JULY 2015 BAD FAITH CASES: INJURED PLAINTIFF CANNOT BRING BAD FAITH CLAIM AGAINST THE DEFENDANT’S INSURER WITHOUT AN ASSIGNMENT FROM THE DEFENDANT-INSURED (Philadelphia Federal)

In Westport Insurance Corporation v. Mylonas, the insurer brought a declaratory judgment action its insured, and an underlying plaintiff with a judgment against the insured, seeking to limit coverage to an amount less than the judgment.  The plaintiff brought a bad faith counterclaim against the insurer, alleging that it had unreasonably eroded the policy limits in defending the underlying action.  The underlying plaintiff agreed to dismiss that counterclaim with prejudice, but then later sought a dismissal without prejudice.  The insurer opposed the later effort, and the court ruled for the insurer, dismissing the bad faith count with prejudice.

Among other reasons given, the court found that the underlying plaintiff had no standing to bring such a claim because there was no privity between that plaintiff and the defendant’s insurance company.  Nor was there an assignment from the insured to the injured plaintiff, and the court made clear that a “third party may not maintain a bad faith action against a tortfeasor’s insurer without first obtaining an assignment from the tortfeasor.” Thus, this was not a technical defect that could be cured, and dismissal with prejudice was warranted.

Date of Decision: July 15, 2015

Westport Ins. Corp. v. Mylonas, CIVIL ACTION NO. 14-5760, 2015 U.S. Dist. LEXIS 92039 (E.D. Pa. July 15, 2015) (Slomsky, J.)