OCTOBER 2012 BAD FAITH CASES: COURT GRANTS SUMMARY JUDGMENT TO CARRIER ON BAD FAITH CLAIM BECAUSE IT DEFENDED INSUREDS UNDER A RESERVATION OF RIGHTS AND RECOMMENDED THAT THE INSURED HIRE PERSONAL COUNSEL (Philadelphia Federal)

In Clunie-Haskins v. State Farm Fire & Cas. Co., the court heard a carrier’s motion for summary judgment that was filed in response to a breach of contract and bad faith suit filed by an insured’s assignees. This case stemmed from a sexual assault perpetrated by the insureds. In 2000, the two individuals allegedly assaulted an eleven-year old girl at a sporting event. The victim successfully sued the assailants for assault and battery. The carrier initially defended the insureds under a reservation of rights, pursuant to homeowners insurance policies issued to their parents. However, the carrier later ended its defense of the litigation on behalf of the insureds.
The assailants assigned any potential rights against the carrier to the victim and her mother, who sued the carrier for breach of contract and bad faith in late 2011. Thereafter, the carrier removed the case to federal court and filed the instant motion for summary judgment.
The court first examined the assignees breach of contract claim, which alleged that the carrier had a duty to defend and indemnify the insureds under homeowners policies issued to the assailants’ parents. The carrier pointed to a November 2003 order issued by the Philadelphia Court of Common Pleas in the underlying litigation, which held that the carrier had no duty to indemnify the insureds. Although the carrier did defend the insureds, it did so under a reservation of rights. The assignees disagreed, arguing that the complaint alleges breach of contract for acts occurring after November 2003. However, the court sided with the carrier, finding the November 2003 order applicable and that it precluded a suit for breach of contract.
Next, the court turned to the assignees’ bad faith claims. The assignees argued that the carrier’s continued defense, after the November 2003 order, and subsequent withdrawal after the Supreme Court of Pennsylvania prevented the insureds from asserting a particular defense in the assault and battery litigation, amounts to bad faith. The carrier disagreed, arguing that it provided a successful defense for many years, subject to a reservation of rights. Moreover, the carrier continuously recommended that the assailants hire their own counsel due to the potential for personal liability. The court found for the carrier, ruling that, without a duty to indemnify or defend, the carrier did not act in bad faith by refusing to continue representation.
The court also ruled that the carrier did not act in bad faith during the underlying litigation, recognizing that the carrier repeatedly advised the assailants to procure personal representation. As such, the carrier did not “unilaterally direct” the litigation in bad faith because it reminded the insureds of their rights throughout the entire process.
As such, the court ruled in favor of the carrier, awarding summary judgment and dismissing the suit.
Date of Decision: March 2, 2012
Clunie-Haskins v. State Farm Fire & Cas. Co., 855 F. Supp. 2d 380 (E.D. Pa. 2012)