OCTOBER 2010 BAD FAITH CASES
BAD FAITH CANNOT EXIST WHEN INSUREDS BRING CLAIM FOR BREACH OF ANNUITY CONTRACTS INSTEAD OF INSURANCE CONTRACTS (Philadelphia Federal)
In Prusky v. Allstate Life Insurance Company, the insureds purchased annuity contracts from the insurer. The contracts permitted the value invested to be apportioned in various subaccounts at the direction of the insureds, and the insureds were allowed to transfer assets between and among the subaccounts to take advantage of market fluctuations. However, soon after the contracts were formed, the insurer began to impose different restrictions on transfers between accounts. The insurer eventually notified the insureds that one of their subaccounts was closed to new premiums or transfers and that they would be restricted with new premium allocations and transfers into three other subaccounts to a maximum of $50,000 per day.
The insureds filed a Complaint, asserting that based on the contracts, the insurer was not permitted to impose transfer limitations on the annuity contracts. They claimed that they were induced to purchase the annuity contracts by representations of the insurer that transfers would be unrestricted, and that the insurer knew that they would not have purchased the contracts had they not had the ability to have unlimited daily transfers among subaccounts.
The Complaint contained counts for breach of contract, fraud, and bad faith among other things. The court determined that at the pleading stage, it was too early to dismiss the counts for breach of contract and fraud. However, in addressing the bad faith claim, the court stated that Pennsylvania’s Bad Faith statute, 42 Pa. C.S. § 8371, only provides remedies for an action arising under an insurance policy. In this case, the insureds alleged that the insurer breached contracts for annuities, not insurance. It held that “while annuities contracts are regulated by the Pennsylvania Insurance Commission, they are not insurance policies.” It would be impossible to grant relief to an insured for an insurer violating the bad faith statute of the policy is not an insurance policy. Therefore, the court had no choice but to grant the insurer’s motion to dismiss the bad faith count of the Complaint.
Date of Decision: Sept. 30, 2010
Prusky v. Allstate Life Ins. Co., Civil Action No. 09-cv-05156, United States District Court for the Middle District of Pennsylvania, 2010 U.S. Dist. LEXIS 105864, (Sept. 30, 2010) (Ditter, Jr., J.)