Stephen Bodnar v. Nationwide Mutual Insurance Co, 660 F. App'x 165

In April 2010 Stephen Bodnar and James Berry were digging a trench when it collapsed; Berry died and Bodnar survived.
Bodnar was insured by Nationwide; Berry’s widow sued Bodnar and the campground, and Bodnar sought indemnification from Nationwide.
Nationwide investigated whether Berry was Bodnar’s employee (excluded under the policy) or a temporary worker (covered); its file contained conflicting evidence on status.
Nationwide defended Bodnar, filed a declaratory judgment action to resolve coverage, then discontinued the action and paid the $1 million policy limit (plus interest) to Danielle Berry after a settlement.
Bodnar and Danielle Berry sued Nationwide for bad faith and breach of the duty of good faith and fair dealing based on Nationwide’s investigation and coverage position; the District Court granted summary judgment for Nationwide.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Nationwide acted in bad faith by investigating and resisting coverage	Nationwide had a predisposition to deny coverage, ignored contrary facts, and conducted a biased investigation	Nationwide reasonably investigated ambiguous facts, consulted counsel, and litigated legitimate coverage issues	No bad faith; reasonable basis existed to investigate and litigate coverage
Whether an undefined policy term ("employee") made Nationwide’s exclusion unreasonable	Lack of a policy definition left no reasonable way to apply the exclusion	Nationwide permissibly relied on Pennsylvania law to define the term	Reliance on state law to interpret undefined policy terms was proper
Whether asserting defenses adverse to Bodnar (e.g., workers’ comp) breached duties	Asserting workers’ comp defense could leave Bodnar without coverage and thus was adverse	If Berry was an employee, workers’ comp would be the exclusive remedy, insulating Bodnar from liability	No breach: asserting the defense was legally reasonable given potential exclusivity of workers’ comp remedy
Whether Nationwide’s change in position during investigation was unreasonable	Nationwide initially leaned toward coverage then later sought declaratory relief—an unreasonable about-face	Nationwide consulted counsel and reasonably sought declaratory relief given ambiguities	Change in position was reasonable; did not show bad faith

Terletsky v. Prudential Prop. & Cas. Ins. Co., 649 A.2d 680 (Pa. Super. 1994) (defines insurer bad faith as frivolous or unfounded refusal to pay)
Post v. St. Paul Travelers Ins. Co., 691 F.3d 500 (3d Cir. 2012) (bad faith requires clear and convincing evidence; a reasonable basis defeats bad-faith claim)
Rancosky v. Wash. Nat’l Ins. Co., 130 A.3d 79 (Pa. Super. 2015) (bad faith can include failure to investigate in good faith)
Donegal Mut. Ins. Co. v. Baumhammers, 938 A.2d 286 (Pa. 2007) (undefined policy terms may be interpreted according to state common law)
Albright v. Fagan, 671 A.2d 760 (Pa. Super. 1996) (Workers’ Compensation Act provides exclusive remedy, barring tort claims against employer)