JANUARY 2011 BAD FAITH CASES COURT DISMISSES BAD FAITH ALLEGATION WHEN INSURED FAILS TO SPECIFY HOW INSURER ACTED IN BAD FAITH (Monroe County Common Pleas)

In Donegal Mutual Insurance Company v. Stroker, the insured was involved in a motor vehicle accident that resulted in damages to her vehicle.  She had an automobile insurance policy with the insurer.  The policy included a subrogation clause, which stated that if the insurer made a payment under the policy and the insured had a right to recover damages from another, the insurer would be subrogated to that right and the insured must do whatever is necessary to enable the insurer to exercise its rights.

The insured accepted a payment from the driver of the other automobile and executed a release of all claims.  The insurer then filed a suit against the driver on behalf of the insured to recover property damage caused by the driver.  It claimed that the insured had a duty under the policy to do whatever was necessary to enable the insurer to exercise its rights against the driver.  It also claimed that the insured was required to hold any amounts paid to the her in a trust for the insurer to the extent of the insurer’s payment to the insured.  The insured, on the other hand, claimed that she was not responsible for the insurer’s subrogation claim and never signed a release on behalf of the insurer.  She filed a counterclaim against the insurer, alleging that the insurer breached its contract and acted in bad faith.  The insurer proceeded to file preliminary objections to the counterclaim.

The court first sustained the insurer’s preliminary objection to the insured’s breach of contract counterclaim.  It determined that the insured offered “no specific details to educate the Court or [insurer] on what the agreement required, . . . what the essential terms of the agreement were, or how bringing the present action against [the insured] breached the agreement.”

The insured had also alleged in her counterclaim that the insurer acted in bad faith.  She claimed that (1) she had a valid insurance policy with the insurer at the time of the subject incident, (2) the insurer has acted in bad faith toward her, and (3) she has and will suffer direct and consequential damages as a result.  The court first recognized the two-part test under Pennsylvania law to establish bad faith:  an insurer must (1) lack a reasonable basis for denying coverage and (2) the insurer know or recklessly disregard its lack of a reasonable basis.  It then reached the same result as it did with the breach of contract claim.  The court determined that while the insured did have a valid insurance policy with the insurer, she did not provide any details showing just how the insurer acted in bad faith in breaching the policy.  Because the insured offered no evidence demonstrating bad faith on the part of the insurer, the court sustained the insurer’s preliminary objection to the bad faith allegation against it.

Date of Decision:  August 2, 2010

Donegal Mut. Ins. Co. v. Stroker, No. 2568 Civil 2010, Common Pleas Court of Monroe County, Pennsylvania, 2010 Pa. Dist. & Cnty. Dec. LEXIS 398, (Aug. 2, 2010) (Sibum, J.)