JANUARY 2009 BAD FAITH CASES MOTION TO DISMISS BAD FAITH CLAIM GRANTED BECAUSE NO STATUTORY BAD FAITH POSSIBLE IN CONNECTION WITH POLICY PROCUREMENT (Philadelphia Federal)

In Lawrence Padalino v. The Standard Fire Insurance Company,  a bad faith claim arose because of the insurer’s conduct during the policy procurement of the insured’s flood insurance policy for two property lots purchased. The insured purchased two plots of land and decided to purchase a flood insurance coverage policy through the insurer to protect the properties.  Subsequently, a storm flooded the two lots.  The insured submitted a claim to the insurer for the flood damage.  The insurer denied the claim for failure of the insured to submit a documented proof of loss within sixty days of the loss.  The insured then submitted additional information related to their claim.  The insurer responded with a letter giving two reasons for its decision to deny the claim.  First the insurer reasserted the failure to submit documented proof of loss within the allotted time.  Second, the insurer stated that the issuance of payment under the policy was not authorized because the insured’s properties were ineligible for flood insurance under federal law. 

After denial, the insured filed suit in the United States District Court for the Eastern District of Pennsylvania for the insurer’s conduct during policy procurement.  The complaint stated several causes of action, including violations of the Pennsylvania bad faith statute. The insurer filed separate motions to dismiss the complaint.  The insurer stated in its motion to dismiss the bad faith claim that the insured’s claims under the Pennsylvania bad faith statute were barred because the insured failed to allege bad faith in actual claim handling. 

“Bad faith”, as used in the Pennsylvania statute, requires the unreasonable denial of benefits in the insurance context.  Because the insured’s allegations in the complaint only relate to the insurer’s conduct during policy procurement, and in connection with  payment or handling of the insured’s claims, the court found that the insured failed to properly allege bad faith under the statute.  The insured agreed with this and accordingly sought to withdraw the bad faith claim.  Therefore the court granted the insurer’s motion to dismiss the insured’s claim of bad faith. 

Date of Decision: October 15, 2008

Padalino v. Std. Fire Ins. Co., No. 2:08 –cv-0-1553, 2008 U.S. Dist. LEXIS 82068 (E.D. Pa. Oct. 15, 2008) ( Davis, J.).

J.M.A.