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"Goff v. Penn Mutual Life Ins. Co., Filed June 21, 2012"
In concluding that Plaintiff, a Third Party Beneficiary to a Life Insurance Contract, can sue the carrier for bad faith, the Court appears to suggest that the key inquiry (in determining whether a bad faith suit can be brought by a claimant) is whether the insurance was "first party insurance" or "third party insurance." Previously, West Virginia focused on the nature of the claimant's relationship to the contract, not the nature of the contract of insurance. As discussed below, this case could have broad implications.
Betty Toler purchased a 100K Life Insurance Policy from Penn Mutual. Betty designated her live-in boyfriend, Roger Goff, as sole beneficiary. Betty dies, and Betty's children claim that they, not Roger, are entitled to the proceeds. Roger sues the children and Penn Mutual, seeking declaration that he is the proper beneficiary, and seeking damages for Penn Mutual's alleged bad faith. Penn Mutual files MSJ, arguing that Roger's bad faith claim is a Third Party Bad Faith Claim, barred by 33-11-4a. Judge Matish agrees with Penn Mutual, and grants MSJ on the Bad Faith Claim. Roger Goff appeals. WV Supreme Court reverses the Trial Court.
New Syllabus Point:
Upon the death of the insured, a primary beneficiary of a life insurance policy has standing to bring a statutory bad faith claim against the insurer pursuant to West Virginia Code 33-11-4(9).
Syl. Pt. 3, Goff v. Penn Mutual Life Ins. Co.
Claimant Roger Goff doesn't fall into traditional definition of "First Party" or "Third Party" claimant as defined in Allstate v. Gaughan, 203 W. Va. 358. Therefore, Justice McHugh looks to other states, including Oklahoma and Utah, for guidance; in these states, Life Insurance Beneficiaries can pursue bad faith claims.
In Oklahoma, a claimant cannot file a Bad Faith claim absent a contractual or "statutory relationship" with the carrier. Oklahoma, however, has a statute that allows a third party beneficiary to enforce any contract made for their benefit; since Third Party Beneficiaries can enforce a Life Insurance Contract per statute, they satisfy the "statutory relationship" requirement, thereby permitting them to sue for bad faith. (Justice McHugh reasoned that West Virginia has a similar statute permitting third party beneficiaries to enforce contracts: W. Va. Code 55-8-12.)
Relying on an unpublished Utah opinion, Justice McHugh suggests that a Third Party Beneficiary to a Life Insurance Contact can champion a bad faith action, if the insurance contract at issue qualifies as a "first party contract" as opposed to a "third party contract":
Just because the person who is asserting the claim is a third party with regard to the subject insurance policy, that fact alone does not alter the nature of the contract itself. The contract upon which Mr. Goff seeks to assert that Penn Mutual violated its statutory duty of good faith and fair dealing is a clearly a first party contract. . . . In bringing such a suit, the beneficiary stands in the shoes of the insured in asserting a first-party type of statutory bad faith action. Absent this type of putative recovery, insurance companies could arguably escape accountability with regarding to the payment of life insurance benefits.1
Goff v. Penn Mutual Life Ins. Co., p. 14.
In a troubling move, the Court cites approvingly to a Utah opinion that makes a distinction between 'third party contracts" and "first party contracts" -- a distinction that has never entered the calculus of bad faith jurisprudence in West Virginia. Justice McHugh even supplies emphasis to the following language from the Utah opinion: "The fact that Plaintiff may be a third-party beneficiary does not somehow transform the contract from a first party contract to a third-party contract." (Goff, p. 14)(emphasis in original). Justice McHugh appears to be suggesting that the key inquiry in determining whether a bad faith suit can be brought by a third party beneficiary is whether the insurance was "first party insurance" or "third party insurance". This distinction has never been relevant in West Virginia, where, previously, our analysis focused on the nature of the claimant's relationship to the contract, not the nature of the contract of insurance.
Further, the Utah case cited by Justice McHugh defines "first party insurance" as "[a] policy that applies to oneself or one's own property, such as life insurance, health insurance, disability insurance, and fire insurance"). Fuller v. Nationwide Ins. Co. 2009 WL 723245, 2 (D.Utah,2009). Thus, under the first party/third party insurance analysis, third party beneficiaries may arguably now sue for bad faith in claims involving health insurance, disability insurance and fire insurance policies, in addition to life insurance, because those policies are considered "first party contracts."2
In sum, Defense Counsel should be wary of Plaintiffs' Bar attempting to circumvent the prohibition on third party bad faith by arguing that the focus should now be on the whether the policy is a "first party contract" as opposed to a "third party contract." If Plaintiffs bar takes this position with respect to general liability policies (such as Automobile Liability Policies), then Defense Counsel should, among other things, reference the trial court to the portion of the Utah decision, also noted by McHugh, that explains: "This is not a situation where the insurer contracts to defend the insured against claims made by third parties against the insured and to pay any resulting liability." (Goff, p. 13, citing Fuller v. Nationwide Ins. Co 2009 WL 723245, 2 (D.Utah,2009.).
1 Presumably, a third party beneficiary to a Life Insurance Contract would be permitted to file an administrative complaint with the West Virginia Insurance Commissioner." West Virginia Code §33-11-4a. Is McHugh now saying that this statutory remedy is insufficient?
2 Be on the lookout for Plaintiffs' Bar to potentially assert bad faith claims on behalf of Obligees of Surety Bonds.