NO CONTRACTUAL BAD FAITH POSSIBLE WHERE POLICY’S EXPRESS LANGUAGE DID NOT REQUIRE THE ACTIONS PLACED AT ISSUE (Third Circuit – Pennsylvania Law)
A policy lapsed for failure to make payments. Plaintiff brought an action for breach of the duty of good faith and fair dealing, alleging that the insurer by failed to notify him a premium was due. The trial court granted the insurer summary judgment and the Third Circuit affirmed.
This was a contract-based claim, not a statutory bad faith claim. As the Third Circuit observed, “Pennsylvania law implies a duty of good faith and fair dealing into every contract.” Contractual good faith means “[h]onesty in fact in the conduct or transaction concerned.” Examples of contractual bad faith include, e.g., “evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party’s performance.” However, “[t]he duty of good faith ‘is not divorced from the specific clauses of [a] contract and cannot be used to override an express contractual term.’”
The insurance agreement did not require the insurer to give notice of premium lapses and the consequence of such lapses. The insurer had an internal business practice to give such notices, and attempted to do so in this case, but there was considerable complication concerning the correct address and the notices never reached plaintiff. This was of no moment, however, because the duty of good faith is “tied specifically to and is not separate from the duties a contract imposes of the parties,” and here, the policy did not include a requirement that the insurer remind plaintiff that premiums were due “or otherwise notify him before the policy lapses.”
Alternatively, under the facts at hand, even if such a duty was imposed there was still no bad faith. The insurer did mail non-payment notices to the address it had for plaintiff, which was not plaintiff’s actual address. However, it was plaintiff’s own lack of diligence in failing to provide the correct address leading to his never receiving the notices.
Thus, summary judgment for the insurer was affirmed.
Date of Decision: May 29, 2020
Power v. Erie Family Life Insurance Co., U.S. Court of Appeals for the Third Circuit No. 19-2994, 2020 U.S. App. LEXIS 17083 (3d Cir. May 29, 2020) (Ambro, Hardiman, Restrepo, JJ.)
