SEPTEMBER 2006 BAD FAITH CASES PLAINTIFF SUFFICIENTLY ALLEGED BAD FAITH TO WITHSTAND DISMISSAL (Philadelphia Federal)

In MP III Holdings, Inc. v. The Hartford, Plaintiffs, an insured and its corporate officers, filed against Defendant insurer claims for breach of contract and bad faith refusal to defend in litigation in Pennsylvania, Delaware and Texas.  Defendant moved to dismiss Plaintiff’s bad faith claims under Federal Rule of Civil Procedure 12(b)(6).  The United States District Court for the Eastern District of Pennsylvania stated that to assert a viable bad faith claim, Plaintiff must allege two elements:  (1) that the insurer lacked a reasonable basis for denying benefits; and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis.  Because the Court looked to the allegations on the face of Plaintiff’s Complaint and found Plaintiff had alleged the requisite facts, Defendant’s motion to dismiss the bad faith counts was denied.  Plaintiffs had alleged that the carrier had refused to pay the underlying defense costs in two of three actions brought against the insureds; that it lacked a reasonable basis in law or fact for denying coverage in those cases; that it knew or should have known that it had a duty to defend as a matter of law; and that this constituted bad faith.  This was sufficient to withstand summary judgment, though the Court stated that the issue of reasonableness could be revisited on a summary judgment motion after the end of discovery.

Date of Decision:  September 14, 2006

MP III Holdings, Inc. v. The Hartford, United States District Court for the Eastern District of Pennsylvania, No. 05-1569, 2006 U.S. Dist. LEXIS 65667 (E. D. Pa. Sept. 14, 2006) (Shapiro, J.)