TWO MIDDLE DISTRICT CASES ON PLEADING BAD FAITH, AT BOTH ENDS OF THE ADEQUACY SPECTRUM: (1) BAD FAITH CLAIM DISMISSED WITHOUT PREJUDICE FOR FAILURE TO ALLEGE KNOWING OR RECKLESS DISREGARD OF UNREASONABLE CLAIM DENIAL; (2) INSURED SUCCESSFULLY AMENDS COMPLAINT TO SURVIVE SECOND MOTION TO DISMISS
These two recent Middle District of Pennsylvania cases provide guidance at either end of the spectrum on pleading statutory bad faith.
CASE 1: BOTH ELEMENTS OF BAD FAITH MUST BE PLEADED
This case involved a coverage dispute and bad faith claims. The insured municipality sought repayment for a $1,000,000 settlement over a death arising out of an automobile accident involving one of the city’s police officers. The underlying suit included federal constitutional claims.
There were two $1,000,000 policies at issue: an auto policy and a law enforcement policy. The insurer paid $500,000 under the auto policy, but refused payment under the law enforcement policy per an auto exclusion.
The court agreed the law enforcement policy did not provide coverage. However, it rejected an argument that the auto policy payment was limited under a state statute capping tort liability at $500,000. The court found that the cap did not apply to federal civil rights claims. Thus, coverage for the remaining $500,000 was potentially due.
The court, however, dismissed the bad faith claim without prejudice, stating:
Defendants argue that the City’s insurance bad faith claim must fail because, although the City alleged that [the insurers] lacked a reasonable basis for denying benefits under the policies, the City did not allege that [the insurers] “knew or recklessly disregarded [the] lack of reasonable basis [when] denying the … claim[s],” as required by law. This Court agrees with [the insurers], and will dismiss the City’s insurance bad faith claim. That dismissal, however, will be without prejudice, and the City may amend its complaint to satisfy the identified deficiency.
CASE 2: HOW TO DO IT THE SECOND TIME AROUND (PLEADING THE WHO, WHAT, WHERE, WHEN, AND HOW)
This case provides an example of an insured sufficiently amending a defectively pleaded first complaint, to survive a motion to dismiss the amended complaint.
The original complaint was dismissed without prejudice for conclusory pleading, even though it included 29 bad faith averments. The summary of the court’s first dismissal can be found here.
In addressing a motion to dismiss the amended complaint, the court restated principles from its prior decision. Unlike the first complaint, however, the court found the following allegations went beyond conclusory pleading:
In the complaint presently before the Court, [the insured’s] bad faith count, Count II, lists 20 allegations of bad faith. … The Court finds that each of these subparagraphs describe who, what, where, when, and how the bad faith alleged in each subpart of ¶73 occurred. … Further, the Court finds that the amended complaint adequately alleges that [the insurer] acted in bad faith, and sufficiently articulates the factual basis of the bad faith claim. Each subparagraph details the factual basis for the bad faith claim. These averments are sufficient to allow this claim to go forward, and the complaint satisfactorily pleads both elements of a bad faith claim, that the insurer did not have a reasonable basis for denying benefits under the policy, and that the insurer knew or recklessly disregarded its lack of reasonable basis in denying the insured’s claim.