Judge Eduardo C. Robreno of the United States District Court for the Eastern District of Pennsylvania recently ruled for an insurance company represented by Dan Ryan in a breach of contract and bad faith action. The insurance company had previously denied coverage to a lawyer after he failed to timely report a claim under his claims-made insurance policy.
The lawyer had represented a woman whose son drowned while swimming near an unsupervised beach. The lawyer timely filed a wrongful death action but failed to comply with the notice requirements of the New Jersey Tort Claims Act. The action was dismissed and an appeal was unsuccessful, also for procedural reasons.
Meanwhile, the lawyer renewed his insurance policy and verified that he was aware of no circumstance which could “reasonably support” a claim against him. By that time, the action he filed had been dismissed. The lawyer alleged that his client said that she did not intend to sue him.
The client did file a legal malpractice action against the lawyer. He reported the claim to the insurance company which denied coverage on the basis that the claim arose before the policy period in which it was reported. The lawyer defended the legal malpractice action at his own expense and prevailed. He then initiated an action against the insurance company seeking reimbursement of his defense costs as well as damages under the Pennsylvania bad faith statute, including costs, fees, and punitive damages. At the end of discovery, both sides moved for summary judgment.
The insurance company’s motion for summary judgment was granted and the lawyer’s motion for summary judgment was denied. Judge Robreno held that the phrase “reasonably support” was not ambiguous. Next, Judge Robreno applied the hybrid subjective/objective test advocated by Mr. Ryan and Mr. Brien and found that the lawyer was aware that the underlying action was dismissed on procedural grounds and that a reasonable attorney would believe that failure to comply with a statute of limitations could be grounds for a legal malpractice claim. Therefore, the lawyer should have reported the claim when he renewed the insurance policy. Judge Robreno further held that the insurance company was not required to prove prejudice.
Finally, Judge Robreno found that the lawyer’s claim for bad faith failed as a matter of law because he produced no evidence rebutting the denial letter from the insurance company which noted specific provisions of the insurance policy and how the lawyer’s actions constituted a violation of the policy.
Judge Robreno’s ruling was a complete victory for the insurance company represented by Mr. Ryan and Mr. Brien.
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