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Post v. St. Paul Travelers Insurance Co.

May 21, 2009

BENJAMIN POST PLAINTIFF,
v.
ST. PAUL TRAVELERS INSURANCE CO., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Anita B. Brody, J.

MEMORANDUM

I. INTRODUCTION

On February 7, 2008, Plaintiff Benjamin Post ("Post") filed an amended complaint against St. Paul Travelers Insurance Company ("St. Paul) alleging Breach of Contract (the insurance policy), Breach of Contract (agreement to pay the costs of the sanctions proceeding), Bad Faith Refusal to Provide Insurance Coverage, Promissory Estoppel, and asking for a Declaratory Judgment. On January 7, 2009, I granted Post's Motion for Summary Judgment with respect to Count I (Breach of Contract (the insurance policy)) and Count V (Declaratory Judgment).*fn1 On February 9, 2009, with the Court's permission, St. Paul renewed its Motion for Summary Judgment as to Count III, asking for a dismissal of Post's claim for bad faith refusal to provide insurance coverage. On March 31, 2009, I granted St. Paul's renewed summary judgment motion. On April 10, 2009, Post filed a Motion for Reconsideration and to Alter Judgment asking the Court to reconsider its decision granting summary judgment to St. Paul on Count III (Bad Faith Refusal to Provide Insurance Coverage).

II. BACKGROUND

The facts of this case were laid out in my two previous opinions (Docs. # 86 and 109).

III. SUMMARY JUDGMENT STANDARD

Summary judgment must be granted if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). Facts are material if they might affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine issue exists when the evidence is such that a reasonable jury could return a verdict in favor of the non-moving party. Id. at 248-52.

Summary judgment is appropriate as a matter of law when the non-moving party has failed to make an adequate showing on an essential element of his case, as to which he has the burden of proof at trial. Cleveland v. Policy Mgmt. Sys. Corp., 526 U.S. 795, 804 (1999). To overcome a summary judgment motion, a plaintiff may not rely on allegations or denials; a plaintiff must set out specific facts showing a genuine issue for trial. Fed. R. Civ. P. 56(e).

IV. DISCUSSION

Post contends that the Court erred in three ways: 1) by ignoring the legal significance of St. Paul's misconduct and ignoring a dispute of material fact over whether St. Paul's conduct was reasonable; 2) by mischaracterizing the plaintiff's position; and 3) by issuing summary judgment before the completion of discovery that could affect the motion.

First, Post contends that the Court erred by ignoring the legal significance of St. Paul's misconduct and whether or not this conduct was reasonable. I previously held that St. Paul did not act in bad faith in denying coverage of the sanctions petition because they had a reasonable basis for denying coverage and I granted summary judgment in St. Paul's favor as to Count III (Bad Faith Refusal to Provide Insurance Coverage.)

The insured is required to meet its burden of proving "bad faith" by clear and convincing evidence. Northwestern Mut. Life Ins. Co. v. Babayan, 430 F.3d 121, 137 (3d Cir. 2005). To recover for an insurer's bad faith under 42 Pa. Cons. Stat. Ann. § 8371, a plaintiff must satisfy a two-prong conjunctive test: 1) the insurer did not have a reasonable basis for denying coverage and 2) the insurer knew or recklessly disregarded its lack of a reasonable basis when it denied coverage. Greene v. United Servs. Automobile Ass'n., 936 A.2d 1178, 1189 (Pa. Super. Ct. 2007) (emphasis added). "[T]he motive of self-interest or ill will" of the insurer, while not a third element, "is probative of the second element...." Id. at 1190-91 (internal quotation marks omitted). St. Paul's alleged misconduct and ill will, that Post describes at length, are relevant to determine whether or not St. Paul knew or recklessly disregarded a lack of a reasonable basis for denying coverage. In other words, an insurer's misconduct, failure to investigate, and violations of regulations may all be relevant to a court's determination of whether or not the insurer acted in bad faith by denying coverage if the insurer did not have a reasonable basis for denying said coverage. The fact remains that St. Paul had a reasonable legal basis for denying coverage, and this is all that is needed to defeat a claim of bad faith. J.C. Penney Life Insurance Company v. Pilosi, 393 F.3d 356, 367 (3d Cir. 2004). The Third Circuit clearly stated that misconduct alone is not sufficient to find bad faith; the insured must show that the insurer lacked a reasonable basis to deny coverage. Id.

Post further claims that whether or not St. Paul's conduct was reasonable is a question of fact for the jury. The issue, however, is not if St. Paul's conduct was reasonable, but whether or not St. Paul had a reasonable legal basis for denying coverage. Because I previously found that they did, I deny Post's Motion for Reconsideration as to St. Paul's denial of insurance coverage for the sanctions petition.

Second, St. Paul claims that the Court misunderstood Post to be arguing that St. Paul acted in bad faith only in denying coverage for the sanctions petition, when in truth St. Paul also acted in bad faith in denying coverage for Mercy's malpractice claim. As St. Paul points out, this argument is made with the benefit of hindsight and is not an argument that was previously presented to the Court. In Post's prior filings, including his amended complaint, Post does not allege that St. Paulaffirmatively denied coverage for Mercy's malpractice claim.*fn2 Instead, in Count III (Bad Faith Refusal to Provide Insurance Coverage) as well as in subsequent filings, Post alleges that St. Paul failed to acknowledge, investigate, and evaluate Mercy's malpractice claim. Additionally, Post never ...


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