Once again, a Court has decided that where there is no Coverage, there is no Bad Faith. This time the decision came in the context of "an insurance coverage action" in which Suffolk Federal Credit Union alleged that CUMIS Insurance Society breached the terms of a Fidelity Bond it issued to Suffolk. Suffolk's claim was based on "fraud committed by [Suffolk Federal Credit Union's] loan servicer". Suffolk Federal Credit Union v. CUMIS Insurance Society, 2012 WL 6563111 *1 (E.D.N.Y. December 15, 2012).
The Federal Court determined that the loan servicer did not qualify as a "servicing contractor" within the terms of the Fidelity Bond; therefore, the credit union has no Coverage claim under the Bond as alleged. Since there is no Coverage under the Fidelity Bond, there is no Bad Faith handling of Suffolk's claim under the Bond. The Federal Judge therefore denied as "futile" Suffolk's Motion for Leave to Amend its Complaint to include a claim for "Bad Faith" claim handling by CUMIS. Suffolk Federal Credit Union v. CUMIS Insurance Society, 2012 WL 6563111 *16 (E.D.N.Y. December 15, 2012).
No Insurance Coverage, no Insurance Bad Faith. The holding in this case is in line with the majority view on this issue. See Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" ยงยง 3:105 ("'Bad Faith' Liability Without Coverage: Third Party") & 9:25 ("'Bad Faith' Liability Without Coverage: First Party") (Third Edition West, 2012 Supplement).
Some of the Coverage issues in the Suffolk Federal Credit Union decision are explored in a post soon on Westlaw Insider Blog.
Merry Christmas and Happy Holidays to All in 2012, and a Happy New Year to All in the year to come!
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