MARCH 2016 BAD FAITH CASES: FEDERAL DISTRICT COURT FINDS BAD FAITH CAN EXIST SOLELY BASED ON INVESTIGATION PRACTICES, INDEPENDENT OF WHETHER COVERAGE IS ACTUALLY DUE (Philadelphia Federal)

In Citi Gas Convenience v. Utica Mutual Insurance Company, the court found that there could be no bad faith claim based on a denial of coverage because the court found no coverage was due: “Resolution of a coverage claim on the merits in favor of the insurer requires dismissal of a bad faith claim premised on the denial of coverage, because under the circumstances the insurer necessarily has a reasonable basis for denying benefits.”

However, the court then goes on to find that alleged bad faith investigation practices, even where no coverage is due, does allege an actionable claim, citing Gold v. State Farm (a statutory bad faith case) for the proposition: “[I]f bad faith is asserted as to conduct beyond a denial of coverage, the bad faith claim is actionable as to that conduct regardless of whether the contract claim survives.” The insured failed to adequately plead such a claim however, and that aspect of the bad faith claim was dismissed without prejudice.

As noted elsewhere on this Blog, there are a considerable number of cases that appear to find statutory bad faith claims can independently exist based on conduct other than the denial of a benefit, which potentially run contrary to the Supreme Court’s Toy v. Metropolitan holding.

Date of Decision: February 9, 2016

Citi Gas Convenience v. Utica Mut. Ins. Co., 2016 U.S. Dist. LEXIS 15503 (E.D. Pa. Feb. 9, 2016) (Pratter, J.)