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Third Circuit Affirms: Four Corners Rule Does Not Apply to Non-Insureds

The Third Circuit Court of Appeals recently affirmed a District Court’s decision to grant an insurer’s motion for summary judgment because the insurer did not act in bad faith when it conducted a good faith investigation, and the insurer reasonably interpreted Pennsylvania law when it concluded that an alleged tortfeasor was not an insured under the terms of the applicable insurance policy. See Myers v. Geico Cas. Co., 2020 WL 7230600 (W.D. Pa. Dec. 8, 2020).

In Myers, the insured gave his car keys to another individual, the eventual tortfeasor, for the purpose of getting a diaper bag out of the car for the child that they shared. The tortfeasor decided to move the insured’s car to a closer parking spot, but in the process she hit and injured Plaintiff. Plaintiff then sued the insured and the tortfeasor. The insurer defended its insured but refused to defend the tortfeasor, finding that she would only be covered if she had permission to drive the car, which the insurer concluded she did not have. Plaintiff and the tortfeasor agreed to a stipulated judgment in which the Plaintiff agreed to not execute on a judgment against the tortfeasor in exchange for any rights the tortfeasor had under the insurance policy. Plaintiff then sued the insurer, alleging that the insurer acted in bad faith when it failed to defend the tortfeasor. The District Court granted summary judgment in favor of the insurer because it determined that the tortfeasor did not have permission to use the vehicle and therefore was not covered under the insurance policy. Plaintiff appealed.

On appeal, Plaintiff argued that the District Court violated the “four corners” rule of Pennsylvania insurance law by looking outside the Complaint against the tortfeasor to determine that the tortfeasor was not insured under the policy. It was the insurer’s position that the “four corners” rule applies only after determining that an individual is insured under a policy and that, because it is an unsettled area of Pennsylvania law, the insurer could not have acted in bad faith in relying on a reasonable interpretation of its legal obligation.

The Third Circuit agreed with the insurer and recognized that the Pennsylvania Supreme Court has not explicitly decided whether the “four corners” rule applies when an insurer determines that an individual is not an insured under the policy before that individual faces a lawsuit. Consequently, the Third Circuit held that the insurer did not act in bad faith when it reasonably determined that the tortfeasor was not an insured under the policy.

Plaintiff further alleged that the insurer acted in bad faith by conducting an inadequate investigation and ignoring the possibility of implied permission. The Third Circuit rejected this argument, noting that the Plaintiff had not alleged any facts to support a finding that the insurer had any reason to believe that the tortfeasor had implied permission to drive the automobile. While the Plaintiff submitted an affidavit from the tortfeasor in which the tortfeasor stated that she did not believe she was doing anything wrong by using the car, the Third Circuit did not find the tortfeasor’s belief to be relevant to whether the tortfeasor had implied permission to use the vehicle.