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District Court Rejects Dismissal of Bad Faith Breach of Contract and Fraud Claims Against Insurer

Homsey v. Vigilant Ins. Co., C.A. No. 07-338-JJF (D. Del. July 31, 2007)


In this action alleging, inter alia, bad faith breach of contract and consumer fraud, the defendant insurance company sought dismissal of those counts pursuant to F.R.C.P. Rule 12(b)(6) for failure to state a claim for which relief could be granted. Plaintiffs held an insurance policy with Defendant that contained provisions covering credit card fraud and check forgery. Plaintiffs submitted a claim pursuant to those provisions for over $250,000 in allegedly fraudulent credit card charges and forged checks. Nearly one year later, Defendant tendered payment of $10,000 for the claim, contending that this amount represented the maximum amount due under the policy. Plaintiffs argued that the policy provided broader coverage, and alleged that Defendant denied or delayed payment on Plaintiffs’ claim without reasonable justification.   Defendants argued that there was a bona fide dispute as to the policy’s language, such that Defendant could not be found to have acted unreasonably. Defendant also argued that Plaintiffs did not plead consumer fraud with particularity. The Court denied Defendant’s motion, finding that Plaintiffs pled sufficient facts to state both the bad faith and consumer fraud claims.

Defendant argued that its reading of the insurance policy, and its resultant limitation on its coverage, was a reasonable construction of the policy’s language. According to Defendant, Plaintiffs acknowledged that there was a bona fide dispute as to the policy coverage by seeking a declaratory judgment of coverage, thus barring a claim of bad faith delay or denial. The Court found that, given Plaintiffs’ allegations that Defendant delayed payment despite the relatively small amount of funds ultimately remitted and the relatively uncomplicated theory on which Plaintiffs’ claim was based, sufficient facts were alleged to support a theory of bad faith. The Court rejected Defendant’s argument that because Plaintiffs sought declaratory judgment of coverage, a finding of bad faith was barred. The Court concluded that the existence of a bona fide dispute does not mean that the dispute was reasonable, and Plaintiffs pled sufficient facts to support a claim that Defendant’s actions were unreasonable. Defendant also argued that Plaintiffs did not plead consumer fraud with sufficient particularity under F.R.C.P. Rule 9. The Court found that claims under the Delaware Consumer Fraud Act (“DCFA”) were subject to the particularity requirements under Rule 9, but that Plaintiffs’ allegations underlying their claim for bad faith breach of contract were also sufficient to plead fraud under the DCFA. The Court therefore denied Defendant’s motion to dismiss the bad faith and fraud claims.



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