April 2009 Bad Faith Cases Bad Faith Action Possible In First Party Claim, Though Contractually Based Breach Of Fiduciary Duty Claim Is Not (Western District)

In Millwood v. State Farm Mutual Automobile Insurance Company, a first party claim was at issue (involving a vandalized car).  On the issue of common law breach of fiduciary duty, the court observed that there is such a contractually based duty, but that it only arises in the context of third party claims where an insurer is handling claims on behalf of its insured against another party.  In a first party case, a fiduciary duty claim is simply redundant with the breach of contract claim.

The court then contrasted the redundant fiduciary duty theory with the bad faith statute.  It stated that statutory bad faith is considered completely independent of the underlying contract claim, and so both may proceed simultaneously.

[Note:  In citing this case for anything more than the proposition that a statutory bad faith claim can be brought along with a breach of insurance contract claim, consider the Pennsylvania Supreme Court’s decision in Toy v. Metropolitan Life Ins. Co.  In that case, the Court indicated that the existence of bad faith is predicated on the denial of a benefit under the insurance contract.  Thus, absent a such a breach of contract, it is arguable that there can be no bad faith.  See the discussion on the blog entry of December 6, 2008. On conflicting views over fiduciary duties, see the blog entry of March 13, 2009.]

Date of Decision:  February 5, 2009.

Millwood v. State Farm Mut. Auto. Ins. Co., UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA, Civil Action No. 08-1698, 2009 U.S. Dist. LEXIS 8415 (W.D. Pa. Feb. 5, 2009) (Standish, J.)