There is no bad faith when an insurer has a reasonable basis for denying coverage.

The U.S. District Court for the Eastern District of Pennsylvania recently held that an insurance company did not commit bad faith by sending notice by mail that an insured’s policy was in default and would be terminated. In this matter, the insured owned a Flexible Premium Variable Life Insurance Policy. These premiums went into an account in which a certain amount needed to be maintained or the policy would go into default. After the funds fell below the required amount, a default letter was mailed to the insured giving him a 61-day grace period to make the necessary payment or the policy would terminate. The insured failed to make the payment within the allotted time, and a letter was mailed informing him the policy had been terminated. The insured brought suit against the insurance company, alleging breach of contract and bad faith and claiming he never received notice of the default, even though he conceded the letter was properly addressed to him. The court granted the insurer’s motion for summary judgment, holding the insurer complied with its obligations under the policy since it had a reasonable basis for denying coverage and was only required to “send” the lapse notice to the “last known addresses” as outlined in the contract, actual receipt was not required.

_{Case Law Alerts, 3rd Quarter, July 2020 is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. Copyright © 2020 Marshall Dennehey Warner Coleman & Goggin, all rights reserved. This article may not be reprinted without the express written permission of our firm.}