FEBRUARY 2008 BAD FAITH CASES PENNSYLVANIA’S BAD FAITH STATUTE DOES NOT APPLY TO PROVIDERS OF A SURETY BOND (Middle District)

    

In Intercon Construction, Inc. v. The Williamsport Municipal Water Authority, the plaintiff filed a complaint alleging the defendant breached a contract between the two parties in which plaintiff would construct a water line under a river for the defendant.  The defendant filed a counterclaim alleging the plaintiff breached its contract.  The defendant also filed a third party complaint against Safeco Insurance Company of America (“Safeco”) who provided a performance bond on the contract on behalf of the plaintiff.  The third party complaint alleged that Safeco breached its contract under the performance bond and violated Pennsylvania’s bad faith insurance statute.  With regards to the bad faith count, the defendant alleged Safeco acted in bad faith in the manner that it investigated and denied the defendant’s coverage under the bond and acted in bad faith by withholding certain information from the defendant while encouraging it to reach an assignment agreement with a drilling contractor who placed a bid for completion of the outstanding work.  Safeco filed a partial motion to dismiss the count for bad faith because the statute does not apply to providers of surety bonds.  The court noted the differences between an insurance agreement and a surety bond.  An insurance agreement is an agreement by which one for a consideration agrees to pay money to another on the death, destruction, loss, or injury of someone or something while a contract for suretyship is one to answer for the debt, default or miscarriage of another.  The insurer and insured share a direct contractual relationship for the said payment while a surety does not have a direct contractual relationship with a party such as defendant and has simply agreed to answer for the debt of the plaintiff to the extent he fails to pay them.  The court stated that the Pennsylvania legislature did not intend to include surety bonds within the purview of the Pennsylvania bad faith statue, and if they have, they would have stated explicitly.  As a result, the court granted Safeco’s partial motion to dismiss the bad faith count of defendant’s third party complaint.    

Date of decision:  January 28, 2008

Intercon Construction, Inc. v. The Williamsport Municipal Water Authority, United States District Court for the Middle District of Pennsylvania, Civil Action No. 4:07-CV-1360, 2008 U.S. Dist. LEXIS 6022, (M.D. Pa. 2008) (McClure, J.). 

R.E.M.