Reinsurer Had No Duty to Indemnify Bad Faith Suit

Greenwich Ins. Co. v. Med. Mut. Ins. Co. of N. Carolina (E.D.N.C. Jan. 27, 2015)

The underlying policyholder sued his insurer (the cedent) for bad faith failure to settle a medical malpractice claim within the $1 million policy limit. The claims eventually were subject to a $6.7 million verdict. The reinsurer refused to cover any of the damages and sought declaratory judgment affirming its position. The court agreed with the reinsurer based on an exclusion for any “loss, including defense expenses, resulting from any claim for ... any actual or alleged lack of good faith or unfair dealing in the handling of any claim or obligation under any insurance contract.” Since all claims and potential losses were “inextricably intertwined” with the alleged bad faith, the court found that the claims were “squarely within” the errors and omission exclusion.