Federal judge rules insurance company did not act in bad faith in prior litigation

By Nicholas Malfitano | Apr 20, 2016

Zurich American Insurance Company  

PHILADELPHIA – An insurance company did not act in bad faith when it represented the interests of a defendant in a prior lawsuit with one of its former employees, a federal court ruled Monday.

Judge Gerald J. Pappert of the U.S. District Court for the Eastern District of Pennsylvania stated Zurich American Insurance Company would be granted its motions for dismissal, and plaintiff Steve Leboon of Perkasie would be denied his motions for sanctions against the company.

Leboon’s lawsuit, filed last October, is based on Zurich’s alleged conduct while defending a prior suit that Leboon brought against his previous employer, Alan McIlvain Company. Leboon alleges Zurich, as Alan McIlvain’s liability insurance provider and counsel, “failed to make any offers of good faith to settle that case” and “used 100 percent of the liability policy for themselves instead of for Leboon.”

Zurich responded with the filing of a dismissal motion in January, which Leboon countered motions for sanctions related to alleged improper service of that same dismissal motion.

“The certification accompanying Zurich’s opposition to Leboon’s motion for sanctions ‘certifies that the within response to plaintiff’s motion for sanctions has been…served on this date via certified mail, return receipt requested,” Pappert said. “Those certifications are sufficient to establish the “presumption of regularity…that the addressee received the pleading.”

According to Pappert, Leboon has “not provided any supporting evidence to overcome the rebuttable presumption that he received Zurich’s motion to dismiss and its opposition to his motion for sanctions”, such as a change of address or fault on the part of the post office.

“His bare assertions that he never received Zurich’s filings are insufficient and his motions for sanctions, which are based on Zurich’s non-compliance with [Federal] Rule [of Civil Procedure] 5 are without merit,” Pappert said. “Leboon’s motions for sanctions are denied.”

Pappert described Leboon’s bad faith claims as resting upon the allegation that Zurich refused to settle a prior action that he brought against Alan McIlvain, but noted that suit was dismissed with prejudice after Leboon failed to appear at trial. This same dismissal was later upheld by the U.S. Court of Appeals for the Third Circuit, who found Leboon “was personally responsible for causing the mistrial, had acted willfully and in bad faith, and was unlikely to succeed on the merits.”

“The insurance that Zurich provided to Alan McIlvain is a liability policy covering ‘all loss for which the insured persons are not indemnified by the company and which the insured persons become legally obligated to pay on account of any claim first made against them,” Pappert said.

“It also contains ‘Company Reimbursement Coverage’ and ‘Employment Practices Company Liability Coverage’ which provide for similar coverage in the event that Alan McIlvain ‘becomes legally obligated to pay on account of any claim first made against them.’ The insured is defined as Alan McIlvain and any “elected or appointed officer or manager of the company,” Pappert said.

Pappert concluded, “Leboon is not an insured within the meaning of the policy. To the contrary, he was an adversary of the insured – who Zurich had ‘the right and duty’ to defend. Since Zurich’s fiduciary duties ran solely to the insureds, Leboon was a “stranger to the relationship between the insured and the insurer” and Zurich owed no duties to him to settle.”

At that point, Pappert dismissed Leboon’s complaint with prejudice.

The defendant is represented by Louis A. Bove of Bodell Bove, also in Philadelphia.

U.S. District Court for the Eastern District of Pennsylvania case 2:15-cv-05904

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nickpennrecord@gmail.com

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