In Excelsior Insurance Company v. Incredibly Edible Delites, Edible Delites (“IED”) and Incredible Franchise Corp.’s (“IFC”), the entity that issued franchises on behalf of IED, had obtained an insurance policy from the insurer for commercial general liability coverage. In the paperwork provided by the insurer, IFC was described as an “Additional Insured – Grantor of Franchise.” The insureds understood this to mean that IFC was an additional insured under the policy. The insureds made a claim under the policy for costs they had incurred defending against a lawsuit.
The insurer filed a complaint seeking declaratory relief and a determination of the rights and responsibilities of the parties under the insurance policy. The insureds filed counterclaims for breach of contract, breach of covenant of good faith and fair dealing and statutory bad faith. The insurer filed a motion to dismiss the claims. The insurer argued that IFC’s bad faith claim failed because it had admitted in its pleadings that it was not an insured under the policy because the policy described IFC as an “Additional Insured – Grantor of Franchise” and at no time had IFC granted a franchise to IED. The court found that IFC had adequately plead that it was an insured under the policy. The court dismissed the insured’s claim for breach of the duty of good faith and fair dealing but stated that the insureds would be permitted to amend their pleading in order to allege that the conduct underlying their breach of duty of good faith claim supported their breach of conduct or statutory bad faith act claim.
Date of Decision: December 17, 2009