FEBRUARY 2015 BAD FAITH CASES: BAD FAITH CLAIM FUTILE BASED ON DISCOVERY DISPUTES INVOLVING DECLARATORY JUDGMENT CLAIM; AND WHERE POLICY PROVIDED INSURER A REASONABLE BASIS TO DENY CLAIM (Philadelphia Federal)

In Byars v. State Farm Mut. Auto. Ins. Co., plaintiff sought leave to amend his complaint to add an additional count against the defendant-insurer alleging bad faith.  In the proposed amended complaint, Plaintiff alleged the insurer had acted in bad faith during the litigation process in the pending coverage action between the two parties.  In the proposed amended complaint, Plaintiff outlined the actions which he alleged constituted bad faith, including the insurer’s assertion of unreasonable objections during a deposition, as well as other discovery disputes including the redaction of files produced by the insurer to Plaintiff.

A court has broad discretion in determining whether to grant leave to amend a complaint, however, it must deny leave if the moving party has demonstrated undue delay, bad faith, or dilatory motives, the amendment would be futile, or the amendment would prejudice the other party.  Here, the Court found amendment would be futile, because the amended complaint failed to state a claim upon which relief could be granted.  The Court determined the bad faith statute provides an insured redress for an insurer’s bad faith conduct in its capacity as an insurer, not as a legal adversary in a lawsuit, and therefore the discovery violations did not fall within the statute’s ambit.

Plaintiff further alleged the insurer acted in bad faith by refusing to pay Plaintiff’s underinsured motorist claim.  However, the insurer based its continued denial of benefits on the belief that it was not bound by a state court judgment, citing a provision in the Policy regarding its consent to be bound.  (“We are not bound by any: a. judgment obtained without our written consent; and b. default judgment against any person or organization other than us.”) Such consent clauses are enforceable under Pennsylvania law and not contrary to public policy, and therefore the insurer had a reasonable basis in law to refuse to pay plaintiff’s state court judgment where Plaintiff failed to obtain a default judgment against the insurer itself. Thus, the court denied Plaintiff leave to amend his complaint to add a count of bad faith on such factually insufficient claims.

Date of Decision:  January 12, 2015

Byars v. State Farm Mut. Auto. Ins. Co., Civil Action No. 13-6452, 2015 U.S. Dist. LEXIS 3524 (E.D.Pa. Jan. 12, 2015) (Dalzell, J.).