JANUARY 2015 BAD FAITH CASES: BAD FAITH CLAIM STATED FOR CONDUCT OCCURRING AFTER INSURANCE CONTRACT WAS ENTERED, THE COURT HAVING REJECTED THE ARGUMENT THAT THE CLAIM WAS IN THE NATURE OF PRE-CONTRACT FALSE MARKETING (Philadelphia Federal)

In Jacoby v. AXA Equitable Life Insurance Company, it was alleged that the insured purchased a life insurance policy that required an initial series of premium payments on the policy, but thereafter the premiums would be paid from dividends on the policy without the need for separate premium payments.  During the course of the policy, all of the required premiums were paid.  The insured claimed that a notice to pay another premium was issued thereafter, and when he contacted the insurer to ask why, the insurer’s representative confirmed that the notice was in error and the premiums would come out of the dividends.  Thus, no further separate premium payments needed to be made.

Twenty years went by with no further notice from the insurer, but when contact was made with insurer about the policy, the carrier stated that the failure to make the noticed payment 20 years earlier resulted in the policy being converted to a term life insurance policy.  After converting it to a term policy, that policy had expired 9 years earlier.  The insured brought suit for breach of contract and bad faith, among other claims.

In seeking dismissal of the bad faith claim, the insurer portrayed plaintiff’s claim as a false marketing/pre-contract misconduct claim. The Pennsylvania Supreme Court had ruled this kind of allegation was outside the bad faith statute, because the wrongful conduct arose before any insurance contract was entered and was unrelated to performing obligations under the insurance contract.

The district court rejected that argument.  The court found that the plaintiff’s principal allegations of bad faith conduct were not pleaded in connection with the insurer’s solicitation practices.  Rather, the “Plaintiff’s allegations principally concern Defendant’s conduct in connection with its discharge of obligations under the Policy after purchase by the Insured, which still may be an appropriate foundation for a bad faith claim.” (Emphasis in original).  Thus, the court refused to dismiss the claim at the pleading stage, and would allow discovery on the nature of how the insurer discharged its obligations to the insured.

Date of Decision:  December 15, 2014

Jacoby v. AXA Equitable Life Ins. Co., CIVIL ACTION NO. 13-6511, 2014 U.S. Dist. LEXIS 172917 (E.D. Pa. December 15, 2014) (Restrepo, J.)