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Bad Faith Claim Viable Where Insurer Refused to Defend Following Adverse Ruling in Declaratory Judgment Action

Insurance Coverage

A Connecticut Superior Court, in Lincoln General Ins. Co. v Rodriguez, 2010 WL 5064463 (Conn. Super. Ct. Nov. 17, 2010), recently denied a motion to strike a bad faith claim where the insurer had sought and lost a declaratory ruling on the duty to defend and was pursuing an appeal of that decision. The insurer, Lincoln General Ins. Co. had filed a declaratory judgment action, seeking a judgment that it had no duty to defend its insured, Ambassador, for a wrongful death claim arising out of the insured sending a wheelchair van to transport the plaintiff decedent to weekly dialysis treatment. The plaintiff decedent had a heart attack and died while in the care of the insured’s driver.

In response to Ambassador’s motion for summary judgment in the declaratory judgment action, the court held that Lincoln did have a duty to defend Ambassador in the wrongful death action. When Lincoln continued to refuse to defend Ambassador pending Lincoln’s appeal of the adverse decision, Ambassador amended its counterclaim against Lincoln to include bad faith. In response to Lincoln’s motion to strike the bad faith count, the court concluded that Ambassador had stated an actionable claim for bad faith:

Ambassador has alleged that Lincoln has continued to refuse to defend Ambassador despite a court ordering it to do so. Such continued defiance is unlikely to be attributable to an honest mistake or mere negligence. 

* * *

Construing these allegations most favorable to sustaining their sufficiency, the court concludes that the plaintiff has asserted a valid claim for breach of the covenant of good faith and fair dealing by successfully alleging a claim of bad faith.

Id. at *5. The court rejected Lincoln’s reliance on its right of appeal of the judgment concerning its duty to defend:

While Lincoln is certainly entitled to take advantage of any appellate rights they might have, the judgment remains during the pendency of the appeal even if it cannot be executed on. . . . It is all of Lincoln’s conduct that Ambassador alleges is actionable.

Id. at *5.