Monday, March 26, 2018

Federal Court Confirms Reinsurer Not An 'Insurer' Under Bad Faith Statute

In the case of Three Rivers Hydroponics, LLC v. Florists’ Mut. Ins.  Co., No. 15-809 (W.D. Pa. Feb. 20, 2018 Hornak, J.), the court held that, under the facts presented in this case, a reinsurer is not an “insurer” for purposes of the bad faith statute.  

In this matter, the insured initially filed a bad faith and breach of contract suit against its insurer.  The insured later filed an Amended Complaint alleging bad faith and breach of contract against the reinsurer.  

The reinsurer filed a Motion to Dismiss all claims.   The reinsurer argued that it was not an “insurer” for purposes of Pennsylvania’s Bad Faith Statute.  

The court ruled that “Pennsylvania law requires the Court to consider two factors when determining whether a party is an ‘insurer’ for the purposes of the bad faith statute: (1) the extent to which the company was identified as the insurer on the policy document; and, (2) the extent to which the company acted as insurer.”

In this case, the court found that the reinsurer was not listed anywhere on the policy documents.  Accordingly, under the first factor noted above, the court found that reinsurer was not a party to the policy between the insured and the insurer.  

With regards to the second factor, the court noted that “a party acts as an insurer when it ‘issues policies, collects premiums, and in exchange assumes certain risks and contractual obligations’.”

Here, the court found that the reinsurer was not the insured’s ‘insurer’ for purposes of the bad faith statute because it did not issue the policy to the insured, it did to collect premiums from the insured, it did not make any insurance payments to the insured, and it did not assume any risk or contractual obligations towards the insured.

Accordingly, the court dismissed the bad faith claim against the reinsured because that entity was not an ‘insurer’ for purposes of the bad faith statute.

The court additionally dismissed the breach of contract claim against the reinsurer as there was no contractual privity between the reinsurer and the insured.  

Anyone wishing to review this case may click this LINK.

I send thanks to Attorney Lee Applebaum, the writer of the excellent Pennsylvania and New Jersey Insurance Bad Faith Case Law Blog for bringing this case to my attention.  Check out Attorney Applebaum's blog HERE.

1 comment:

  1. I wonder whether the reinsurer gets hooked in the end if it provided XPL (loss in excess of limits) and ECO (extra contractual obligations) coverages. --- Frank Chmielewski,