JUNE 2010 BAD FAITH CASESBAD FAITH ALLEGATION SURVIVES MOTION TO DISMISS WHEN INSUREDS ALLEGE DAMAGES FROM INSURER’S FAILURE TO PERFORM ITS DUTY UNDER A POLICY (Western District)

In Fitzpatrick v. State Farm Insurance Companies, one of the insureds was in two automobile accidents in which he was seriously injured.  The insureds maintained a motor vehicle insurance policy that provided for medical benefits as well as underinsured motorist benefits of $1 million per person, stacked, covering two vehicles.

After making a demand of $1.75 million, the insureds settled their claims for $915,000, but they alleged that the insurer failed to fairly settle the claims.  They clamed that the insurer failed to act in good faith by prolonging the process and making offers substantially less than the full value of their claims.

The insurer’s Motion to Dismiss did not specifically call for dismissing the bad faith claim, but it did include the breach of contract claim, which if dismissed would also eliminate the bad faith claim because there is no independent action for bad faith with insurance contracts.  The court determined that the insureds’ bad faith claim was based on the insurer’s contractual duty to act in good faith when handling their claim.  The complaint alleged that the insurer did not follow duty, and it also alleged damages resulting from this breach of duty.  This was a sufficient pleading of a breach of contract.

The court also cited another case in which the court determined that “there is no reason to limit damages to the amount of the verdict where the insured can show that the insurer’s bad faith conduct caused it additional damages.”  Birth Center v. St. Paul Companies Inc., 567 Pa. 386, 400 (2001).  Because it is possible for a court to award damages in excess of the settlement amount and the insureds sufficiently pled a breach of duty to act in good faith, the breach of contract count (and the accompanying bad faith count) survived the Motion to Dismiss.

Date of Decision:  May 24, 2010