SEPTEMBER 2007 BAD FAITH CASES FEDERAL COURT RETAINS JURISDICTION OVER BAD FAITH ACTION EVEN THOUGH PARALLEL GARNISHMENT PROCEEDING IS PURSUED IN STATE COURT (Philadelphia Federal)

    

In Blum v. St. Paul Travelers Insurance Company, the Court was confronted with the issue of simultaneous litigation in both state and federal courts involving the same parties and stemming from the same dispute.  Plaintiffs initially sued John Wojnar Builder/Contractor in November 2002 in the Court of Common Pleas of Bucks County alleging that it had negligently constructed a house for the plaintiffs.  On February 10, 2005 a judgment was entered against Wojnar for $96,258.02 in the state court proceeding.  St. Paul subsequently denied coverage under the Wojnar policy and plaintiffs initiated garnishment proceedings against St. Paul.  In response to plaintiffs’ garnishment interrogatories St. Paul asserted that there was no coverage under the Wojnar policy because the alleged negligence occurred after the policy had lapsed.   

On March 29, 2007, under an assignment of rights, plaintiffs filed a Complaint against St. Paul, in the United States District Court for the Eastern District of Pennsylvania, alleging bad faith.   Specifically, plaintiffs allege that St. Paul acted in bad faith by refusing to make a settlement offer in the state court proceeding and subsequently denying coverage.  St. Paul filed a motion to dismiss plaintiffs’ Complaint arguing that the Court should refrain from exercising jurisdiction over the matter since there already existed a state court proceeding which involved the same issues.  St. Paul argued that the issues in both cases involved the seminal question of whether Wojnar was covered under the policy issued by St. Paul.  Conversely, plaintiffs argued that the issues in both cases were different since a bad faith cause of action is distinct from a garnishment proceeding and entitles plaintiff to remedies that are not available in a garnishment proceeding, including punitive damages and attorneys fees. 

The Court held that although the state and federal cases were similar, the claims were distinct.  The Court asserted that the central issue in the state court proceeding was whether St. Paul must provide Wojnar with coverage for the state court judgment while the key issue in the federal dispute was the manner in which St. Paul conducted itself during the litigation of the state court claim.  Accordingly, the Court denied St. Paul’s motion to dismiss plaintiffs’ bad faith complaint. 

Date of decision: July 26, 2007

Blum v. St. Paul Travelers Ins. Co., United States District Court for the Eastern District of Pennsylvania, No. 07-1268, 2007 U.S. Dist. LEXIS 55213 (E.D.Pa. July 26, 2007) (Padova, J.)

J.T.L.