JUNE BAD FAITH CASES PENNSYLVANIA’S PUBLIC POLICY DOES NOT FORBID ALL LIABILITY POLICIES FROM COVERING CONTRACT BASED CLAIMS (Philadelphia Federal)

     

In Verticalnet, Inc. v. U.S. Specialty Insurance Co., the U.S. District Court for the Eastern District of Pennsylvania decided that in the absence of a policy exclusion for contract-based claims in a Directors, Officers and Corporate Liability Policy, Pennsylvania’s public policy does not bar coverage for a claim that arises for a contractual duty.  Defendant-insured, in the underlying action, was sued for failing to timely perform a series of contractually promised acts.  The insured submitted the claim to the insurer, however, the insurer contended that the insurance policy did not cover the insured’s contractual obligations.  Thereafter, the insured filed an action asserting breach of contract and bad faith.  The policy did not contain a contractual liability exclusion, however, it provided that the insurer will pay for a “loss arising from claims” and “loss” does not include matters which are uninsurable under the law pursuant to which the policy is construed.  The insurer filed a motion for summary judgment contending that Pennsylvania public policy barred liability coverage for contractual breaches and, therefore, the insured’s claim was “uninsurable” under Pennsylvania law.  The Court, finding no Pennsylvania case law that declared insurance coverage for all contract based claims as against public policy, denied the insurer’s motion for summary judgment. 

Date of Decision: May 21, 2007

Verticalnet, Inc. v. U.S. Specialty Insurance Co., United States District Court for the Eastern District of Pennsylvania, No. 06-4245, 2007 U.S. Dist. LEXIS 36945 (E.D. Pa. 2007) (Dalzell, J.)