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Insurance Law

: INSURANCE LAW NOTES

The Good News and the Bad News on Bad Faith

By Richard T. Victoria

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I have been less than prolific these last few months, but it was summer and, more recently, the Steelers have been playing and winning and diverting my attention from insurance law. That being said, today it is cold, summer is over, and it is time once again to focus on the Law.

Perhaps my most egregious dereliction of duty this summer is failing to mention the PA Supreme Court's opinion in Toy v. Metropolitan Life Ins. Co. (with concurring and dissenting opinions). Boiling down this very long and interesting discussion of insurance bad faith law and its history to its essential insurance holdings, Toy sets forth two holdings, one favoring insurers and one favoring policyholders.

First, the PA Supreme Court held that PA's bad faith statute, 42 Pa.C.S.A. 8371, does not apply to claims alleging that an insurer engaged in deceptive of unfair conduct in soliciting the insured to purchase an insurance policy. Keep in mind that this does not mean that there is no means of relief for a party that was deceived or mistreated by an insurer or broker selling an insurance policy, just that the bad faith statute does not apply. In fact, claims of fraud in the inducement or violations of Pennsylvania's Unfair Trade Practices and Consumer Protection Law (UTPCPL) seem perfectly applicable.

The other significant portion of the holding relates to claims brought under the UTPCPL. Without getting into a lengthy discussion of this law, one of the elements required to prevail on a UTPCPL claim is "justifiable reliance" upon some information, statement, representation, etc. that misled or deceived the policyholder. In this regard, the PA Supreme Court advised that the insured's failure to read an insurance contract does not alone preclude the insured from arguing that it justifiably relied upon misrepresentations fraudulently omitted from the written insurance contract. Thus, even if an insurance policy contradicts some prior misrepresentation regarding the contents of the policy, the fact that the insured did not read the policy does not defeat a claim that the insured "justifiably relied" upon the misrepresentation in purchasing the policy.

Still, please read your policies...or hire someone (like me) to do it for you.

Full post as published by INSURANCE LAW NOTES on October 11, 2007 (boomark / email).