MARCH 2008 BAD FAITH CASES WHERE POLICY EXCLUSION APPLIED INSURER HAD NO DUTY TO DEFEND OR CONTRIBUTE TO SETTLEMENT, AND SO NO BAD FAITH; AND IT WAS NOT UNJUSTLY ENRICHED (Philadelphia Federal)

    

In Scottsdale Indemnity Company v. Hartford Casualty Insurance Company, the plaintiff-insurer brought a claim against defendant-insurer for its failure to contribute to an eventual settlement of their insured.  The insured was in the business of providing safety inspections services to construction companies.  Plaintiff-insurer provided the insured with a professional liability insurance policy, and the defendant-insurer provided the insured with a general liability insurance policy.  Insured was named as a defendant in a personal injury action where personal injury plaintiff was injured when he fell from a ladder at a construction site.  Personal injury plaintiff alleged that the insured had failed to properly inspect the construction site where the accident occurred.  The defendant-insurer denied coverage based on a professional services exclusion and a consulting services endorsement exclusion in the policy, but it provided a defense in light of the personal injury plaintiff’s allegations of general negligence.  Defendant-insurer and plaintiff-insurer allegedly had subsequent communications, via telephone and letter, regarding a joint defense.  The parties in the personal injury action had a settlement conference where the defendant-insurer notified the parties that it would not contribute to the settlement.  The other parties subsequently agreed to settle.  The plaintiff-insurer filed the present lawsuit setting forth four counts:  1) the defendant-insurer must reimburse plaintiff-insurer for some of the settlement amount; 2) the defendant-insurer breached its insurance contract; 3) the defendant-insurer acted in bad faith; and 4) the defendant-insurer was unjustly enriched.  Defendant-insurer filed a motion for summary judgment.  Plaintiff-insurer argued that the parties had entered into an enforceable agreement, via telephone and letter, to share the costs of defending insured.  The court noted that the letter had different terms than those of the phone conversation, and therefore concluded that there was no meeting of the minds or an enforceable agreement.  The defendant-insurer argued that coverage was excluded based on the professional services exclusion and the consulting services endorsement exclusion.  The court disagreed with the defendant-insurer as to the application of the professional services exclusion, but it agreed that the consulting services endorsement exclusion did apply because the insured’s liability in the personal injury action derived from a failure or error in the evaluation and consultation in the safety inspection.  Because the exclusion applied, the defendant-insurer had no contractual duty to defend or contribute to the settlement.  Because there was no duty, the defendant-insurer could not be liable for acting in bad faith nor was it unjustly enriched.  As a result, the court entered summary judgment in favor of the defendant-insurer on all counts.

Date of decision:  January 10, 2008

Scottsdale Indemnity Company v. Hartford Casualty Insurance Company, United States District Court for the Eastern District of Pennsylvania, Civil Action No. 06-5339, 2008 U.S. Dist. LEXIS 2454, (E.D. Pa. Jan. 10, 2008) (Buckwalter, S.J.)

 

R.E.M.