... Majority View.
A post published here on August 19, 2010 explored a California Court's rejection of California's "Genuine Dispute Rule" in a Bad Faith Case against a Liability Insurer and also involving a dispute over Insurance Coverage. The present post examines the Majority View that Insurance Coverage can present a "Good Faith Dispute" Defense to Bad Faith Claims, at least in First-Party Cases.
In a case which presented Tortious Breach of Good Faith (i.e., First-Party Bad Faith) Claims, a Federal Court applied the Majority Rule and held that "a good faith dispute" over whether the underlying claim was covered can be a complete Defense. Given the record in that particular case, the Defendant Fire Insurance Company's Motion for Summary Judgment was denied as a Jury Issue was presented. Keten v. State Farm Fire & Cas. Co., Download Keten v. State Farm Fire and Casualty Co. (N.D. Ind. Case No. 2006.CV.341, Opinon and Order Filed March 29, 2010) PUBLIC ACCESS, also published as 2010 WL 1258198 *8 (N.D. Ind. March 29, 2010)(Westlaw subscription required to access Westlaw). The Online Docket of this case on Pacer reflects that a Settlement was reached at a Settlement Conference held on August 23, 2010.
Similarly, in a case involving a "business income loss coverage" claim (for Business Interruption Coverage), a Federal Court applied the same rule to a Statutory First-Party Bad Faith Claim and held that there was no Statutory Bad Faith Claim where "[i]t was reasonable" for the Defendant First-Party Insurance Company "to believe that coverage should be denied ...." Ski Shawnee, Inc. v. Commonwealth Insurance Co., Download Ski Shawnee, Inc. v. Commonwealth Insurance Co. (M.D. Pa. Case No. 2009.CV.02391, Memorandum and Opinion Filed July 6, 2010) PUBLIC ACCESS, also published as 2010 WL 2696782 *5 (M.D. Pa. July 6, 2010)(Westlaw subscription required to access Westlaw).
The great majority of the decisions in Bad Faith Cases in which Courts have recognized the Defense of Fairly and Reasonably Debatable underlying Claims, have come in First-Party Cases. Moreover, where the Defense is recognized, a majority of Courts also permits evidence of the reasonableness of the Insurance Company's position in contesting its Coverage for the underlying claim -- whether First-Party or Third-Party. See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 5:16 (Third-Party Settlement Claims), § 5:26 (Wrongful Refusal or Failure to Defend Claims), § 5:51 (Claims Based on Conduct of the Third-Party Insured's Defense), and § 11:17 (First-Party Bad Faith Claims) (Shepard's/McGraw-Hill First Edition; West Publishing Co. Second Edition and 2010 Supplement).
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