In Brand v. AXA Equitable Life Insurance, Co., the insured filed a breach of contract and bad faith claim against his insurer, a reinsurer, and a third party administrator after his claim for total disability was denied. The insured had a disability insurance policy issued by the insurer. The insurer then contracted with another carrier for a 100% indemnity reinsurance agreement for the entirety of the insurer’s losses for its disability insurance policies. The contract did not assign or delegate to the reinsurer any of the insurer’s obligations to the insured under his disability insurance policy. The contract also did not expressly entitle the insured to recover directly from the reinsurer. The insurer and reinsurer then retained a third party administrator for every disability insurance policy issued by the insurer, including the policy issued to the insured. Like the reinsurer, the third party administrator did not directly assume any of the insurer’s obligations to the insured under his disability insurance policy.
Subsequently the insured was involved in a serious motor vehicle accident and began suffering from tinnitus. He submitted a claim of total disability under his policy in March 2006. The insurer failed to render a decision on the insured’s claim until April 4, 2008. The insurer advised the insured that he was entitled to only residual disability benefits, not total disability benefits under the policy.
The insured alleged breach of contract and bad faith by the insurer, reinsurer, and third party administrator for failing to provide him with total disability benefits. The insured alleged that defendants conduct in handling his insurance claim constituted a pattern of delay and harassment that entitles him to damages. The reinsurer and third party administrator filed motions to dismiss the claims. They alleged that the insured cannot bring breach of contract and bad faith claims against them because they are not in privity of contract with the insured
For the bad faith claim, the court had to determine whether the reinsurer and third party administrator were “insurers” for purposes of the bad faith statute. A party acts as an insurer when it issues policies, collects premiums and in exchange assumes certain risks and contractual obligations. The insured argued that the reinsurer and third party administrator qualify as insurers under the definition provided by Pennsylvania law. However, the court found that the reinsurer and third party administrator were never the insured’s insurers under the disability insurance policy sold by primary insurer to the insured. Neither party issued the policy to the insured, collected premiums from the insured, and the parties did not have a contractual relationship with the insured directly. The insurer did not assign or delegate any of their contractual obligations under its insurance contract with the insured to the reinsurer or the third party administrator. Therefore the court granted the motion to dismiss the bad faith claims against the reinsurer and the third party administrator.
Date of Decision: September 16, 2008
Brand v. AXA Equitable Life Ins. Co.,
United States District Court for the Eastern District of Pennsylvania No. 08-2859, 2008 U.S. Dist. LEXIS 69661 (E.D. Pa. Sept. 16, 2008)(Bartle, C.J.),