Addressing the issue for the first time, the Supreme Court of Appeals of West Virginia decided recently that a primary beneficiary of a life insurance policy may bring a statutory bad faith claim against the insurer. In Goff v. Penn Mutual Life Insurance Company, Betty Toler purchased a life insurance policy from Penn Mutual and named Roger Goff as the primary beneficiary and her two adult children as contingent beneficiaries. After Toler?s death, both Goff and Toler?s daughter claimed the policy proceeds.
Goff filed suit against Penn Mutual and Toler?s children, asserting that he was the proper beneficiary of the policy proceeds. He further alleged that Penn Mutual breached its duty of good faith and fair dealing and violated the Unfair Trade Practices Act. The trial court dismissed the claims against Penn Mutual, finding that Goff sought to bring a third-party bad faith action, which was abolished by statute in 2005. Goff appealed.
On appeal, the Supreme Court of Appeals of West Virginia found it significant that the Legislature provided a third-party beneficiary to a contract the right to maintain an action on the contract, thereby creating a statutory relationship between an insurer and a third-party beneficiary to the insurance contract. Further, the fact that Goff was a third-party to the insurance contract did not alter the nature of the contract itself, which was a first-party contract. In holding that Goff could maintain a statutory bad faith action, the Court noted that he, as the third-party beneficiary, stands in the shoes of the insured. Without such a remedy, the Court reasoned, insurance companies could arguably escape accountability for payment of life insurance benefits.
The Court took no position on whether Goff could succeed on his claim, although it noted that Toler?s estate withheld a medical authorization, which may have caused the delay in payment.
Click here to read the Goff v. Penn Mutual Life Insurance Company decision.
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