Cyber Liability Insurance Bad Faith Suit Trimmed In Utah

A U.S. District Court Judge in Utah has granted partial summary judgment in favor of Travelers Insurance in a bad faith suit involving a Cyber Liability insurance policy.  U.S. District Judge Ted Stewart of Utah has dismissed portions of a bad faith suit against Travelers, ruling that it has no duty to defend or indemnify its insured, Federal Recovery, in an underlying data breach lawsuit.  The Court found that Travelers’ coverage position was “fairly debatable,” and therefore that the position it took cannot, as a matter  of law, be found to have been taken in bad faith.

The Court denied Traveler’s motion to dismiss that portion of the suit against it relating to Traveler’s intake and handling of the claim, however.  The insured claims that Travelers breached its duty of good faith and fair dealing in allegedly misleading its insured to delay the filing of the claim until it received formal suit papers.   The Court also found there were factual issues relating to whether Travelers  diligently investigated, evaluated, and communicated about the claim to its insured, and denied Travelers’ summary judgment motion as to those claims also.

The Takeaway:   This decision is a textbook example of a jurisdiction in which having a reasonable position to deny coverage to an insured is not the end of the bad faith analysis.  Claims handling (the means), separate and apart from the claims decision (the end), is subject to bad faith scrutiny under this jurisdiction’s bad faith law.  Best claims practices, therefore, should facilitate proper claims decisions being made in conjunction with proper claims handling, from initial intake to final coverage decision.

Travelers v. Fed. Recovery Services (D. Utah 2016)

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Author: CJ Haddick

C.J. Haddick is a Director with the law firm of Dickie, McCamey, & Chilcote, PC, based in Pittsburgh, Pa. He has advised and represented insurers in insurance coverage and bad faith litigation for more than a quarter of a century, and written and spoken throughout the United States on insurance coverage and bad faith prevention and litigation. He is Managing Director of the firm's Harrisburg, Pa. office. Reach him at chaddick@dmclaw.com or 717-731-4800.

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