insured in contract for lack of good faith and fair dealing outside of its agency relationship with Lloyd’s for its role in the claims handling delay that caused consequential damages to the policyholder.” This requires that the agent’s own conduct contributed to the delay causing consequential damages.

Under Pickett, “’agents of an insurance company are obligated to exercise good faith and reasonable skill in advising insureds.’” The district court further observed that “’although the allegation of an agent’s breach of duty of care carries tort overtones, the contractual relationship between the insured and insurer dominates not only the relationship between them, but also that between the insured and the agent.’”

As to the negligence claim, the district court looked again to Pickett, which stated that “’clearly cases may arise in which the insurance company’s conduct in response to an insured’s claim for payment constitutes an independent tort.’” Thus, the district court held the insured could state a negligence claim against the agent, in addition to the contract claim.

Date of Decision:  March 31, 2021

Microbilt Corporation v. Certain Underwriters at Lloyds, London, U.S. District Court District of New Jersey No. CV2012734FLWZNQ, 2021 WL 1214774 (D.N.J. Mar. 31, 2021) (Quraishi, M.J.)

PRIMARY INSURER’S ALLEGED BAD FAITH FAILURE TO SETTLE RAISED BY EXCESS CARRIER COULD NOT BE DECIDED ON SUMMARY JUDGMENT; BAD FAITH IS DETERMINED FROM FACTS AT THE TIMES DECISIONS WERE MADE, NOT BY USING HINDSIGHT AFTER THE FINAL OUTCOME IS KNOWN (New Jersey Federal)

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The plaintiff-excess insurer sued a primary auto insurance carrier for failing to settle within its $1,000,000 policy limits. The case went to trial against the insured driver, and the jury verdict exceeded the $1,000,000 primary policy limit. Thus, the excess insurer wound up paying over $600,000, and it brought suit to recover those funds from the primary carrier.

The detailed history between the injured claimant and the primary insurer shows ongoing negotiations, a mediation, case assessments, and a suggested settlement by the trial judge. Almost none of these valuations or negotiations placed the case value in excess of $1,000,000.  In fact, the injured claimant and their counsel valued the case for settlement in the $600,000 to $750,000 range, though the claimant would not accept less than $750,000. (Claimant’s counsel would have agreed to a settlement in the $600,000 range.)  The primary carrier would not settle at $750,000, but did offer $600,000 at one time.

The case went to trial, resulting in a $1,400,000 verdict.

The umbrella carrier’s complaint alleged liability for the primary insurer’s breach of a duty to negotiate in good faith and settle, along with asserting it was equitably subrogated to the insured concerning the excess payments above the $1,000,000 limit.

Both sides moved for summary judgment, and both motions were denied. New Jersey District Judge Cecchi found material issues of fact remained to be decided.

Rova Farms analysis

Judge Cecchi set out the following standard:

Under the seminal case of Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474 (1974), a primary insurer is liable to an excess insurer for an excess verdict where the primary insurer failed to settle with a third-party claimant within the primary policy limit prior to trial, and where, prior to trial, (1) a jury could have potentially found liability for the third-party claimant and the potential verdict could have exceeded the primary policy limit, (2) the third-party claimant was willing to settle within the primary policy limit, and (3) the primary insurer did not negotiate in “good faith.”

The only disputed issue was whether the primary insurer did not negotiate in good faith.  The relevant legal principles applicable include:

  1. The primary insurer “has a positive fiduciary duty” to act in “good faith,” i.e., “to take the initiative and attempt to negotiate a settlement within the [primary] policy coverage.”

  2. Thus, a primary insurer’s “negotiation strategy” with the third-party claimant must have a “reasonable prospect for a successful outcome” for both itself and the excess insurer … such that the strategy is not infected with “dishonest[y]” or “negligence.”

  3. Moreover, consideration of “all the factors bearing upon the advisability of a settlement,” including the primary insurer’s “experience, expertise and judgment,” is required to assess this “good faith” inquiry.

  4. Finally, evaluating whether a primary insurer negotiated in “good faith” must not be done in “[h]indsight,” e.g., a “mere failure to settle within the [primary] policy limit when there was an opportunity to do so before or during trial is not a per se demonstration of bad faith.”

Disputes of material facts remain open

Disputes of fact remained open concerning the settlement value the primary carrier placed on the case at the mediation, and whether that value, once determined, was reasonably calculated.  Judge Cecchi was particularly interested in the factual question of whether the settlement authority given at the mediation differed significantly from the primary insurer’s internal valuation numbers.

Judge Cecchi further noted that while the excess carrier adduced facts that the primary insurer placed a much higher value on the case than it offered in settlement, the primary carrier argued that the “full value” it may have placed on the case, or how it determines reserves, were materially different kinds of evaluations from determining a settlement value.

There were also disputes of facts over the primary carrier’s alleged “hard ball” negotiation tactics at the mediation.  Again, the excess carrier drew on facts that made the primary carrier seem unreasonable, but the primary carrier argued it was willing to be more flexible than the picture plaintiff painted.  This factual dispute could not be resolved at the summary judgment stage.

Hindsight cannot be used to argue the presence or absence of bad faith

Judge Cecchi lastly observed that courts, and presumably the ultimate triers of fact, could not use hindsight to advance or defend their positions. She states:

For instance, Plaintiff argues that the trial verdict of over $1,000,000 awarded to Claimant demonstrates that Defendant’s limited extension of settlement authority and subsequent settlement offer at the Mediation were unreasonably low and thus made in “bad faith.” … Alternatively, Defendant argues that, irrespective of whether its settlement offer to Claimant was too low, it did not negotiate in “bad faith” at the Mediation because it was not reasonable at that time to settle with Claimant for $750,000, a figure which Defendant later learned Claimant would not have “move[d] below” …. Nevertheless, “the perfect vision of hindsight is not the lens through which our courts assess compliance with good-faith obligations.” …. Rather, whether Defendant negotiated in “good faith” at the Mediation depends only on the facts known to it at that time.  (Emphasis added)

Date of Decision: March 30, 2021

Hartford Casualty Insurance v. Liberty Mutual Fire Insurance Company, U.S. District Court District of New Jersey No. 18-CV-0444, 2021 WL 1186759 (D.N.J. Mar. 30, 2021) (Cecchi, J.)

NO COVERAGE FOR COVID-19 LOSSES = NO BAD FAITH IN DENYING COVERAGE (Philadelphia Federal)

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On March 30, 2021, Eastern District Judges Beetlestone and Baylson independently issued opinions finding no insurance coverage due for business losses resulting from the Covid-19 pandemic.  In both cases, plaintiffs not only demanded coverage, but asserted bad faith claims against their insurers.

Motions to dismiss were granted in both cases, with prejudice, the courts finding no coverage due for the types of losses claimed. We leave you to read these cases in detail on the issues of physical loss or damage, direct loss or damage, governmental closures, business losses, and the other issues now regularly before the courts on Covid-19 business interruption and government closure claims.

Neither court gave any lengthy address to the bad faith claims, or even an express analysis for their dismissal. By comparison, the breach of contract and declaratory relief claims over coverage were addressed in detail.

The first element of any bad faith claim is that the claim denial is unreasonable.  In dismissing the bad faith claims, with prejudice, it seems fair to infer that because the coverage denial was correct under the policy language, these courts found no bad faith possible, i.e., where the coverage denial is correct under the relevant policy language, it is impossible to prove the carrier acted unreasonably, thus precluding a finding of bad faith.

Dates of Decision:  March 30, 2021

Tria WS LLC, v. American Automobile Insurance Company, U.S. District Court Eastern District of Pennsylvania, No. CV 20-4159, 2021 WL 1193370 (E.D. Pa. Mar. 30, 2021) (Beetlestone, J.) COVID

Chester Cty. Sports Arena v. The Cincinnati Specialty Underwriters Ins. Company, U.S. District Court Eastern District of Pennsylvania No. 20-2021, 2021 WL 1200444 (E.D. Pa. Mar. 30, 2021) (Baylson, J.) COVID

BAD FAITH CLAIM BARELY STATED BASED ON ALLEGED FAILURES TO INVESTIGATE, DELAY, AND LOW VALUATION, TAKEN IN THEIR TOTALITY (Middle District)

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This is a breach of contract and bad faith first party property damage claim.  The court denied the insurer’s motion to dismiss the bad faith claim.

The insured suffered a furnace malfunction that she claimed led to $35,000-$40,000 in damages. She later suffered a second malfunction leading to a roughly equal amount of additional damages.

The insurer valued the first claim at $15,000, paid that sum less the deductible, and refused to pay any sum for the second claim.  This full denial was based on the insured’s alleged failure to clean after the first incident, and that the only odor in the house was from cigarettes, not soot from the furnace discharge.

Middle District Judge Mariani found that while the complaint included some conclusory allegations, and the facts alleged on bad faith were “sparse”, the complaint’s allegations were “enough to barely ‘nudge[ ] [the] claim[ ] across the line from conceivable to plausible….’”

Delay related bad faith

The relevant facts pleaded were that the insurer waited one month until after the first loss to send out an adjuster to investigate.  Further, the insurer did not pay anything for the first loss for seven months. The court observed that “’bad faith may be premised on an insurer’s bad faith in investigating a claim, such as by failing to conduct a good faith investigation into the facts or failing to communicate with the claimant.’”  Further, “[a]lthough delay ‘on its own [does not] necessarily constitute bad faith’, the delay between a demand for benefits and an insurer’s determination of whether to pay a claim is a relevant factor in determining whether an insurer has acted in bad faith.”

Applying these principles to the factual allegations, Judge Mariani found enough delay pleaded in both sending out an investigator, and in paying on the first claim, to survive dismissal.

Valuation related bad faith

The court next addressed whether the valuation differences could amount to bad faith.  As stated, the insured provided estimates ranging from $35,000 to $40,000 and the carrier’s expert valuation was $15,000.  After taking out the deductible, the payment was $10,400.

Judge Mariani observed that “[a]lthough bad faith ‘is not present merely because an insurer makes a low but reasonable estimate of an insured’s damages,’ the disparity between the defendant insurer’s payment and the plaintiff’s estimates is a relevant consideration in bad faith claims.” He relied on Middle District Judge Mannion’s Meiser v. State Farm opinion for the proposition that an “extreme disparity” in the parties’ damage estimates can lend support to a bad faith claim, especially where exhibits are attached showing the extent of the damages. A link to our Meiser summary can be found here.

Judge Mariani found the $25,000 disparity, accompanied by exhibits explaining the damages, to be sufficient to support a bad faith claim. The opinion’s language indicates that the valuation allegations were read along with the delay allegations in evaluating the bad faith claim, and that it was the totality of these three factors (delayed investigation, delayed payment, and valuation disparity) that together made out a plausible bad faith claim.

[For a few examples of valuation disputes insufficient to state a bad faith claim, see this post.]

Failure to investigate related bad faith

As to totally denying the second claim, the complaint alleged denial was based on the insured’s alleged failure to clean the premises after the first loss. However, the insured allegedly informed the carrier that she and her daughter made a significant cleanup effort after the first malfunction and before the second, and the insurer knew this before denying the claim.  Thus, plaintiff alleged the carrier ignored the fact that she did clean, and then ignored her damage estimate transmitted to the carrier because of this putative failure to clean. The insured also alleged the carrier did not pay heed to her public adjuster “pointing out that the home was a forced, hot air system and that [the insurer] had agreed to clean the ducts on the second floor, but not the rooms that were contaminated with the soot/smoke….”

Judge Mariani found the totality of these factual allegations, taken in the light most favorable to plaintiff,  made out a bad faith claim for failure to conduct an adequate investigation, which in turn resulted in an unfounded claim denial. He added that, “[a]lthough discovery in this case may later reveal that Defendant did in fact have a reasonable basis to deny Plaintiff’s second claim, the Complaint states the minimum amount of facts necessary to allow Plaintiff’s bad faith claim to survive the motion to dismiss.”

After surveying the totality of the facts on both claims, Judge Mariani summarized as follows: “Though none of these factual allegations alone may be sufficient to state a claim under § 8371, taken together, Plaintiff has successfully, though barely, stated a plausible claim of bad faith.”

Date of Decision:  March 19, 2021

Chuplis v. State Farm Fire and Casualty Co., U.S. District Court Middle District of Pennsylvania No. 3:20-CV-1757, 2021 WL 1080932 (M.D. Pa. Mar. 19, 2021) (Mariani, J.)

THIRD CIRCUIT AFFIRMS IN CASE WHERE DISTRICT COURT FOUND NO BAD FAITH WHERE NO COVERAGE DUE (Third Circuit)

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The Third Circuit affirmed a Western District decision finding no UIM coverage due because the insured rejected stacking.  While not discussed in the appellate opinion, the trial court observed there could be no bad faith case if no coverage was due.  This point is not expressly addressed by the Third Circuit, but it did affirm on all claims, including bad faith.

A summary of the lower court’s decision can be found here.

Dunleavy v. Mid-Century Ins. Co., U.S. Court of Appeals for the Third Circuit No. 20-2100, 2021 WL 1042981 (3d Cir. Mar. 18, 2021) (Matey, Schwartz, Traxler, JJ.)

NO BAD FAITH WHERE (1) NO COVERAGE DUE, (2) ALLEGED BAD FAITH COMMUNICATIONS WITH CLIENT WERE EITHER IMMATERIAL OR ACCURATE, AND (3) ANY OMISSIONS IN THOSE COMMUNICATIONS ONLY AMOUNTED TO NEGLIGENCE AT MOST, NOT BAD FAITH (Western District)

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The insured brings this breach of contract and bad faith case based on the insurer’s denying virtually all of her water damage claim, and its allegedly improper claim handling in communications to the insured.  Western District Magistrate Judge Dodge grants the insurer’s motion to dismiss, but with leave to file an amended complaint.

First, the court dismissed the breach of contract claim.  Magistrate Judge Dodge found there was no coverage for the claims pleaded because the damages specifically alleged, when compared to the clear policy language, were not insured losses. There was, however, enough ambiguity in the plaintiff’s allegation that she suffered “resulting damages”, to allow the insured to amend if she could identify any other forms of damages that might be covered under the policy.

As to the bad faith claim, Magistrate Judge Dodge first observed that her contract ruling explained how the coverage denial was proper.  Further, “[t]he bad faith claim does not refer to any circumstances other than [plaintiff’s] contention that [the insurer] failed to communicate all of the policy language to her in one of its letters.” This was of no moment. The policy exclusion language omitted in the letter was irrelevant because the insurer did not rely on the omitted exclusion in denying coverage.

The insured alleged that the insurer also omitted a distinct important policy provision in correspondence to the insured. This was belied, however, by the correspondence itself. The purportedly omitted provision actually was included in the letter. Moreover, even if the omission occurred, this amounted at most to negligence, mistake, or poor judgment, none of which makes out an actionable bad faith claim.

Thus, the motion to dismiss the bad faith claim was granted, but without prejudice.

Date of Decision:  March 19, 2021

Blanton v. State Farm Fire & Casualty Co., U.S. District Court Western District of Pennsylvania Civil Action No. 20-1534, 2021 WL 1060661 (W.D. Pa. Mar. 19, 2021) (Dodge, M.J.)

Our thanks to the insurer’s counsel, Mark A. Martini, of Robb Leonard Mulvihill LLP, for bringing this case to our attention.

BAD FAITH CANNOT EXIST IN A VACUUM – NO BREACH OF CONTRACT = NO BAD FAITH (Middle District)

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The court dismissed the insured’s breach of contract claim because the damages were speculative. The court then dismissed the bad faith claim because there was no predicate cause of action on which the bad faith claim rested.  Both dismissals were without prejudice.

Middle District Judge Wilson ruled as follows:

A bad faith claim under section 8371 is distinct from the predicate claim. Nealy v. State Farm Mut. Auto. Ins. Co., 695 A.2d 790, 793 (Pa. Super. Ct. 1997) (ruling bad faith claims are distinct from underlying contract claims). As such, there must be a predicate contract claim in order for a section 8371 claim to proceed. Polselli v. Nationwide Mut. Fire. Ins. Co., 126 F.3d 524, 530 (3d Cir. 1997) (observing that “a section 8371 claim may not be the sole claim of an insured”). A breach of contract claim can serve as one such predicate action. See, e.g., Rancoscky, 170 A.3d at 161 (recognizing a section 8371 claim brought along with a breach of contract claim). While the predicate claim need not be tried together with the section 8371 claim, the predicate cause of action “must be ripe for a § 8371 claim to be recognized.” Polselli, 126 F.3d at 530. The Pennsylvania Supreme Court has also recognized this requirement. See Ash v Continental Ins. Co., 593 Pa. 523, 932 A.2d 877, 882 (Pa. 2007) (holding that section 8371 “applies only in limited circumstances—i.e., where the insured has first filed ‘an action arising under an insurance policy’ against his insurer”).

In this case, while Moses Taylor has alleged a breach of contract claim along with its section 8371 bad faith claim, the court’s dismissal of the breach of contract claim removes the predicate cause of action otherwise required to accompany the section 8371 claim. As another court within this circuit has articulated, a bad faith claim in a vacuum is not actionable. MP III Holdings, Inc. v. Hartford Cas. Ins. Co., No. 08-CV-4958, 2011 U.S. Dist. LEXIS 72370, at *83–88 (E.D. Pa. June 30, 2011). Thus, because there are no other actionable claims raised in this case that could serve as a predicate cause of action, Moses Taylor’s section 8371 claim for bad faith will be dismissed without prejudice to reinstatement if the breach of contract claim is replead. See Polselli, 126 F.3d at 530.

This Blog has long discussed the argument that there is no statutory bad faith claim possible absent the denial of a benefit, i.e., either a refusal to defend or indemnify third party claims, or to pay damages on first party claims.  See this post as one of many examples.

Date of Decision: March 17, 2021

Moses Taylor Foundation v. Coverys & Proselect Insurance Co., U.S. District Court Middle District of Pennsylvania No. 3:20-CV-00990, 2021 WL 1017371 (M.D. Pa. Mar. 17, 2021) (Wilson, J.)

CLAIM HANDLING REASONABLE + NO CLEAR AND CONVINCING EVIDENCE ON INTENT = NO BAD FAITH (Middle District)

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Middle District Judge Conner closely examined the claims handling history before granting the insurer summary judgment on plaintiff’s bad faith uninsured motorist claim.

The record’s details show the claims handler actively investigating the claim and injuries, communicating with the insured’s counsel, and discussing the case with two other involved insurers as to their valuation before making a settlement offer.  The settlement offer was a small fraction of the policy limit demand, but that could not create bad faith under the circumstances.

As the court stated,

At bottom, the record establishes nothing more than a legitimate disagreement over causation of [plaintiff’s] injuries and valuation of her claim. It is well settled that genuinely disputing causation and value is not tantamount to bad faith. That [the insurer] did not “immediately accede to” [a] demand for policy limits also is not, by itself, evidence of bad faith. … Nor does [the insured’s] belief that the preliminary offer was too low, without more, establish that [the insurer] acted unreasonably. … “[O]ur Courts have not recognized bad faith where the insurer makes a low but reasonable estimate of the insured’s losses.” … This is particularly true given that [the insurer] articulated legitimate reasons for doubting causation; reasonably concluded the claim would not pierce the limited-tort threshold; had not been advised of any wage-loss claim by [plaintiff’s] legal team; and, perhaps most importantly, made clear that its offer was not final.”

Judge Conner concluded that the insured “failed to identify any evidence—much less clear and convincing evidence—from which a reasonable juror could find that [the insurer] lacked a reasonable basis for its preliminary settlement offer.” Thus, the insured could not establish that the insurer’s conduct was unreasonable.  Summary judgment was warranted for failing to meet this first element of statutory bad faith.

Judge Connor also addressed the knowing or reckless disregard element as well.  The insured offered no clear and convincing evidence on intent to take an unreasonable position.  The insured argued, in conclusory language, that “critical information” was withheld and “irrefutable proof” existed to prove intent; but there were no facts adduced from the record to support these assertions. The documents referenced that purportedly provided clear and convincing proof did not even exist at the time of the insurer’s purported bad faith settlement offer.

Thus, summary judgment also was warranted for this failure to make out the second bad faith element.

Date of Decision: March 15, 2021

Castillo v. Progressive Insurance, U.S. District Court Middle District of Pennsylvania No. 3:19-CV-1628, 2021 WL 963478 (M.D. Pa. Mar. 15, 2021) (Conner, J.)

INSURER HAD STANDING AS ASSIGNEE TO BRING BAD FAITH CLAIM AGAINST ADDITIONAL INSURANCE PROVIDER; BAD FAITH CLAIM ADEQUATELY STATED FOR FAILURE TO PROVIDE FIRST LEVEL OF COVERAGE AND A DEFENSE UNDER ADDITIONAL INSURED ENDORSEMENT (Philadelphia Federal)

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This case involves a dispute between a defendant’s own insurer and another carrier obligated to provide coverage to defendant as an additional insured.  The issues involved which insurer has the primary coverage/defense obligations, and which was excess.

There were several tenders to the additional insurance provider to assume the defense, which were either ignored or denied.  The defendant’s insurer brought a declaratory judgment action seeking to have the additional insurance provider assume the defense, and to reimburse the defendant’s insurer for attorney’s fees and costs, as well as for the attorney’s fees and costs associated with bringing the declaratory judgment action.

It is also clear from the court’s opinion that a statutory bad faith claim under 42 Pa.C.S. § 8371 was at issue.

There was a motion to dismiss all claims.

There was a duty to defend the additional insured

Among other things, Eastern District Judge Robreno found the underlying complaint adequately alleged facts invoking the additional insurance provider’s duty of defend, when compared to the additional insured endorsement language.  Thus, the additional insurance provider was in error in failing to accept the tenders and assume the defense.

There was standing to bring a statutory bad faith claim as an assignee

The additional insurance provider challenged plaintiff’s standing to bring a section 8371 bad faith claim because it was not the named insured.  Judge Robreno disagreed, citing the Third Circuit’s 2015 Wolfe decision making clear that assignees can bring statutory bad faith claims.

[Note: Earlier in Wolfe, the Third Circuit certified to Pennsylvania’s Supreme Court the fundamental issue of whether bad faith claims can ever be assigned. In the Supreme Court’s own Wolfe decision, assignments were recognized as permissible, but only within limited parameters.  A summary of that case can be found here. The assignment in the present case falls within those acceptable parameters.]

The assignee-insurer pleaded a plausible bad faith claim

Next, Judge Robreno rejected the insurer’s arguments that the complaint was devoid of facts setting out a plausible bad faith claim.

To the contrary, Judge Robreno found the following sufficient:

  1. The complaint alleged the additional insurance provider failed to acknowledge its primary duty to defend, without a reasonable basis, breaching the duty of good faith and fair dealing.

  2. The complaint specifically set out numerous instances where that insurer denied or ignored tender letters.

  3. “Accepting as true all of the allegations in the Complaint and all reasonable inferences that can be drawn therefrom, and based on this record, [the plaintiff] has sufficiently pled that based on the correspondence submitted to [the insurer], [the additional insurance provider] did not adequately investigate, respond, or explain their refusal to defend and potentially indemnify [the insured] in the underlying action.”

The motion to dismiss was denied.

Date of Decision:  March 10, 2021

Liberty Mutual Fire Insurance Co. v. Harleysville Worcester Insurance Co., U.S. District Court Eastern District of Pennsylvania No. CV 20-5093, 2021 WL 909625 (E.D. Pa. Mar. 10, 2021) (Robreno, J.)

NO COMMON LAW BAD FAITH WHERE DENIAL OF COVERAGE FOR LATE NOTICE IS REASONABLE (Philadelphia Federal)

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In this breach of contract and common law bad faith action, on a lawyer’s professional liability policy, the court found a number of bases for denying coverage.  As such, the insurer had a reasonable basis to deny coverage and there could be no bad faith. Thus, the court granted the insurer’s summary judgment motion.

First, because this was a claims made policy, “Pennsylvania law does not require an insurer to demonstrate prejudice when the relevant notice provision is contained in a claims-made policy like the one before us.” The court found the insured did not give the required notice in a timely manner.

Next, to the extent no damages were sought, there was no coverage due under the policy.

In addition, there was no coverage due because some of the claims against the insured did not arise out of legal services, as required by the policy

Further, the court found a number of exclusions applicable, and no coverage was due on this additional basis.

Finally, as to bad faith, the court stated: “That leaves only [the insured’s claims] for breach of contract and breach of the duty of good faith and fair dealing (i.e., bad faith). However, because [the insurer] had a reasonable basis for denying coverage under the policy, we grant summary judgment in favor of [the insurer].” In support, the court cited a 2004 case for the proposition that the insurer should be successful where it “’reasonably believed that [the insured] had forfeited coverage under the Policy by failing to timely comply with the notice provision,’ and ‘[t]hus, the [insurance company’s] actions cannot be the basis for a bad faith claim[.]’”

Date of Decision: March 9, 2021

American Guarantee and Liability Insurance Company v. Law Offices of Richard C. Weisberg, U.S. District Court for the Eastern District of Pennsylvania No. 2:19-CV-05055-KSM, 2021 WL 915425 (E.D. Pa. Mar. 9, 2021) (Marston, J.)