FEBRUARY 2018 BAD FAITH CASES: REINSURER IS NOT AN INSURER UNDER SECTION 8371 (Western District)
The insured filed suit for bad faith and breach of contract against its insurer, and later filed an amended complaint alleging bad faith and breach of contract against the reinsurer, among other claims. The reinsurer moved to dismiss both claims.
The reinsurer argued that it is not an “insurer” for purposes of Pennsylvania’s bad faith statute. The Court stated, “Pennsylvania law requires the Court to consider two factors when determining whether a party is an ‘insurer’ for the purposes of the bad faith statute: “(1) the extent to which the company was identified as the insurer on the policy documents; and (2) the extent to which the company acted as insurer.’” Regarding the first factor, the Court found that the reinsurer is not listed anywhere on the policy documents, and therefore the reinsurer is not a party to the policy between the insured and the insurer.
In evaluating the second factor, the Court stated that, “a party acts as an insurer when it ‘issues policies, collects premiums and in exchange assumes certain risks and contractual obligations.’” The Court held that the reinsurer was not the insured’s “insurer” for purposes of the bad faith statute because it did not issue the policy to the insured, it did not collect premiums from the insured, it did not make payments to the insured, and it assumed no risks or contractual obligations to the insured.
As such, the Court granted the reinsurer’s motion to dismiss the bad faith claim because it was not an “insurer” for purposes of the bad faith statute. The Court further dismissed the breach of contract claim against the reinsurer because no contractual privity existed between the reinsurer and the insured.
