FEBRUARY 2008 BAD FAITH CASES COURT FINDS THAT FAILURE TO INFORM INSURED ABOUT DEFAULT JUDGMENT ENTERED IN DECLARATORY JUDGMENT COULD BE BAD FAITH (Philadelphia Federal)

    

In Hanover Insurance Company v. Ryan, the insurer brought an action seeking a declaration that it had no obligation to defend its insured in an underlying personal injury matter.  The underlying matter stemmed from a car accident in which the insured had a blood-alcohol level well above the legal limit.  The insured counterclaimed in the declaratory judgment action for breach of contract, misrepresentation and bad faith.  The insurer then moved to dismiss the insured’s counterclaims.  The insured argued that there was bad faith because the insurer entered a default judgment in the declaratory action without notifying the insured’s counsel (from the underlying matter), and refused the court’s offer to open or strike the judgment.  The insured further alleged bad faith because the insurer failed to properly investigate the factual and legal basis for its denial of coverage.  The Court declined to dismiss the insured’s counterclaim for bad faith.  It ruled that the actions of the insurer could constitute bad faith, “especially given [its] failure to communicate with its insured regarding the entry of default judgment.” 

Date of decision:  December 17, 2007

Hanover Insurance Company v. Ryan, United States District Court for the Eastern District of Pennsylvania, CV-06-2650, 619 F. Supp. 2d 127  (E.D. Pa. 2007) (Stengel, J.)

 

J.H.