Bad Faith Liability Cannot Be Premised On Breach of a Reformed Contractual Term When the Alleged Breach Occurs Prior to the Reformation
O’Keefe v. Allstate Indem. Co., 2013 U.S. Dist. LEXIS 99581 (C.D. Cal. July 15, 2013)
O’Keefe v. Allstate Indemnity Co. involved an automobile policy that explicitly excluded coverage for one driver based on his suspended license. When the license was reinstated, the driver contacted the insurance agent and asked to be added to the policy. The agent told the driver that he was “good to go.” The driver was involved in an accident approximately one week later. He tendered the claim to his carrier, but the carrier denied coverage based on the driver’s excluded status. When the carrier refused to change its position based on the statements of the insurance agent, the driver sued the carrier for breach of contract, breach of the implied covenant of good faith and fair dealing and negligent misrepresentation. The carrier moved to dismiss the cause of action for breach of the implied covenant based on the argument that, as drafted, the policy did not provide coverage for the driver, which precluded any potential bad faith liability.
The O’Keefe court granted the carrier’s motion. In so ruling, the court held that an insured cannot recover under a cause of action for breach of the implied covenant of good faith and fair dealing unless he can first establish coverage under the written terms of the policy. While the court acknowledged that the policy may ultimately be reformed based on the statements of the insurance agent, that did not change the fact that the carrier’s coverage denial was proper based on the terms of the policy at the time that the denial was issued.
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