## Facts

- Elaine Pilosi bought an accidental-death policy providing: (1) $1,000,000 for death in a “public conveyance” operated by a “duly licensed common carrier for regular passenger service” (Part I); (2) $100,000 for death in a private passenger automobile (Part II); and (3) $50,000 for all other injuries (Part III).
- Pilosi died in an airplane crash while returning from a casino trip on a bi-weekly shuttle flight operated by Executive Airlines on behalf of a casino.
- Her sons, the beneficiaries, claimed the $1,000,000 Part I benefit, asserting the flight was a public conveyance operated by a licensed common carrier providing regular passenger service.
- The insurer paid only $50,000 under Part III and denied Part I coverage, contending the charter operator was not licensed for “scheduled operations” and therefore was not a duly licensed common carrier for regular passenger service.
- The beneficiaries asserted affirmative defenses (including waiver, estoppel, and frustration of purpose) and counterclaimed for breach of contract and statutory bad faith under 42 Pa. Cons. Stat. § 8371.
- The district court granted summary judgment awarding the $1,000,000 Part I benefit but rejected the § 8371 bad-faith claim.
- The insurer appealed the coverage ruling; the beneficiaries cross-appealed the bad-faith ruling.

## Issues

1. Whether the charter shuttle flight constituted a “public conveyance … operated by a duly licensed common carrier for regular passenger service” triggering the $1,000,000 benefit.
2. Whether the insurer’s denial of the $1,000,000 claim amounted to statutory bad faith under 42 Pa. Cons. Stat. § 8371.

## Decision

- The Third Circuit affirmed summary judgment for the beneficiaries on coverage and held the $1,000,000 Part I benefit applied.
- The court treated the undefined policy terms as requiring construction under Pennsylvania insurance-contract rules and rejected an overly technical reading tied to specific FAA regulatory categories.
- The court found the bi-weekly shuttle’s predictable, recurring passenger service and the operator’s FAA licensing supported treating the flight as within the Part I wording.
- The Third Circuit affirmed the denial of § 8371 bad-faith relief because the insurer’s position, though incorrect, was fairly debatable and not shown by clear and convincing evidence to be unreasonable or reckless.

## Legal Principles

- Under Pennsylvania law, undefined or ambiguous insurance terms are construed against the insurer as drafter and consistent with the insured’s reasonable expectations.
- Coverage provisions are read broadly, while limiting language is read narrowly.
- When policy language is not drafted to incorporate specialized regulatory classifications, courts may reject insurer interpretations that depend on technical licensing distinctions not apparent to ordinary policyholders.
- Statutory bad faith under 42 Pa. Cons. Stat. § 8371 requires clear and convincing proof that the insurer lacked a reasonable basis for denying benefits and knew or recklessly disregarded that lack of a reasonable basis.
- A reasonable dispute over the meaning of ambiguous policy language, without more, does not establish § 8371 bad faith.

## Conclusion

The court enforced the higher accidental-death benefit because the charter shuttle fit the policy’s public-conveyance/common-carrier language as an ordinary insured would understand it, but it denied extra-contractual relief because the insurer’s coverage dispute was reasonably arguable and did not meet Pennsylvania’s stringent bad-faith standard.


J.C. Penney Life Ins. Co. v. Pilosi, 393 F.3d 356 (3d Cir. 2004)