Friday, February 23, 2007

Guttman v. Liberty Mutual Fire Insurance Co. (Maryland U.S.D.C.) (Not Approved for Publication)

Signed February 22, 2007. Memorandum opinion and order by Judge J. Frederick Motz. (Not approved for publication.)

The defendant ("Liberty Mutual") had issued an insurance policy to a homeowner ("Proctor"). After the end of the policy period, Proctor was sued by an individual ("Robinson") who claimed Proctor's daughter had shot him in the eye with a BB pistol during the policy period. Proctor failed to notify Liberty Mutual as required by the terms of the policy, and a default judgment was subsequently entered against Proctor. Almost nine months after the default judgment, Proctor finally notified Liberty Mutual, who disclaimed coverage based on the untimely notice.

Proctor then filed for Chapter 7 protection, and this action was brought by Proctor's trustee in bankruptcy ("Guttman") against Liberty Mutual, asserting "insurance bad faith," based upon Liberty Mutual's failure to defend Proctor and to settle the claim in the Robinson suit, and seeking compensatory and punitive damages on the bad faith claim and the policy limit in a breach of contract claim.

Liberty Mutual filed a motion for partial judgment on the bad faith claim. The judge found Maryland law to be clear that a bad faith claim does not lie when an insurer erroneously takes the position it has no contractual liability as to a particular claim, but only when it has proceeded on the basis that the contractual obligation exists, and has undertaken the obligation in violation of the appropriate standard of care, citing Mesmer v. MAIF.

In this case, notwithstanding Guttman's claim that Liberty Mutual had in fact assumed the responsibility for providing a defense, Guttman's pleadings included a statement that this was not in fact so, and the several contacts between Liberty Mutual and counsel for Robinson were evidently initiated by counsel for Robinson in order to extend an offer to vacate the default judgment if Liberty Mutual would appoint counsel, which Liberty Mutual declined to do. Consequently, the judge granted judgment on the pleadings to Liberty Mutual on Guttman's "insurance bad faith" claim, and struck Guttman's request for punitive damages.

The opinion and order are available in PDF.

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