No Bad Faith if No Breach of Contract
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Chemical Equipment Labs, Inc. (“CEL”) sued Travelers Property Casualty Company of America (“Travelers”) seeking insurance coverage pursuant to two policies: a Custom Cargo Policy (ZOC-51M1777A-14-ND) (“Cargo Policy”) and Charter's Legal Liability Policy (ZOL-91M17422) (“Liability Policy”). CEL requested declaratory judgment, and damages for breach of contract, as well as bad faith. Travelers’ crossclaimed for declaratory judgment, contending there was no coverage under either policy, and seeking reimbursement for costs incurred while defending Plaintiff in a prior arbitration proceeding regarding the cargo at issue. In Chemical Equipment Labs, Inc. v. Travelers Property Casualty Company Of America, Civil Action No. 19-3441, United States District Court, E.D. Pennsylvania (April 1, 2022) the USDC dealt with the claims of breach of contract and bad faith.
Statement of Undisputed Facts
On April 30, 2014, Plaintiff entered into a Sales Agreement with Servicios Y Suministros Petroleros Y Gasiferos (“SSP&G”) to purchase 300,000 Metric Tons of Venezuelan industrial road salt (the “Sales Agreement”). The Sales Agreement required seller SSP&G to provide all export permits and documentation, and provided that payment was due upon presentation of shipping documents, including bills of lading, within three days after the sailing of the carrying vessel.
On December 4, 2014, Plaintiff entered an agreement with Pioneer Navigation Ltd. (“Pioneer”) to charter the vessel “GENCO OCEAN” to carry a shipment of industrial road salt from Araya, Venezuela to the United States. The GENCO OCEAN tendered her Notice of Readiness to load on December 11, 2014. Loading of Plaintiff's industrial salt commenced at approximately 2100 hours local time on December 11, 2014. At approximately 1120 hours on December 12, 2014, cargo operations were ordered halted by Venezuelan Customs. At such time, approximately 11,000 tons of salt had already been loaded onto the vessel. On December 22, 2014, Venezuelan customs officials ordered the ship to discharge the industrial road salt back onto the pier. The GENCO OCEAN completed her discharge on December 29, 2014, and subsequently left the port empty. No. bills of lading were issued to Plaintiff.
Travelers had issued two policies to Plaintiff: a Liability Policy and a Cargo Policy. Both policies were issued and countersigned in Pennsylvania.
On December 23, 2015, Pioneer commenced arbitration before the Society of Maritime Arbitrations (“SMA”) to a panel of three New York arbitrators. Pioneer sought to recover $598,681.90 in damages, arising from Plaintiff's failure to perform under the December 4, 2014 charter agreement of the GENCO OCEAN. Plaintiff timely provided notice of a potential liability claim by Pioneer to its insurance broker, who forwarded the report to Defendant. In documents submitted to Defendant by Plaintiff for the purpose of calculating insurance premiums, the GENCO OCEAN was one of five vessels identified and was designated as “Never Shipped.” Travelers confirmed that it would provide a defense for Plaintiff if arbitration commenced, while formally reserving its rights to later dispute whether Plaintiff was covered under the Liability Policy.
The SMA panel held Plaintiff breached its contractual obligations and awarded Pioneer a total of $855,918.88: $598,721 for lost profit, $127,000 for attorney's fees, $96,197 for interest, and $34,000 for arbitral fees.
After the award Travelers notified Plaintiff it was declining coverage under the Liability Policy for all damages set forth in the final award.
Discussion
Both parties agreed that the Liability Policy and Cargo Policy were issued and countersigned in Pennsylvania. The parties did not dispute-that the Liability and Cargo Policies should be interpreted under Pennsylvania law.
The Liability Policy (ZOL-91M17422)
Travelers argued that the Liability Policy is not applicable to Plaintiff's claim because there was no vessel damage to trigger coverage. Under the Liability Policy, Defendant agreed to indemnify Plaintiff for liabilities incurred in three specific circumstances: (a) “physical loss or damage to the chartered vessel, ” (b) “property damage, loss of life or bodily injury, ” and (c) “legal costs and/or fees or expenses of counsel occasioned by the defense of any claim . . . covered by this policy.” None of the events that would obligate Defendant to indemnify Plaintiff occurred.
Plaintiff is seeking indemnity for an arbitration award granted to Pioneer arising from the failed shipment of industrial salt on the GENCO OCEAN. Because the arbitration proceedings arose from Plaintiff's obligations relating to a loss of cargo, Clause 4(d) makes it clear that Defendant is not obligated to provide coverage under the Liability Policy.
The Cargo Policy (ZOC-51M1777A-14-ND)
Plaintiff asserts that the Cargo Policy is an “all-risk policy, ” meaning the insured faces a lower burden to prove coverage than the high burden faced by insurer to disprove coverage. Defendant agrees with Plaintiff's assessment of the burdens of proof, but argues Plaintiff fails to establish even a prima facie case for coverage under the Cargo Policy. Specifically, Defendant asserted there is no coverage because:
Plaintiff failed to pay the premiums;
Plaintiff did not have an insurable interest;
there was no “physical loss or damage,” as required under the policy; and,
coverage was excluded under the F. C. & S. Clause.
Since the Court found Plaintiff failed to pay the premium on the cargo, Defendant's remaining three arguments are rendered moot.
The parties disagree about the effect of Plaintiff's listing of the GENCO OCEAN voyage without a declared value, and without a corresponding premium payment. Defendant asserts that Plaintiff's nonpayment bars coverage for losses associated with the GENCO OCEAN voyage.
Under the plain meaning of the Cargo Policy, Plaintiff's failure to declare a value for the cargo of salt loaded onto the GENCO OCEAN, and failure to pay a corresponding premium, precludes coverage for resulting losses. Plaintiff offered no evidence that it paid a premium for the GENCO cargo or that Defendant assented to any modifications to the premium agreed to within the four corners of the Cargo Policy. Plaintiff presents no evidence that this Defendant's specific conduct could be interpreted as having agreed to extend coverage, despite nonpayment of the full required premium.
Breach of Insurance Contracts
In light of the court's holding regarding declaratory judgment Plaintiff's breach of contract claim must also fail. Because Defendant had no duty to perform under either the Liability or Cargo Policies, Defendant cannot be found liable for breaching either insurance contract.
Bad Faith Under 42 Pa.C.S. § 8371
Count III of Plaintiff's Complaint alleges Defendant exhibited bad faith in its handling of Plaintiff's claim. In order to recover in a bad faith action, the plaintiff must present clear and convincing evidence (1) that the insurer did not have a reasonable basis for denying benefits under the policy and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis Because the Court determined Plaintiff is not entitled to insurance coverage as a matter of law, Plaintiff's claim for bad faith necessarily fails.
Reimbursement of Defendant's Costs Defending Plaintiff in Arbitration
Under Pennsylvania law, an insurer is obligated to defend its insured if the factual allegations of the complaint on its face encompass an injury that is actually or potentially within the scope of the policy. As long as the complaint “might or might not” fall within the policy's coverage, the insurance company is obliged to defend. Accordingly, it is the potential, rather than the certainty, of a claim falling within the insurance policy that triggers the insurer's duty to defend. This duty is not limited to meritorious actions. Reimbursement of defense costs requires an express provision in the written insurance contract. The USDC concluded that an insurer may not obtain reimbursement of defense costs for a claim for which a court later determines there was no duty to defend, even where the insurer attempted to claim a right to reimbursement in a series of reservation of rights letters.
While the Court subsequently found that Defendant had no duty to defend under the Liability Policy, the absence of an express reimbursement provision precludes Defendant from recovering those costs.
Plaintiff's Motion was denied in full, and Defendant's Motion was granted in part and denied in the part seeking reimbursement of defense costs.
ZALMA OPINION
For there to exist a contract it is necessary that there be an offer, acceptance of the offer and payment of consideration. It should be obvious that when an insured that fails to pay a premium there is no right to the benefits of a contact of insurance since the contract was never made. The case should have ended with the decision that premium was not paid but since the insured sued for bad faith the court found it necessary to note that failure of the contract claim destroys the bad faith claim. The lack of a condition in the policy that if there is no coverage defense costs advanced must be reimbursed the claim for return of defense costs failed. Travelers should amend its contract wordings in the future to include the right to return of defense costs advanced and found, later, to not be owed.
(c) 2022 Barry Zalma & ClaimSchool, Inc.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected].
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Notice of Claim Later than 60 Days After Expiration is Too Late
Post 5089
Injury at Massage Causes Suit Against Therapist
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Hiscox Insurance Company (“Hiscox”) moved the USDC to Dismiss a suit for failure to state a claim because the insured reported its claim more than 60 days after expiration of the policy.
In Mluxe Williamsburg, LLC v. Hiscox Insurance Company, Inc., et al., No. 4:25-cv-00002, United States District Court, E.D. Missouri, Eastern Division (May 22, 2025) the trial court’s judgment was affirmed.
FACTUAL BACKGROUND
Plaintiff, the operator of a massage spa franchise, entered into a commercial insurance agreement with Hiscox that provided liability insurance coverage from July 25, 2019, to July 25, 2020. On or about June 03, 2019, a customer alleged that one of Plaintiff’s employees engaged in tortious ...
ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Posted on June 2, 2025 by Barry Zalma
Post 5087
See the full video at and at
Read the full article and the full issue of ZIFL June 1, 2025 at https://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-06-01-2025.pdf
Zalma’s Insurance Fraud Letter – June 1, 2025
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ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Read the full article and the full issue of ZIFL June 1, 2025 at https://lnkd.in/gTWZUnnF
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at ...
No Coverage if Home Vacant for More Than 60 Days
Failure to Respond To Counterclaim is an Admission of All Allegations
Post 5085
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In Nationwide Mutual Insurance Company v. Rebecca Massey, Civil Action No. 2:25-cv-00124, United States District Court, S.D. West Virginia, Charleston Division (May 22, 2025) Defendant Nationwide Mutual Insurance Company's (“Nationwide”) motion for Default Judgment against Plaintiff Rebecca Massey (“Plaintiff”) for failure to respond to a counterclaim and because the claim was excluded by the policy.
BACKGROUND
On February 26, 2022, Plaintiff's home was destroyed by a fire. At the time of this accident, Plaintiff had a home insurance policy with Nationwide. Plaintiff reported the fire loss to Nationwide, which refused to pay for the damages under the policy because the home had been vacant for more than 60 days.
Plaintiff filed suit ...
ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:
Health Care Fraud Trial Results in Murder for Hire of Witness
To Avoid Conviction for Insurance Fraud Defendants Murder Witness
In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...
Professional Health Care Services Exclusion Effective
Post 5073
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This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.
In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:
Insurance Coverage Dispute:
Travelers issued a Commercial General Liability ...
A Heads I Win, Tails You Lose Story
Post 5062
Posted on April 30, 2025 by Barry Zalma
"This is a Fictionalized True Crime Story of Insurance Fraud that explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is designed to help everyone to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime."
Immigrant Criminals Attempt to Profit From Insurance Fraud
People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.
The temptation to do everything outside the law was the downfall of the brothers Karamazov. The brothers had escaped prison in the old Soviet Union by immigrating to the United...