February 2006 Bad Faith Cases: No Duty To Defend a Breach of Contract, Tortuous Interference, & Goof Faith and Fair Dealing Claims As All Stemmed From Contract Claim (Philadelphia Commerce)

In Penn’s Market I v. Harleysville Insurance Company, the insured leased a unit in a retail shopping complex to the Chanda corporation, which was engaged in the business of ice cream and retail food sales.  Chanda sued the insured/lessor for Breach of Contract, Breach of Covenant of Good Faith and Fair Dealing, and Tortuous Interference with Business Relations. The carrier refused to defend the lessor, and the lessor brought suit.  The Philadelphia Commerce Court found that the duties allegedly breached were “created” by, and “grounded in,” the contract itself; the liability, if any, would have “stemmed” from the lease agreement alone; and the tort claim essentially “duplicated” a breach of contract claim.  Because the Court found that all three claims arose out of a contractual dispute, including the tort claim, it ruled that the carrier had no duty to defend in the Chanda litigation.  Under law repeatedly applied in the Commerce Case Management Program’s decisions, a breach of the implied of the duty faith and fair dealing is solely a contract claim, and such a contract claim cannot be maintained where there is a separate breach of contract count which encapsulates this implied duty claim.  The tort claim was rejected under the gist of the action theory.  Finally, the Court rejected the possibility of coverage under a constructive eviction theory.

Date of Decision: May 3, 2006

Penn’s Market. I v. Harleysville Insurance Company, February Term 2005, No. 557, 2006 Phila. Ct. Com. Pl. LEXIS 193 (C.C.P. Philadelphia May 3, 2006) (Abramson, J.)