DECEMBER 2008 BAD FAITH CASES BAD FAITH CLAIM AGAINST THE INSURER REMAINS UNRESOLVED, WHERE ARGUMENT AGAINST COVERAGE DENIED IN PART (Western District)

In Fleming Fitzgerald & Assocs. V. United States Specialty Ins. Co., a bad faith claim arose after the insurer denied the insured coverage.  The insured purchased a Directors, Officers, and Organizations Liability Policy from the insurer.  During the policy period, the insured sought coverage under this policy for defense costs incurred responding to a lawsuit filed against it.  The insurer denied the insured’s claim for coverage on the basis that the claims against the insured was excluded from coverage by the breach of contract and errors and omissions exclusions of the policy. 

The insured filed suit against the insurer for breach of contract and bad faith.  The insurer removed the case to the United States District Court for the Western District of Pennsylvania.  The insurer then filed a counterclaim against the insured seeking a judgment that the subject policy does not afford coverage for the underlying action brought against the insured.  The insured argued that with the exception of the underlying breach of contract claim, all of the claims alleged in the state court action against the insured are covered by the policy.  The insurer argues that none of the claims alleged against the insured in the state court action against them are covered under the policy. 

The court looked at the language of the policy exclusions and found that with the exception of the underlying breach of contract claim against the insured, the claims alleged in the state court action against the insured are covered by the policy.  However, the issues relating to the insured’s damages and claims for bad faith remain unresolved.

Date of Decision: September 30, 2008

Fleming Fitzgerald & Assocs. v. United States Specialty Ins. Co., Civil Action No. 07-1596, 2008 U.S. Dist. LEXIS 76613 (W.D. Pa.  Sept. 30, 2008)( Lancaster, J.)

J.M.A.