Articles & Updates

Court Finds That An Insurer Does Not Act in Bad Faith by Revisiting an Acceptance of Coverage

Apr 8, 2020 | Articles & Updates

The Eastern District of Pennsylvania recently granted a defendant insurer’s Motion for Partial Summary Judgment to dismiss a bad faith claim after finding that an insurer’s refusal to provide coverage after initially accepting coverage could not have been unreasonable since it had no contractual obligation to pay any benefits under the insured’s policy.  See Live Face on Web, LLC v. Merchants Ins. Group, et al., 2020 WL 1550758 (E.D. Pa., Apr. 1, 2020).

The insured purchased automobile insurance from the insurer, and the policy listed four covered cars.  The insured claimed that it sent an email to its insurance agent stating that the insured wanted to amend the policy to replace one car with a new one.  The insurance agent denied receiving this email, and as a result, no request for a policy amendment was submitted to the insurer.  The new car was subsequently involved in an accident.  When the insured submitted a claim notice to the insurer, the insurer initially accepted coverage, but later denied coverage after concluding that the policy did not cover the insured’s new car.  The insured sued the insurance agent for breach of contract, statutory bad faith, and negligence.  The insured also sued the insurer for breach of contract, statutory bad faith, and vicarious liability.  All parties moved for summary judgment, but the insurance agent did not ask for a judgment on the negligence claim against it.  The Court granted the insurer’s motion for summary judgment and the insurance agent’s partial summary judgment motion.

With respect to the insured’s motion for summary judgment on the negligence claim, the Court denied this motion, holding that there was an issue of fact as to whether the insured asked the insurance agent to amend the policy to include the new car.

With respect to the claims against the insurance agent, the Court first dismissed the breach of contract claim after finding that the insurance agent was not a party to the policy between the insured and insurer.  The Court then dismissed the insured’s statutory bad faith claim against the insurance agent after finding that the statute only permits claims against an “insurer,” and the insurance agent was not an insurer.

All claims against the insurer were dismissed.  The Court dismissed the breach of contract claim after finding that the insured never made a request to the insurer to modify the policy.  Because the policy was never amended, its coverage did not extend to the new car.  While the insured argued that the insurer breached the policy by revisiting it decision to accept coverage in violation of Pennsylvania’s Unfair Insurance Practice Act (“UIPA”), the Court found that there is no private right of action under the UIPA claims, and the policy did not impose obligations on the insurer under the UIPA.  The Court dismissed the bad faith claim against the insurer after finding that the insurer’s refusal to pay benefits was not unreasonable because the insurer had no contractual obligation to pay benefits.  The Court further held that Section 136.7 of the Pennsylvania Administrative Code permits an insurer to revise coverage determinations based on new information. Lastly, the Court rejected the insured’s claim that the insurer was vicariously liable for the insurance agent’s negligence.