WESTERN DISTRICT JUDGE WIEGAND ISSUES TWO BAD FAITH OPINIONS: (1) BAD FAITH CLAIM PLAUSIBLE WHERE COVERAGE ISSUES REMAIN OPEN (2) NO BAD FAITH FOR PRE-CONTRACT CONDUCT (Western District)
On April 16 and 21, 2021, Western District Judge Wiegand issued bad faith opinions. In the first case, she allowed the claim to proceed, denying a motion to dismiss. In the second, the conduct at issue did not involve any benefit denial, but only alleged pre-contract deception, which is not subject to Pennsylvania’s bad faith statute, 42 Pa.C.S. § 8371.
CASE 1: BAD FAITH CLAIM STATED
In Maronda Homes, LLC v. Motorists Mutual Insurance Company, Judge Wiegand allowed an additional insured’s statutory bad faith claim to proceed, denying the insurer’s motion to dismiss.
The insurer rejected additional insured coverage, asserting (1) that the additional insured endorsement was not triggered through any alleged conduct of the named insured, and (2) that even if triggered, an exclusion applied. The additional insured raised claims for breach of contract, contractual bad faith, and statutory bad faith. The insurer moved to dismiss all claims.
Judge Wiegand first rejected the insurer’s argument that the complaint did not allege any wrongdoing by the named insured that could trigger coverage under the additional insured endorsement. She also found factual issues remained open as to whether coverage was excluded because the work was (1) completed or (2) put to its intended use. This could not be decided at the motion to dismiss state.
Judge Wiegand did dismiss the breach of the implied covenant of good faith and fair dealing count. “[U]nder Pennsylvania law, a ‘claim for breach of the implied covenant of good faith and fair dealing is subsumed in a breach of contract claim.’” Thus, “a claim for breach of the implied covenant of good faith and fair dealing ‘separate and distinct from a breach of contract claim’ cannot be maintained because ‘the covenant does nothing more than imply certain obligations into the contract itself.’”
By contrast, Judge Wiegand allowed the statutory bad faith claim to proceed. First, she observed that the policy exclusion at issue remained open and undecided, so the insurer could not argue the coverage denial was per se reasonable based on the policy exclusion language. She then found the insured’s allegations that the insurer “failed to investigate Plaintiff’s tender of the claims, denied coverage despite cooperatively participating in attempts to settle the Underlying Actions, and rejected settlement offers … within the limits of the Policy … are sufficient at this stage to survive Defendant’s Motion.”
CASE 2: NO STATUTORY BAD FAITH POSSIBLE FOR PRE-POLICY CONDUCT
The second case involved a first party property damage claim, where a swimming pool popped out of the ground due to subsurface water pressure. A policy exclusion clearly excluded coverage for subsurface water pressure causing damages, but the insureds still pursued the claim. They alleged that prior to purchasing the policy, the insurer’s agent led them to believe the policy would cover them for damages to in-ground pools “from foreseeable types of harm,” which equated to a promise concerning subsurface water pressure damage being covered.
After the coverage denial, the insureds brought claims to reform the policy to cover “pool popping,” for statutory bad faith, and for violation of the Unfair Trade Practices and Consumer Protection Law (UTPCPL). The insurer successfully moved to dismiss all claims.
First, Judge Wiegand found that the policy could not be reformed based on mutual mistake, unilateral mistake, or fraud. She further found that this was not a case where the reasonable expectations doctrine would permit reformation of clear policy language.
Second, she dismissed the statutory bad faith claim. As the Pennsylvania Supreme Court made clear in Toy v. Metropolitan Life, the bad faith statute only applies when the insurer had denied a policy benefit. Deceptive practices used to induce an insured to enter an unfavorable insurance policy do not fall within the bad faith statute’s ambit.
Finally, because the insureds did not plead justifiable reliance, there could be no UTPCPL claim.