SEPTEMBER 2007 BAD FAITH CASES NO BAD FAITH WHEN INSURER HAS NO DUTY TO DEFEND OR INDEMNIFY(Philadelphia Federal)
In Prudential Property & Casualty Insurance Co. v. Boyle, the Court was confronted with coverage issues stemming from a homeowner’s policy and the insureds’ requests for a defense and indemnification from third-party claims stemming from the sale of a residential home. The insureds, the owners of property insured by Prudential, constructed a house on the property and then sold the property. About a year after the sale, the buyers filed suit against the insureds for various construction defects related to house. The insureds demanded that Prudential defend and indemnify them from the buyers’ claims. Prudential filed a declaratory judgment action seeking a determination that no coverage was warranted under the applicable homeowner’s policy. In response, the insured filed a counterclaim for breach of contract and bad faith.
After evaluating the third-party claims and the homeowner’s policy at issue, the Court held that there was no coverage under the policy and dismissed the insureds’ breach of contract claim. In so doing, the Court also dismissed the bad faith claim concluding that a bad faith claim cannot be sustained once it is determined that the insurer had good cause to refuse to defend.
Date of Decision: August 29, 2007