JULY 2012 BAD FAITH CASES: COURT DISMISSES SUBROGEE’S BAD FAITH ACTION AS TIME-BARRED, BUT ALLOWS BREACH OF CONTRACT ACTION TO PROCEED BECAUSE THE INSURED HAD NO DUTY TO ALERT CARRIER OF LAWSUIT AFTER ITS CARRIER DISCLAIMED COVERAGE (Philadelphia Federal)

In Lloyd’s London v. United Fin. Cas. Co., the court heard a carrier’s motion to dismiss a bad faith and breach of contract action brought by an insurer acting (1) as the assignee of the assignor-insured and (2) the subrogee of an insured shipping company whose goods were damaged in the underlying accident.
The assignor-insured owned a “Flag Car Service” that escorted oversized loads being transported by shipping companies. In 2008, an employee of the assignor-insured passed under an overhead bridge as a truck owned by the shipper-insured followed. The truck hit the bridge, causing damage to the vehicle and its oversized cargo.
The assignor-insured’s carrier denied coverage under the policy, but the shipper’s insurer paid $124,386 in damages resulting from the accident. In 2011, the subrogee filed a tort action against the assignor-insured (prior to the assignment) and obtained a default judgment for $143,846.91. However, the assignor-insured’s carrier contends that it never received notice of the subrogee’s 2011 lawsuit against the assignor-insured. After the default judgment, the shipper’s insurer sought subrogation against the assignor-insured’s liability carrier, alleging breach of contract and bad faith on behalf of the assignor-insured for the carrier’s original denial of coverage.
The assignor-insured’s carrier filed a motion to dismiss in opposition of the subrogee’s suit, alleging that (1) the bad faith action was time-barred and that (2) the assignor-insured failed to provide notice of the 2011 lawsuit, a condition precedent to coverage under its policy.
First, the court addressed the statute of limitations argument, finding that the subrogee’s bad faith claims on behalf of the assignor-insured should be dismissed. The court reasoned that the two-year statute of limitations for bad faith claims began to run when the carrier provided notice of its refusal to provide coverage to the assignor-insured. The date of its denial was in August 2009, more than two-years prior to the filing of this action, warranting dismissal of the bad faith claim.
Second, the court addressed the carrier’s claim that the assignor-insured failed to comply with the policy’s notice provision. The court rejected this claim because, under Pennsylvania law, an insured is generally excused from complying with a notice provision after its insurance company has disclaimed coverage. Therefore, once the assignor-insured’s carrier denied coverage over the accident, it could not rely on the policy’s notice provision as a condition precedent to coverage.
In conclusion, the court dismissed the bad faith count, but permitted the subrogee’s breach of contract action to proceed.
Date of Decision: June 28, 2012
Lloyd’s London v. United Fin. Cas. Co., No. 12-2063, 2012 U.S. Dist. LEXIS 89992, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. June 28, 2012) (Schiller, J.)