By William T. Barker & Ronald D. Kent, Partners, SNR Denton
In Post v. St. Paul Travelers Insurance Co., 691 F.3d 500 (3d Cir. 2012), the Third Circuit, discussing a prior, nonprecedential Third Circuit case, Gallatin Fuels, Inc. v. Westchester Fire Ins. Co., 2007 U.S. App. LEXIS 19069 (3d Cir. 2007), suggested that, in some circumstances, Pennsylvania law would impose bad faith liability even where no policy benefits were improperly denied or delayed. This commentary concludes that, despite some dicta supporting that suggestion, there appears to be no precedential case actually imposing such liability under Pennsylvania law. Nor should there be such a case.
This suggestion was made in the course of rejecting an argument that Travelers could be held liable for bad faith conduct in adjusting the claim, even though the court found its coverage position reasonable (though partially incorrect). The court approvingly discussed a nonprecedential decision in Gallatin Fuels, Inc. v. Westchester Fire Insurance Co., which had affirmed a bad faith award where there had been no coverage, but distinguished that case from Post. The commentary explains that the Post court described Gallatin Fuels as follows:
In [Gallatin Fuels], both the insurer and the insured mistakenly believed that the insurance policy remained in full force when, in fact, the policy had been canceled. Before realizing that the policy had been canceled, however, the insurer denied the insured's claim without a reasonable basis. The insurer also "misrepresented the terms of the policy, dragged its feet in the investigation of the claim, hid information from [the insured], and continued to shift its basis for denying the claims." Based on these facts, we held that "a jury could have found-and, indeed, did find-that [the insurer] acted in bad faith given its working assumption that the policy had not been canceled." Because of the misrepresentations and dishonesty of the insurer in denying the claim without a reasonable basis for doing so (though there was a reason about which the insurer did not yet know), we cautioned that Gallatin Fuels was "one of the exceedingly rare cases in which an insurer can be liable for bad faith" even though there was no duty to provide coverage.
The commentary reviews the law elsewhere on bad faith without coverage, noting that most jurisdictions preclude such liability. But it also notes that a few jurisdictions do or may allow such liability and critically reviews the reasoning on which that is allowed. The commentary then reviews Pennsylvania bad faith law, which at least severely restricts the circumstances in which there might be bad faith liability without coverage. The commentary concludes:
Gallatin Fuels is both nonprecedential and poorly reasoned. It is not supported by any other Pennsylvania cases and is contrary to the great weight of authority in other states. The approving comments in Post are all dictum, because the court did not follow or rely on Gallatin Fuels in its disposition of the case. A reasonably thorough, but not exhaustive search has found no other case imposing bad faith liability under Pennsylvania law in the absence of coverage. Gallatin Fuels and the approving dicta in Post ought not to be followed by other courts.
William T. Barker is a member of SNR Denton's Insurance Litigation & Coverage Practice Group and practices in the firm's Chicago office. He has a nationwide practice in the area of complex commercial insurance litigation, including coverage, claim practices, sales practices, risk classification and selection, agent relationships, and regulatory matters. He is the co-author, with Ronald D. Kent of The New Appleman Insurance Bad Faith Litigation, Second Edition and with Charles Silver of the forthcoming Professional Responsibilities of Insurance Defense Counsel; he has written over 100 published articles on insurance and litigation subjects. He has been described as "[t]he leading lawyer commentator" on the relationships between insurance and civil procedure. Charles Silver & Kent Syverud, The Professional Responsibilities of Insurance Defense Lawyers, 45 Duke L.J. 255, 257 & n.4 (1995). He is an Adviser to the American Law Institute project on Principles of the Law of Liability Insurance. He is a member of the Editorial Board of The New Appleman on Insurance Law Library Edition and The New Appleman Insurance Law Practice Guide. He is Editorial Board Director and Senior Contributing Editor of Insurance Litigation Reporter and a member of the Board of Editors of Defense Counsel Journal.
Ronald D. Kent heads the Litigation Department in SNR Denton LLP's Los Angeles office. He is also Co-Chair of the Firm's National Insurance Litigation and Coverage Practice and is a member of the firm-wide Policy & Planning (Management) Committee. Since 2005, he has been named each year as a leading trial lawyer nationally and in California, based on peer and client evaluations, by Chambers USA: America's Leading Lawyers, the highly respected independent attorney rating organization. Mr. Kent has extensive experience representing major insurance companies on a wide variety of matters, including fraud and bad faith actions, class action and multiple plaintiff litigation, defense of toxic tort and other environmental claims, insurance coverage actions and general business disputes. Mr. Kent has tried matters in state and federal courts throughout California, and in other states, and has successfully handled in excess of 70 arbitrations to final resolution. In addition, he has briefed and argued numerous appellate matters in the California Supreme Court, nearly all California district courts of appeal and the Ninth Circuit Court of Appeals. Mr. Kent is the co-author of the second edition of New Appleman Insurance Bad Faith Litigation.
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