NOVEMBER 2015 BAD FAITH CASES: COURT GRANTS SUMMARY JUDGMENT SUA SPONTE FOR INSURER ON INSURED’S BAD FAITH COUNTERCLAIMS AFTER FINDING INSURER HAD NO DUTY TO DEFEND OR INDEMNIFY (Philadelphia Federal)

In Everest Indemnity Insurance Company v. Valley Forge, Incorporated, the court considered cross-motions for summary judgment filed by an insurer and insured regarding a duty to defend issue.

In the underlying action, the insured, a Pennsylvania corporation that “operates a facility for the receipt and processing of a variety of materials, including concrete, asphalt, timber, and uncontaminated soil,” was sued by the Commonwealth of Pennsylvania regarding unsightly mulch piles that had built up at the insured’s facility. The insured demanded that the insurer defend it against claims asserted in the underlying action, and the insurer responded by denying that the allegations triggered a duty to defend. The insurer initiated this action seeking a declaratory judgment that it did not have a duty to defend or indemnify the insured in the underlying action, and the insured responded by asserting counterclaims for declaratory judgment, breach of contract, and bad faith.

The court ultimately found that the mulch piles were a public nuisance, and accordingly, the factual allegations regarding the alleged harm caused by the piles could not constitute “property damage” or “loss of use” that would trigger coverage under the policy. Because the insurer did not have a duty to defend, it could not be found to have a duty to indemnify. The court denied the insured’s motion for summary judgment and granted the insurer’s motion for summary judgment.

Further, because the court found for the insurer on both the duty defend and duty to indemnify issues, it sua sponte granted summary judgment in favor of the insurer on the insured’s counterclaims for breach of contract and bad faith, as there could be no such claims since the insurer had neither a duty to defend or indemnify the insured in the underlying action.

Date of Decision:  October 15, 2015

Everest Indem. Ins. Co. v. Valley Forge, Inc., CIVIL ACTION NO. 15-593, 2015 U.S. Dist. LEXIS 140277 (E.D. Pa. October 15, 2015) (Dalzell, J.)