JUNE 2009 BAD FAITH CASES NO BAD FAITH WHERE A REASONABLE BASIS TO DENY COVERAGE EXISTS, AS DISTINCT FROM REASONABLE CONDUCT INQUIRY (Philadelphia Federal)
In Post v. St. Paul Travelers Insurance Company, the court granted summary judgment to the insured on its breach of contract and declaratory judgment claims, but granted summary judgment to the insurer on the bad faith claim. The insured filed a motion for reconsideration and the court upheld its original decision dismissing the summary judgment claim.
First, the court addressed its finding that there was no bad faith because there was a reasonable basis for denying the claim. It observed that bad faith has two elements, whether the denial was unreasonable and whether the insurer knowingly or recklessly disregarded that fact. The insurer’s alleged ill-will or self-interested motive do not establish a third element, but go to the evidence concerning the second element.
While such things as failure to investigate and violations of regulations may be relevant to a court’s bad faith determination, in this case the insurer had a reasonable basis to deny coverage, and a reasonable basis by itself defeats a bad faith claim. The court cited to the U.S. Court of appeals decision in J.C. Penney Life Insurance Co. v. Pilosi.
The court raised an extremely important point in addressing the insured’s argument here: “[The insured] further claims that whether or not [the insurer’s] conduct was reasonable is a question of fact for the jury. The issue, however, is not if [the insurer’s] conduct was reasonable, but whether or not [the insurer] had a reasonable legal basis for denying coverage.”
Concerning an argument that summary judgment was premature because the insured was still pursuing evidence of the insurer’s written claims policies, the insurer’s submitting affidavits that no such written policies existed put an end to discovery on that issue.
