This week, I am writing about a Memorandum Opinion and Order entered by a federal judge on a bad faith issue. Although I usually blog about a court’s reported opinion on a case as a whole, I thought I would take this opportunity to zoom in on a particular ruling in a bad faith case. This focus on a single step in the progression of a lawsuit allows for a more concentrated view of how individual rulings on certain issues throughout the course of litigation come together to create a case that is ready for trial.
Ms. Decker was an insured under a business owner’s insurance policy with Massachusetts Bay Insurance Company ("Massachusetts Bay"). When her property in Virginia sustained a loss, Ms. Decker filed a claim with her carrier. Massachusetts Bay filed a declaratory judgment action and, in response, Ms. Decker filed a Counterclaim alleging breach of contract and bad faith. When evaluating Massachusetts Bay’s Motion to Dismiss, or in the Alternative, Motion to Bifurcate the bad faith claim, the Court provided the following analysis:
There is no independent cause of action in tort for bad faith involving insurance coverage disputes in Virginia. . . .There is, however, a statute-based remedy allowing a court to award attorney’s fees and costs if ‘the court determines that the insurer, not acting in good faith, has either denied coverage or failed or refused to make payment to the insured under the policy’.
In some states, insureds cannot file a bad faith claim until they have succeeded on a breach of contract case against the insurance company. The U.S. District Court determined that it was not necessary to dismiss Ms. Decker’s bad faith claim, but that it would stay discovery on bad faith until the breach of contract dispute was resolved. The Court explained that it made no difference whether Ms. Decker’s bad faith claim was a separate count from the breach of contract count. The manner in which Ms. Decker plead bad faith against Massachusetts Bay in her Counterclaim did not change the fact that Virginia law gives her the right to recover attorney’s fees and costs if the Court finds that Massachusetts Bay acted in bad faith when denying coverage for her claim or refusing to pay her claim. The Court denied Massachusetts Bay’s Motion to Dismiss and stayed the issue of bad faith.
Please consider that this ruling is specific to this Court. Cases in other jurisdictions may be governed by different rulings on this issue.