April 2008 Bad Faith Cases Insured Pleads Actionable Bad Faith Claim By Alleging That Insurer Proceeded With A Declaratory Judgement Action Knowing It Could Not Prevail (Western District)

 

In Gideon v. Nationwide Mutual Fire Insurance Company, the Court was confronted with Nationwide’s Motion to Dismiss Plaintiff’s (the insured) Complaint alleging breach of contract and statutory bad faith.  Plaintiff’s Complaint asserted that Nationwide had acted in bad faith by failing to conduct a reasonable investigation regarding the lawsuit filed against Plaintiff, its continued pursuit of a declaratory judgment action and its failure to settle the underlying suit.
The Plaintiff shot Aaron Fitzsimmons with a handgun.  Mr. Fitzsimmons survived the incident and subsequently filed suit against the insured alleging claims for negligence, battery and punitive damages.  Plaintiff was insured under a homeowner’s policy which stated, “Coverage E – Personal Liability, and Coverage F – Medical Payments to Others do not apply to bodily injury or property damage: which is expected or intended by the inured (sic).”  Nationwide filed a declaratory judgment action which proceeded to trial limited to the issue of whether Plaintiff intended to shoot Mr. Fitzsimmons.  The jury found for the Plaintiff and the court directed Nationwide to provide coverage for Plaintiff in the underlying suit.  Following the trial Nationwide settled the underlying suit.
In its Motion to Dismiss, Nationwide argued that Plaintiff’s bad faith claim should be dismissed because it had provided a defense to Plaintiff in the underlying action under a reservation of rights and that it filed the declaratory judgment action to clarify its coverage obligations.  Plaintiff, however, argued that Nationwide persisted in pursuing the declaratory judgment proceedings even though during its investigation it knew it could not prevail.
The Court noted that the Pennsylvania Supreme Court had not yet addressed the question of whether an insurer actually denies benefits if it assumes the defense of its insured under a reservation of rights but files a declaratory judgment action seeking a declaration that it is not obligated to defend or indemnify its insured even when it is clear that it should be defending and indemnifying the insured rather than settling the underlying suit.  The Court held that under these facts, if accepted as true, the Pennsylvania Supreme Court would find that there had been a denial of benefits and that Plaintiff had alleged sufficient facts in support of a statutory bad faith claim.  Therefore, the Court denied Nationwide’s Motion to Dismiss.
Finally, Nationwide alleged that even if Plaintiff had stated a claim for statutory bad faith, it was precluded under the two-year statute of limitations.  Nationwide argued that Plaintiff failed to file the bad faith claim within two years of the date that Nationwide filed that declaratory judgment.  Conversely, Plaintiff argued that the limitations period did not begin to run until during the investigation period conducted after the declaratory judgment was filed in which Nationwide received various deposition transcripts clearly showing that Plaintiff did not intentionally shoot Mr. Fitzsimmons.  The Court held it was too early in the litigation to determine at what point Plaintiff knew or should have known that Nationwide was allegedly acting in bad faith.  As such, the Court denied Nationwide’s Motion without prejudice with regard to its statute of limitations argument.
Date of Decision:  March 20, 2008
Gideon v. Nationwide Mutual Fire Ins. Co., United States District Court for the Western District of Pennsylvania, No. 07-40E, 2008 U.S Dist. LEXIS 26729 (W.D. Pa. March 20, 2008) (Cohill, J.)
J.T.L.