DECEMBER 2017 BAD FAITH CASES: BAD FAITH CAN EXIST WHERE INSURER NECESSARILY KNOWS POLICY LANGUAGE DOES NOT EXCLUDE COVERAGE AND DENIES CLAIM (Middle District)

The insurer moved to dismiss a bad faith claim on the basis of boilerplate allegations, among other things. The court denied the motion.

The court not only found the facts adequately pleaded, it went on to rule that the insurer’s interpretation of the policy was unreasonable because there was no specific language excluding the homeowners’ loss at issue (the entire associated costs of reconstructing improperly conflated fresh water and sewer pipes).

Moreover, the court found that the second bad faith element was met on the face of the complaint, stating:

“Under Pennsylvania law we construe any ambiguities in the policy ‘in favor of the insured to further the contract’s prime purpose . . . and against the insurer, as the insurer drafts the policy, and controls coverage.’ …. In the case at bar, when viewed in the light most favorable to the non-moving party, we do not confront an ambiguity in the policy. Rather, defendant’s basis for refusing coverage is simply not present in the policy. It is axiomatic that insurance policy language — or the lack thereof — is imputed to the insurer, because the insurer is the scrivener of the policy. We conclude, therefore, that defendant knew or recklessly disregarded its lack of reasonable basis for denying coverage regarding the entire combined water supply pipe/sewer pipe loss including the ordinance and law coverage pursuant to the value added policy.”

Date of Decision: November 30, 2017

Foss v. Phoenix Insurance Co., No. 3:17cv1757, 2017 U.S. Dist. LEXIS 196665 (M.D. Pa. Nov. 30, 2017) (Munley, J.)