Eastern District Federal Court Judge Allows Bad Faith Claim To Proceed Based Upon Carrier's Reliance Upon Household Exclusion

In the case of Smith v. AAA Interinsurance Exchange of the Automobile Club, No. 20-768 (E.D. Pa. May 6, 2020 Moore Wells, M.J.), a Federal District Court Magistrate Judge denied a Motion to Dismiss a Breach of Contract and Bad Faith Claim arising out of UIM matter. 

According to the Opinion, the carrier's denial of the claim was based solely upon the policy’s household exclusion. It was noted that, months before this issue came before this court, the Pennsylvania Supreme Court had generally eradicated the household exclusion’s application under Pennsylvania law under similar circumstances at issue in the case of Gallagher v. Geico. 

The court denied the Motion to Dismiss after finding, in part, that the carrier was fully on notice that the household exclusion was invalid under Pennsylvania under the circumstances presented. The court also noted that the record indicated that the insured’s counsel has brought the issue of the eradication of the household exclusion to the carrier’s attention when the claim before the coverage decision was made. 

The Federal District Magistrate Judge rejected the carrier’s argument that the Gallagher decision only applied to the unique facts at issue in the Gallagher case. 

The court otherwise found that the Complaint contained sufficient facts to support an allegation that the carrier did not engage in reasonable investigation efforts prior to denying the coverage. In this regard, the court noted that the carrier had denied the claim eleven (11) days after it was presented and had not otherwise produced any contrary medical documents or required a medical examination. 

Anyone wishing to review a copy of this decision may click this LINK .

I send thanks to Attorney Lee Applebaum for bringing this case to my attention through his excellent Pennsylvania and New Jersey Insurance Bad Faith Case Law blog.