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In Gardner v. State Farm Fire and Casualty Company, the appellant filed a six count claim, including statutory bad faith,  against the insurer arising out of the insurer’s refusal to defend or indemnify its insured, in connection with negligence claims. The insured owned a property which he lived in for a period of time.  When the insured decided to move out,  he rented the property to the appellant.  The initial term of the lease was 6 months, however, the appellant lived at the property for a longer period of time until the insured evicted her for failure to pay rent.

While the appellant was still living at the property her mother slipped and fell on the sidewalk outside the property and was injured. The insured had a homeowner’s policy with the insurer.  The appellant notified the insurer of the incident.  The insurer conducted an investigation and denied coverage because of the policy’s Rental Exclusion which did not offer coverage for bodily injury when the property is held for rental and is no longer occupied by the insured.

Appellant then filed a negligence claim against the insured on behalf of her mother’s estate.  The insurer again denied coverage and would not provide the insured with a defense.  The court entered judgment against the insured.  The appellant then filed a praecipe for Writ of Summons in the Court of Common Pleas of Alleghany County on April 8, 2005  even though the insured had not assigned his rights against the insurer to appellant.  It was not until June 22, 2005 that the insured assigned his rights against the insurer to the appellant.  The insurer had the action removed to federal court. Subsequently appellant’s counsel filed a motion to substitute appellant as the real party in interest.

The District Court granted this motion.  Appellant’s complaint alleged that the insurer breached its contractual and statutory duties to the insured by refusing to defend him, failing to indemnify him for the judgment against him, and failing to evaluate the case in good faith.  Both parities filed motions for summary judgment. The District Court granted the insurer’s motion and entered judgment in its favor. The District Court concluded that the statute of limitations began to run on the date that the insurer sent a letter to the insured denying coverage on April 4, 2003 and therefore found the bad faith claim to be time barred under the two year statute of limitations.  Appellant appealed to the United States Court of Appeals for the Third Circuit.

The appellant argued that the District court erred in concluding that the action was not commenced for statute of limitations purposes until the execution of the assignment.  The appellant specifically argued that Federal Rule 15(c) should have applied.  However the court found that Rule 15(c)(1) is not applicable here because it applies only to amendments to the party against whom a claim is asserted.  Here appellant named the real party in interest in commencing suit by filing it in the insured’s name, yet she had no authorization to do so.  Therefore it was the appellant who commenced the suit and she was not yet a real party in interest because the insured had not yet assigned his rights to her.

Therefore the Third Circuit found that the April 2005 filing of the writ of summons did not toll the statute of limitations and the statute continued to run until the insured assigned his rights to the appellant in June of 2005.  However by that time the statute of limitations had expired and the bad faith claim was time barred.  Therefore the Third Circuit affirmed the District Court’s order granting summary judgment in favor of the insurer and denying summary judgment to appellant.

Date of Decision: July 22, 2008

Gardner v. State Farm Fire & Cas. Co., No. 07-3051, 2008 U.S. App. LEXIS 15560 (3d Cir. Pa. July 22,2008)(Padova,  J., sitting by designation) J.M.A.