JULY 2008 BAD FAITH CASES INSURER DID NOT HAVE DUTY TO DEFEND OR INDEMNIFY AND THEREFORE DID NOT ACT IN BAD FAITH BECAUSE THE POLICY COVERAGE LANGUAGE WAS CLEAR AND UNAMBIGUOUS (Third Circuit)

In Henkel Corporation v. Hartford Accident & Indemnity Company; Liberty Mutual Insurance Company, an insured filed a complaint against their insurer for the insurer’s failure to defend and indemnify the insured against products liability suits.  Appellant Henkel corporation was formerly knows as Locite Corporation.  Locite acquired Permatex Company, Inc. in 1972.  In 1978,  Permatex company merged into Locite Corporation. Between 1976 and 1985, the insurer issued to Locite comprehensive general liability insurance policies of completed operations and products liability. In the policies,  Hartford agreed to provide defense and indemnity coverage for bodily injury or property damage.  

After these policies were issued, Henkel purchased Locite and the companies merged.  Lawsuits have been filed in New Jersey, New York, and Pennsylvania state courts by plaintiffs,  alleging injuries as a result of exposure to asbestos containing products, including Permatex brand products.  However,  none of these suits named Henkel, Locite, or Permatex Company as a defendant.  The suits named a wholly owned subsidiary of Henkel, and another entity completely unrelated to Henkel,  as defendants.  However,  Henkel still had previously incurred costs defending and settling some of these Underlying Suits even though it was not named as a defendant.  Henkel filed a claim with the insurer,  and the insurer refused to provide defense and indemnity coverage. 

The insured filed suit for breach of  contract and bad faith. The complaint sought damages and also requests a declaration that the insurer is obligated to defend and indemnify the insured in all pending and future cases alleging injury as a result of exposure to Permatex-brand asbestos containing products. The District Court  dismissed  the  complaint finding that the insurer had no duty to defend Henkel in the Underlying Suits because it had only agreed to defend and indemnify Locite in cases where Locite or a successor in interest was named as a defendant in the action.  The insured then sought relief in the United States Court of Appeals for the Third Circuit. The insured argued that the District Court erred in dismissing their complaint. The appellate court found that the contractual provision at issue was clear and not ambiguous.  The duty to defend and indemnify was only triggered if the insured entity was named as a defendant in the suit.  The court therefore held that the insurer had no duty to defend because an insured entity was not named as a defendant in any of the Underlying Suits.  Therefore the insurer did not breach the contract or act in bad faith by refusing to defend or indemnify the insured. 

Date of Decision: March 27, 2008

Henkel Corp. v. Hartford Accident & Indem. Co., 2008 U.S. App. LEXIS 6496 (3d Cir. Pa. Mar. 27, 2008) (Barry, J.)

J.M.A.