November 2015 Bad Faith Cases: Court Declines To Exercise Jurisdiction Over Coverage Dispute, And Remands Because Nature Of Insured’s State Claims Outweighed Presumption Of Jurisdiction (Philadelphia Federal)

In Rarick v. Federated Service Insurance Company, the court declined to exercise its discretionary DJA [Declaratory Judgment Act] jurisdiction over a suit filed by an insured against an insurer after applying the “heart of the matter” test to the insured’s claims for declaratory relief, breach of contract, and bad faith, and ultimately found that the novelty of the state law issues outweighed the rebuttable presumption in favor of jurisdiction.

The insured originally sought relief after sustaining injuries in a car accident he was involved in while driving a vehicle covered under a policy issued to the insured’s employer, the owner of the vehicle. The insurer denied the insured’s claim for recovery of uninsured motorist benefits on the basis that the insured did not fall under any of the categories of persons covered under the policy, and the insured filed the instant action.

The Judge issued an Order to Show Cause concerning the Court’s jurisdiction, and noted that the case involved claims for declaratory and coercive relief. Before reaching the merits of the case, the Judge observed that “federal courts must resolve questions of jurisdiction and justiciability.”

In determining whether jurisdiction was appropriate in this mixed claim action, the Court applied the “heart of the matter” approach. In doing so, the Court determined that because the essence of the claim was a declaratory judgment dispute, a rebuttable presumption in favor of jurisdiction existed to allow the Court to hear the insured’s bad faith and breach of contract claims, which depended on the resolution of the declaratory judgment claims.

The Court next determined whether good reasons existed for overriding the presumption in favor of jurisdiction. After considering eight factors enumerated the Third Circuit’s Reifer decision, the Court gave significant weight to one in particular, “the likelihood that a federal court declaration will resolve the uncertainty of obligation which gave rise to the controversy.”

The Court ultimately found that this factor weighed against retaining jurisdiction, “in light of the fact that [the insured] has raised additional claims beyond his request for declaratory relief.” Thus, because of the “nature and novelty of the state law issues” raised by the insured, specifically violations of the Pennsylvania Bad Faith Statute and whether the insurer’s failure to produce a valid Rejection of Uninsured Motorist Coverage as required by the Pennsylvania Motor Vehicle Financial Responsibility Law entitled the insured to coverage, the Court declined jurisdiction and remanded the case to the Court of Common Pleas of Philadelphia County.

Date of Decision:  September 28, 2015

Rarick v. Federated Serv. Ins. Co., CIVIL ACTION NO. 2:13-cv-03286, 2015 U.S. Dist. LEXIS 129860 (E.D. Pa. September 28, 2015) (Leeson, J.)