J.C. PENNEY LIFE INS. CO. v. PILOSI

ROSENN, Circuit Judge.

This litigation has its genesis in an optimistic gambling junket to Atlantic City and a return flight that ended tragically in death. The ill-fated flight was part of a bi-weekly shuttle operated by Executive Airlines ("EA") on behalf of Caesars Casino ("Caesars"). Elaine Pilosi, a passenger on the junket, lost her life when the EA airplane in which she was traveling crashed. Mrs. Pilosi left two sons who were the beneficiaries of an accidental death insurance policy that she had purchased from the defendant, J.C. Penney Life Insurance Company ("J.C. Penney Life" or "the Insurer"). The policy had three categories of losses, two of which are pertinent in this litigation. Part I provided benefits of $1 million for accidental death in "a public conveyance . . . operated by a duly licensed common carrier for regular passenger service." Part II provided for payment of $100,000 for accidental death in a private passenger automobile. And Part III provided for the payment of $50,000 for all other injuries.

J.C. Penney Life paid $50,000 under Part III of the policy and rejected the claim of the Pilosi brothers ("Pilosis" or "Insured") for $1 million under Part I. The Insurer sued for a declaratory judgment pursuant to 28 U.S.C. § 2201 in the United States District Court for the Middle District of Pennsylvania seeking a determination that the Pilosis were not entitled to the $1 million benefit. The Pilosis responded and also raised affirmative defenses asserting, inter alia, that J.C. Penney Life's claim is barred by the doctrine of waiver and/or estoppel, by its own bad faith, and by the doctrine of frustration of the purpose of the contract. In addition, the Pilosis counterclaimed for breach of contract and bad faith denial of their claim under 42 Pa.C.S.A. § 8371. The District Court, in a carefully considered opinion of a difficult case, entered summary judgment for the Pilosis in the sum of $1 million but rejected their claim under Pennsylvania law for bad faith damages. The Pilosis timely appealed the entry of summary judgment in favor of J.C. Penney Life on the bad faith claim, and J.C. Penney Life cross-appealed the entry of summary judgment awarding $1 million coverage. We affirm in part and reverse the summary judgment against J.C. Penney Life.

42 Pa.C.S.A. § 8371 provides:

In an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the insured, the court may take all of the following actions:

(1) Award interest on the amount of the claim from the date the claim was made by the insured in an amount equal to the prime rate of interest plus 3%.

(2) Award punitive damages against the insurer.

(3) Assess court costs and attorney fees against the insurer.

I.

The District Court had subject matter jurisdiction under 28 U.S.C. § 1332(a), as the diversity and amount-in-controversy requirements were met. This Court has jurisdiction under 28 U.S.C. § 1291, as an appeal from a final judgment that disposed of all parties' claims.

The matter in controversy exceeds the sum of $75,000, exclusive of interest and costs, and arises between citizens of different states. J.C. Penney Life, a corporation duly organized and existing under the laws of Vermont, and having its principal place of business in Texas, is a citizen of both Vermont and Texas. Both Pilosis are citizens of Pennsylvania.

"Disposition of an insurance action on summary judgment is appropriate, when, as here, there are no material underlying facts in dispute." McMillan v. State Mut. Life Assurance Co. of Am., 922 F.2d 1073, 1074 (3d Cir. 1990). The only contested issue in the instant case involves the interpretation of the scope of coverage of the insurance contract. "The interpretation of the scope of coverage of an insurance contract is a question of law properly decided by the court, a question over which [this court] exercise[s] plenary review." Med. Protective Co. v. Watkins, 198 F.3d 100, 103 (3d Cir. 1999); McMillan, 922 F.2d at 1074.

Summary judgment is appropriate only where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). In reviewing the record, this Court must view the inferences to be drawn from the underlying facts in the light most favorable to the party opposing the motion. Haugh v. Allstate Ins. Co., 322 F.3d 227, 230 (3d Cir. 2003).

Where federal jurisdiction is based on diversity of citizenship, as it is here, we apply the choice of law rules of the state in which the District Court sat. St. Paul Fire Marine Ins. Co. v. Lewis, 935 F.2d 1428, 1431 n. 3 (3d Cir. 1991) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941)). This action was instituted in the Middle District of Pennsylvania. Under Pennsylvania choice of law rules, an insurance contract is governed by the law of the state in which the contract was made. Crawford v. Manhattan Life Ins. Co., 208 Pa.Super. 150, 221 A.2d 877, 880 (1966); McMillan, 922 F.2d at 1074. "An insurance contract is `made' in the state in which the last act legally necessary to bring the contract into force takes place." Crawford, 221 A.2d at 880. "In most cases, this last act is delivery of the policy to the insured and the payment of the first premium by him." Ruhlin v. N.Y. Life Ins. Co., 106 F.2d 921, 923 (3d Cir. 1939).

In the instant case the policy makes no mention of insurance coverage being contingent upon delivery of the policy. However, the policy provided that coverage "will become effective on the Certificate Effective Date shown on the Schedule Page provided [that J.C. Penney Life] receive[s] the initial premium within 21 days of the Certificate Effective Date and while you are alive." The Certificate Effective Date was two days after Mrs. Pilosi orally accepted J.C. Penney Life's telephone solicitation offering three months of coverage at no cost and no obligation to continue. Payment of the first three monthly premiums was made by Mrs. Pilosi's credit card company as part of a promotion that it offered in conjunction with J.C. Penney Life. Because the first three premium payments were automatically triggered upon Mrs. Pilosi's oral acceptance, the last act legally necessary to bring the contract into force was Mrs. Pilosi's telephonic acceptance of the policy. This occurred at her residence in Pennsylvania. Therefore, Pennsylvania law governs construction of the terms of the insurance policy.

A. "Public Conveyance"

The threshold issue is whether the EA airplane in which Mrs. Pilosi died qualifies as a "public conveyance." Counsel for the Pilosis strenuously argue that, much like a taxicab, the airplane was a public conveyance. Although Caesars controlled who was allowed to board this particular flight, the Pilosis assert that the airplane was available for any member of the public at-large to charter before and after the Caesars flight. On the other hand, the Insurer contends that the airplane was not a public conveyance because members of the public at-large were not free to purchase tickets for the flight.

Unfortunately, the policy does not define "public conveyance." However, the record reveals that the carrier was, indeed, a public conveyance. The airplane in which Mrs. Pilosi was traveling was owned and operated by an air carrier licensed by the Federal Aviation Administration to conduct common carriage. The airplane belonged to a company that was engaged in the business of hiring out airplanes for general public use.

More importantly, EA made its services available to the general public. According to the deposition of EA's CEO, Michael Peragine, EA was open to "anyone who had money who wanted to fly." Thus, EA could be hired by anyone with the ability to pay, either before or after the Caesars flight. Analogous to a public taxicab, which the Pennsylvania Supreme Court has held to be a "public conveyance," Primrose v. Cas. Co., 232 Pa. 210, 81 A. 212, 214 (1911), "[t]he use of no one of [EA's] machines was limited to any particular person, but anyone able to pay the price and privilege of riding in it . . . could do so." Id. at 213.

J.C. Penney Life challenges the taxicab analogy. It disputes the Pilosis' reliance on the holding in Terminal Taxicab Co., Inc. v. Kutz, 241 U.S. 252, 255, 36 S.Ct. 583, 60 L.Ed. 984 (1916). The issue in Terminal Taxicab was whether a taxicab company that offered its services to hotel guests pursuant to a contract with the hotel still retained its public character. The Court held that the taxicab company retained its public character even though it served primarily hotel guests. The Court noted that "[n]o carrier serves all the public. His customers are limited by place, requirements, ability to pay and other facts. . . ." Id.

J.C. Penney Life's efforts to distinguish Terminal Taxicab are unpersuasive. J.C. Penney Life distinguishes the Terminal Taxicab taxi from the EA airplane on the ground that anyone could access the taxis stationed in front of the hotel, while the airplane was restricted to Caesars passengers. J.C. Penney Life's insistence that a vehicle must be available for "walk-up passengers" in order to qualify as a "public conveyance" misses the point.

As both the Terminal Taxicab and Primrose Courts articulate, passenger limitations imposed by any particular customer with regard to any particular taxi ride — i.e., designating the passengers, the destination, and the schedule of the trip — do not negate the public character of the conveyance. Terminal Taxicab, 241 U.S. at 255, 36 S.Ct. 583; Primrose, 81 A. at 213-14; see also Brill v. Indianapolis Life Ins. Co., 784 F.2d 1511, 1514 (11th Cir. 1986) (holding that hiring a helicopter on a particular occasion limited the helicopter's "operation; however these limitations as to time, place and passengers were no different than those imposed on the taxi service discussed in Terminal Taxicab Co. For purposes of the one flight . . ., the decedent and his employer had the exclusive use of the helicopter as to contents, direction and time of use. Their control was not so pervasive, however, as to negate the public character of [the helicopter's] service.").

J.C. Penney Life claims that the proper test to determine whether a conveyance is public or private is the extent to which the public has access to the conveyance. Under J.C. Penney Life's test, however, the plane qualifies as public because it can be accessed by any member of the public who has the financial means to rent it. J.C. Penney Life is insensible to the public nature of the air taxi because general members of the public may not board the flight on those occasions when Caesars charters the plane. But being temporarily restricted to a paying client does not transform a public conveyance into a private carrier. When a patron enters a public taxicab, the cab is effectively private for the duration of the fare. However, once the fare is completed, anyone may hire the taxi. The same goes for an air taxi, such as EA. When the plane is engaged by a person, that person is the very public to which the plane is available.

The final indicator that EA's plane was a "public conveyance" is that Caesars did not use exclusively the particular aircraft employed for the fateful flight — the November 16 Echo Juliet. J.C. Penney Life's assertion that the flight was private rather than public would be more persuasive if, instead of being available for public hire, the EA jet was reserved exclusively for Caesars. However, other members of the public in addition to Caesars could use the Echo Juliet plane when not otherwise committed. Caesars merely procured EA's services on a regular basis. We are therefore convinced that the plane was a public, rather than private, conveyance. However, this conclusion does not resolve the issue, for we must examine other pertinent terms of the policy contract.

The essence of the concurrence is that "the restrictions here constitute a total and arbitrary exclusion of the general public to such an extent that no member of the public can exercise any control over the flights because Caesars has rendered them unto itself." (Concurrence at ___). Like the usual taxicab passenger, Caesars may have control over the specific flight it chartered every two weeks, but flights during the rest of the day and the other thirteen days of the bi-weekly period were available to the public generally. There is no evidence that Caesars had contracted for them or that EA's planes were totally operated for and in behalf of Caesars at all times.

B. Interpretation of the Policy Language

We turn to the proper interpretation of the clause "operated by a duly licensed common carrier for regular passenger service." A reasoned analysis reveals that "regular passenger service" modifies the adjective "licensed," so that coverage extends narrowly to those common carriers specifically licensed to conduct regular passenger service.

1. Pennsylvania Law on the Interpretation of Insurance Contracts

Pennsylvania law, under which this insurance policy must be interpreted, provides several well-settled principles governing the interpretation of insurance policies. As a threshold matter, "[t]he task of interpreting a contract is generally performed by a court, rather than by a jury. The goal of that task is, of course, to ascertain the intent of the parties as manifested by the language of the written instrument." Standard Venetian Blind Co. v. Am. Empire Ins. Co., 503 Pa. 300, 469 A.2d 563, 566 (1983) (citations omitted). Where an insurance policy provision is ambiguous, it is to "be construed against the insurer and in favor of the insured. . . ." McMillan, 922 F.2d at 1075; State Farm Fire Cas. Co. v. MacDonald, 850 A.2d 707, 710 (2004). An ambiguity exists when the questionable term or language, viewed in the context of the entire policy, is "reasonably susceptible of different constructions and capable of being understood in more than one sense." Med. Protective, 198 F.3d at 103 (citing Reliance Ins. Co. v. Moessner, 121 F.3d 895, 900 (3d Cir. 1997), in turn citing Gamble Farm Inn, Inc. v. Selective Ins. Co., 440 Pa.Super. 501, 656 A.2d 142, 143-44 (1995) (quoting Hutchison v. Sunbeam Coal Corp., 513 Pa. 192, 519 A.2d 385, 390 (1986))).

Where, however, "the language of an insurance contract is clear and unambiguous, a court is required to enforce that language." Med. Protective, 198 F.3d at 103 (citing Standard Venetian Blind, 469 A.2d at 566). That is, "a court must refrain from torturing the language of a policy to create ambiguities where none exist." McMillan, 922 F.2d at 1075; MacDonald, 850 A.2d at 711. In addition, wherever possible, "a court should interpret the policy so as to avoid ambiguities and give effect to all of its provisions." Little v. MGIC Indemnity Corp., 836 F.2d 789, 793 (3d Cir. 1987). "The policy must be construed as a whole, not in discrete units." Giancristoforo v. Mission Gas Oil Products, Inc., 776 F.Supp. 1037, 1041 (E.D.Pa. 1991) (citing Luko v. Lloyd's London, 393 Pa.Super. 165, 573 A.2d 1139, 1142 (1990)). Thus, "[w]here the policy contains definitions for the words contained therein, the court will apply those definitions in interpreting the policy." Monti v. Rockwood Ins. Co., 303 Pa.Super. 473, 450 A.2d 24, 25 (1982) (citing Adelman v. State Farm Mut. Auto. Ins. Co., 255 Pa.Super. 116, 386 A.2d 535 (1978)).

In the instant case, the policy requires that the insured must have been traveling in a public conveyance "operated by a duly licensed common carrier for regular passenger service by . . . air." The parties dispute which word the clause "for regular passenger service" modifies. The Pilosis argue that the phrase "for regular passenger service" modifies "operated," meaning that the common carrier must be duly licensed and must be operated for regular passenger service. On the other hand, J.C. Penney Life argues that the disputed clause modifies "licensed," so a carrier is not covered unless its license specifically authorizes regular passenger service. Although the meaning of the clause is disputed, "[a] contract is not rendered ambiguous by the mere fact that the parties do not agree upon the proper construction." MacDonald, 850 A.2d at 710. When the disputed language is read in context with the policy's definitions, only one interpretation is reasonable.

As stated above, the insurance policy requires that the conveyance be "operated by a duly licensed common carrier for regular passenger service by . . . air." The policy, in turn, defines "common carrier" to mean "an air . . . conveyance operated under a license for regularly scheduled passenger service." Read in context, therefore, the phrase requires the airline to possess a license for regularly scheduled passenger service to qualify as "a common carrier for regular passenger service." There is no reasonable alternative interpretation. The explicit definition of "common carrier" is adequate to put the Pilosis on notice that there would be no coverage unless the carrier was licensed for regular passenger service. Peerless Dyeing Co., Inc. v. Indus. Risk Insurers, 392 Pa.Super. 434, 573 A.2d 541, 544 (1990) ("When a word or phrase is specifically defined within the policy, that definition controls in determining the applicability of the policy.").

The Pilosis believe the policy language is ambiguous. They therefore urge application of the rule of insurance construction that interprets policy clauses providing coverage in a manner which affords the greatest possible protection to the insured. See Geisler v. Motorists Mut. Ins. Co., 382 Pa.Super. 622, 556 A.2d 391, 393 (1989). Although this rule does, indeed, represent the law in this area, application is warranted only where the language is, in fact, ambiguous. The canon does not apply where, as here, the language of the policy, viewed in context, is clear. Treasure Craft Jewelers, Inc. v. Jefferson Ins. Co. of N.Y., 431 F.Supp. 1160, 1163 (E.D.Pa. 1977) ("[R]ule of strict construction against the insurance company has no application where the language is clear and unambiguous.") (citing Sidebothom v. Metro. Life Ins. Co., 339 Pa. 124, 14 A.2d 131, 132 (1940)). The plain meaning of the phrase "operated by a duly licensed common carrier for regular passenger service," when viewed in conjunction with the definition of "common carrier," is that coverage extends only to those carriers that are licensed for regular passenger service. See Loomer v. M.R.T. Flying Serv., 384 Pa.Super. 244, 558 A.2d 103, 105 (1989) ("Where the terms of the insurance contract are not ambiguous . . . [the] Court must read the policy in its entirety and give the words therein their plain and proper meanings.").

The interpretation suggested by the Pilosis fails to accord proper significance to the written contract, "historically . . . the true test of parties' intentions." Standard Venetian Blind, 469 A.2d at 567. To interpret the phrase as extending coverage beyond those airlines licensed specifically for regular passenger service renders the policy definition of "common carrier" useless. Pennsylvania courts have held that "[n]o provision within a contract is to be treated as surplusage or redundant if any reasonable meaning consistent with the other parts can be given to it." Sparler v. Fireman's Ins. Co. of Newark, N.J., 360 Pa.Super. 597, 521 A.2d 433, 438 n. 1 (1987); see Quigley v. W. S. Life Ins. Co., 136 Pa.Super. 27, 7 A.2d 70, 72 (1939) ("[Courts] have no right to add anything to the insurance contract or to give it a construction that renders any part of it useless and unnecessary, if it can be reasonably construed just as written and without any change, addition or elimination."). Because J.C. Penney Life's policy language can be reasonable construed as written, no portion of its language should be ignored.

This is not a case where the insurance policy as a whole fails to provide the court with any additional tools to tease out the disputed phrase's alleged plain meaning. See McMillan, 922 F.2d at 1076 (construing an ambiguous, undefined provision of an insurance policy against the insurer because "[n]either the context of the rest of the policy nor any other evidence extrinsic to the phrase itself renders the meaning of [the disputed phrase] more conspicuous"). Rather, the definition of "common carrier" provides ample clarification of any ambiguity that may result from the distal placement of the modifier "for regular passenger service." Because the meaning of the disputed phrase is clear, this Court need not determine whether any reasonable person upon reading it could decide that it encompassed airlines operated for regular passenger service.

To be sure, the burden of drafting with precision rests with the insurance company, the author of the policy. McMillan, 922 F.2d at 1076. However, where, as here, the scrivener has adopted precise language to accomplish its purpose of limiting coverage to those carriers licensed for regular passenger service, that intent must control. Accordingly, it was erroneous to have found the language of Part I of the policy ambiguous.

2. Rules of Statutory Interpretation

In addition to the plain language of the policy, rules of statutory interpretation demonstrate that the plane must be licensed for regularly scheduled passenger service. A general rule of statutory construction, the "doctrine of last antecedent," teaches that "qualifying words, phrases, and clauses are to be applied to the words or phrase immediately preceding, and are not to be construed as extending to and including others more remote." Resolution Trust Corp. v. Nernberg, 3 F.3d 62, 65 (3d Cir. 1993); see United States v. Hodge, 321 F.3d 429, 436 (3d Cir. 2003); Commonwealth of Pa., Dep't of Pub. Welfare v. United States Dep't of Health Human Servs., 80 F.3d 796, 808 (3d Cir. 1996). This rule suggests that the clause "for regular passenger service" modifies the antecedent adjective "licensed," rather than the verb "operated," which is located distally in the middle of the sentence. See also 2A Norman J. Singer, Sutherland Statutory Construction § 47.33 (6th ed. 2000) ("Referential and qualifying words and phrases, where no contrary intention appears, refer solely to the last antecedent.").

To be sure, "this rule [of the last antecedent] is not an absolute and can assuredly be overcome by other indicia of meaning. . . ." Barnhart v. Thomas, 540 U.S. 20, 124 S.Ct. 376, 380, 157 L.Ed.2d 333 (2003) (applying the rule of last antecedent to statutes). However, in this case other indicia point overwhelmingly towards the conclusion that the clause modifies the word "licensed." Even if we were to ignore the contrary meaning provided by the definition of "common carrier," construing the phrase as the Pilosis urge would contort the language beyond its limits because such an interpretation would require a reorganization of the clause. The rewritten phrase would read: "operated by a duly licensed common carrier and operated for regular passenger service." By contrast, interpreting the phrase to mean that the airlines must be licensed for regular passenger service requires no such reorganization. By rewriting the policy to read that EA was a "duly licensed carrier" and "operated for regular passenger service," the District Court created an ambiguity where one does not exist. See Fosse v. Allianz Life Ins. Co. of N. Am., 1994 WL 139413, at *3 (E.D.Pa. Apr.20, 1994) ("An ambiguity does not arise simply because an alternative interpretation of a word can be created through reasoning that renders common words meaningless.").

In light of the plain language of the policy and the contextual clarity provided by the definition of "common carrier," coupled with the absence of any reasonable alternative interpretation of the coverage language, the policy is unambiguous in requiring that the flight be licensed for regular passenger service.

C. "Regular Passenger Service"

Both the plain meaning of the policy language and rules of statutory interpretation reveal that insurance coverage extends narrowly to those common carriers specifically licensed to conduct regularly scheduled passenger service. Furthermore, EA's license includes a significant provision that "[t]he certificate holder is not authorized and shall not . . . [c]onduct Scheduled Operations at Authorized Airports." But even assuming that coverage did extend to all licensed common carriers operating regularly scheduled passenger service, the Pilosis cannot overcome the reality that EA was not conducting regularly scheduled passenger service within the meaning of the policy and under the terms of its license.

The EA shuttle flew patrons from Scranton, Pennsylvania to Atlantic City, New Jersey on alternating Saturdays at 4:30 P.M., and returned the following morning at 2:00 A.M. Although the ill-fated flight was part of a regular pattern of flights engaged by the casino, EA did not dictate the schedule; rather, its client, Caesars, did. EA was operating a service for a client who hired the flight for its convenience on alternate Saturdays. There is a distinction between an airline that accommodates a client who regularly engages a flight once every two weeks and an airline that conducts regularly scheduled passenger service. We hold that when the time and destination of the service is dictated by the convenience or business of the charterer and the airline's license specifically prohibits regularly scheduled service at authorized airports, the service does not qualify as "regular passenger service" under the terms of the policy. Merely chartering a plane on a regular basis does not transform an airline operating on-demand into a regularly scheduled service provider. See Fosse, 1994 WL 139413, at *2 (holding that where an air taxi service operated upon demand, it did not operate its flights pursuant to a set schedule).

As mentioned previously, EA provided on-demand air taxi service. (A489) EA was licensed as a "charter operation providing taxi services" under 14 C.F.R. § 135 (emphasis added). In addition, EA's FAA Air Carrier Operating Certificate designated the airlines as an on-demand air taxi. Moreover, the preliminary accident report filed by the National Transportation Safety Board described the aircraft as an on-demand charter flying a "non-scheduled" flight. Finally, the airline's Operations Specifications not only provided that EA "is not authorized and shall not . . . [c]onduct Scheduled Operations at Authorized Airports[,]" but defined a "scheduled operation" by an air carrier as one "for which the certificate holder or its representative offers in advance the departure location, departure time, and arrival location." 14 C.F.R. § 119.3. The facts of this case demonstrate that EA does not meet the definition of "regular passenger service."

To summarize, Part I of the policy provided benefits of $1 million for accidental death in a public conveyance operated by a duly licensed common carrier for regular passenger service. The EA flight was, indeed, a public conveyance, but was not "operated by a duly licensed common carrier for regular passenger service" as required by the plain language of the policy. Because all of the elements of Part I are not satisfied, it was error as a matter of law to grant summary judgment in favor of the Pilosis on the issue of coverage.

D. Bad Faith

Under Pennsylvania law, a plaintiff can only recover for bad faith of an insurer under 42 Pa.C.S. § 8371 if he or she shows, by clear and convincing evidence, that the insurer: (1) did not have a reasonable basis for denying benefits under the policy; and (2) knew or recklessly disregarded its lack of a reasonable basis in denying the claim. W.V. Realty, Inc. v. N. Ins. Co., 334 F.3d 306, 311 (3d Cir. 2003) (citing Keefe v. Prudential Prop. Cas. Ins. Co., 203 F.3d 218, 225 (3d Cir. 2000)). Although the term "bad faith" is not defined by the Pennsylvania bad faith statute, Pennsylvania courts have interpreted it as "`any frivolous or unfounded refusal to pay proceeds of a policy.'" Terletsky v. Prudential Prop. Cas. Ins. Co., 437 Pa.Super. 108, 649 A.2d 680, 688 (1994) (quoting Black's Law Dictionary 139 (6th ed. 1990)). The "clear and convincing" standard requires that the plaintiff show "that the evidence is so clear, direct, weighty and convincing as to enable a clear conviction, without hesitation, about whether or not the defendants acted in bad faith." Bostick v. ITT Hartford Group, Inc., 56 F.Supp.2d 580, 587 (E.D.Pa. 1999). Thus, the plaintiff's burden in opposing a summary judgment motion is commensurately high in light of the substantive evidentiary burden at trial. Kosierowski v. Allstate Ins. Co., 51 F.Supp.2d 583, 588 (E.D.Pa. 1999).

Given that EA was not licensed for regular passenger service, J.C. Penney Life had a reasonable basis for denying the Pilosis' claim under Part I of its policy. A reasonable basis is all that is required to defeat a claim of bad faith. Horowitz v. Fed. Kemper Life Assurance Co., 57 F.3d 300, 307 (3d Cir. 1995).

Admittedly, some of J.C. Penney Life's conduct may have created an appearance of bad faith. Although J.C. Penney Life's marketing material claimed that coverage applied broadly to any form of public transportation and any type of common carrier, company officials testified under oath that these statements were false, "probably false," or "not necessarily totally true," and that, in reality, the company applies a much narrower definition of "common carrier" in deciding claims.

J.C. Penney Life also appears to have taken inconsistent positions on whether the individual requirements of the policy were satisfied. For instance, J.C. Penney Life continued to argue that the EA flight was not a public conveyance despite the testimony of its employee that the plane met the definition of "public conveyance." In addition, J.C. Penney Life argued in an unrelated case that a helicopter must be certified under 14 C.F.R. § 135 in order to be a duly licensed common carrier. But in the instant case, J.C. Penney Life took the position that EA did not qualify as a common carrier in spite of its certification under 14 C.F.R. § 135.

However, even considering J.C. Penney Life's apparent inconsistencies, there is insufficient evidence from which a jury reasonably could conclude that it was unreasonable for J.C. Penney Life to deny the Pilosis' claim. Because the policy precludes coverage, it was reasonable for J.C. Penney Life to challenge the Pilosis' Part I claim. As stated previously, a reasonable basis defeats a claim of bad faith. Horowitz, 57 F.3d at 307. See Hyde Athletic Indus., Inc. v. Cont'l Cas. Co., 969 F.Supp. 289, 307 (E.D.Pa. 1997) (although an insurance company has a duty to accord the interests of its insured the same consideration it gives its own interests, "an insurer is not `bound to submerge its own interest in order that the insured's interests may be made paramount,' and an insurer does not act in bad faith by investigating and litigating legitimate issues of coverage.") (quoting Cowden v. Aetna Cas. Sur. Co., 389 Pa. 459, 134 A.2d 223, 228 (1957)). Accordingly, we see no error in the District Court's conclusion that J.C. Penney Life is entitled to judgment as a matter of law on the bad faith claim.

Although oral argument on behalf of the Pilosis was presented ably and professionally, we note that their brief fails to comply with a number of local and federal appellate rules. The Pilosis' brief, inter alia, fails to inform us where in the record the issues were raised and ruled on, in violation of 3d Cir. L.A.R. 28.1(a)(1), the brief fails to include parenthetical descriptions of and citations to the record when making statements of fact, in violation of 3d Cir. L.A.R. 28.3(c), and the brief fails to set forth this Court's jurisdiction, in violation of Fed.R.App.P. 28(a)(4)(D). The local and federal appellate rules exist to facilitate the Court's review and to aid the speedy administration of justice. This objective is frustrated when the rules are ignored. We remind counsel who prepared the brief that adherence to appellate rules is not discretionary.

II.

The District Court's grant of summary judgment in favor of the Pilosis on the amount of coverage is reversed because the Part I policy requirements were not satisfied. For the same reason, we affirm the District Court's denial of the Pilosis' bad faith claim. Each side to bear its own costs.