JANUAY 2017 BAD FAITH CASES: INSURER’S LITIGATION CONDUCT CAN ONLY PROVIDE BASIS FOR BAD FAITH CLAIM WHERE CONDUCT IS EXTRAORDINARY OR EGREGIOUS – WHICH DID NOT OCCUR IN THIS CASE (Western District).

Print Friendly

The court predicted, and held, that evidence of litigation conduct is admissible as evidence of bad faith only “in the rare cases involving extraordinary facts.”

The insured was injured in a motor vehicle accident. There were underinsured policy limits of $500,000, which the insured demanded. The carrier rejected the policy limits demand, and the case went to trial. During trial, the parties signed a “Binding High-Low Settlement Agreement” that contained a provision dismissing all claims for bad faith occurring “prior to” the execution of the Agreement, but preserving all claims for bad faith occurring “after the date” of the Agreement’s execution.

On the same day the parties executed the Agreement, during trial, the insurer introduced videotaped testimony of two medical experts. During closing arguments, the insurer referenced their testimony. The jury returned a verdict in favor of the insured. The insurer filed a motion to mold the verdict to the “high” set forth in the Agreement, and further sought to dismiss the insured’s bad faith claim “as of” the date of the Agreement. The insured argued that, pursuant to the Agreement, only claims for bad faith occurring “prior to” the date of the Agreement should be dismissed. The trial court ruled for the insured.

The insured filed a separate lawsuit, alleging that the insurer acted in bad faith when it introduced the videotaped deposition of the medical experts, whom the insured felt was biased; referenced their testimony during closing; and filed the motion to mold the verdict with what the insured believed had inaccurate wording. The insurer filed a motion to dismiss the insured’s complaint.

In addressing the litigation conduct as bad faith issue, the Court found there was an: “ill-defined line… drawn between conduct which can be described as ‘defending the claim’ and that which suggests ‘that the conduct was intended to evade the insurer’s obligations under the insurance contract.’” The Court reviewed decisions from other jurisdictions that had “developed more comprehensive rules for dealing with bad faith claims premised on litigation conduct.” It found that the other jurisdictions employ four approaches.

In the first approach, there is a blanket prohibition on introducing evidence to show an insurer’s bad faith. In the second approach, an insured may introduce evidence of unreasonable settlement behavior, while introduction of litigation conduct, techniques and strategies is prohibited. In the third approach, an insured may introduce litigation strategies and techniques, “as long as the insurer knowingly encouraged, directed, participated in, relied upon, or ratified the alleged wrongful conduct.” In the fourth approach, utilized by most jurisdictions, evidence of litigation conduct is admissible evidence of bad faith in “rare cases involving extraordinary facts.”

The Court found that Pennsylvania’s Supreme Court has not adopted any of the four approaches. It predicted that the Supreme Court would adopt the fourth approach for three reasons: (1) The fourth approach “most effectively balances an insurer’s interest in defending itself and the ability of courts and rules of civil procedure to handle most litigation abuses with the relatively broad scope of § 8731.”; (2) Most of the other jurisdictions utilize the fourth approach; and (3) The fourth approach is the most consistent with the Pennsylvania case law that exists on the issue.

Applying this standard, the Court ruled that the insured’s allegations relating to the insurer’s medical experts were not rare, extraordinary, or egregious; and did not rise to the level of bad faith. Specifically, in regards to the first medical expert, the Court rejected the insured’s argument that the expert was biased, given the contradiction between the expert’s report and his deposition testimony. The insured’s allegations were merely conclusory. As to the second expert, the Court found that the insured was able to fully address his concerns through cross-examination, that the expert “always finds in favor of the party paying him”.

As to referencing the medical experts’ during closing argument, the Court held that if the insurer’s use of the expert testimony did not constitute bad faith, then referencing it during closing arguments similarly could not constitute bad faith. The Court stated that the insured did not suffer any prejudice. More importantly, the Court explained: “parsing an insurer’s closing argument after the fact through a bad faith action endangers an insurer’s ability to defend itself.” Furthermore, the Court stated that it would threaten the insurer’s attorney’s duty to competently and zealously represent a client.

Finally, with regard to the insured’s allegations based upon the insurer’s motion to mold the verdict, via putative improper wording, the Court held that the allegations did not rise to the level of bad faith. Specifically, the Court found that the insurer’s wording “seem[ed] reasonable given the somewhat ambiguous wording of the [A]greement itself.”

Ultimately, the Court granted the insurer’s motion to dismiss the insured’s complaint.

The case is currently on appeal with the U.S. Court of Appeals for the Third Circuit.

Date of Decision: August 26, 2016

Homer v. National Mutual Ins. Co., No. CV 15-1184, 2016 WL 4493689, 2016 U.S. Dist. LEXIS 114548 (W.D. Pa. Aug. 26, 2016) (Barry Fischer, J.)

JANUARY 2017 BAD FAITH CASES: UNSUCCESSFUL, BUT REASONABLE, LEGAL ARGUMENT CANNOT BE THE BASIS FOR A BAD FAITH CLAIM (Western District)

Print Friendly

The insureds won a legal argument as to whether they were entitled to stacking. The insureds later argued that the court should find bad faith against the insurer, on the basis of the insureds’ legal argument prevailing on coverage.

The bad faith claim failed, however, because the carrier’s position was reasonable, even though unsuccessful. “The crux of the Parties’ disagreement – – whether the [vehicle] was added to the [insureds’] policy by endorsement or by the ‘newly acquired vehicle’ clause of the policy – -was resolved in the [the insureds’] favor by this Court, but the authority for both Parties’ positions was reasonably supported by the cases they respectively cited.” Summary judgment was granted to the insurer on the bad faith claim.

Date of Decision: November 28, 2016

Trustgard Ins. Co. v. Campbell, No. 16cv1013, 2016 U.S. Dist. LEXIS 163606 (W.D. Pa. Nov. 28, 2016) (Schwab, J.)

reflecting-pond

Photograph by M. M. Ginsberg

JANAURY 2017 BAD FAITH CASES: A “LOW-BALL” OFFER TO SETTLE, WITHOUT MORE, IS INSUFFICIENT TO SHOW BAD FAITH (Philadelphia Federal)

Print Friendly

This first-party Uninsured/Underinsured Motorist Coverage claim involved allegations that the insurer acted in bad faith by making a “low-ball” offer to settle the insured’s personal injury claims. The case arose out of a car accident where the insured was rear ended in a hit and run and incurred medical bills totaling $8,232.00. The Insurer made an initial offer of $1,000 to settle the Insured’s UIM claim. This offer was rejected, and the Insurer refused to pay the full value of the Insured’s medical bills.

The Insured’s bad faith claim was based solely on the premise that the $1,000 offer, acting alone, was facially unreasonable in light of the $8,000 in medical bills and $25,000 policy limits. The Insured argued that a facially unreasonable offer is itself bad faith. The Court disagreed. According to the Court, a “low-ball” offer, without any other allegations of wrongful conduct, is insufficient to maintain a claim of bad faith. To prove bad faith, an insured must point to some action or inaction taken by the insurer which shows that the offer was not made negligently or as a negotiation strategy, but made as a result of bad faith conduct on the part of the insurer. Entirely missing from the Insured’s Complaint were any allegations that the Insurer failed to conduct a reasonable investigation or failed to have the medical records reviewed by an in-house doctor or nurse.

Date of Decision: August 11, 2016

West v. State Farm Ins. Co., No. 16-3815, 2016 U.S. Dist. LEXIS 106783 (E.D. Pa. Aug. 11, 2016) (Jones, II, J.)

JANUARY 2017 BAD FAITH CASES: NO BAD FAITH ON RECORD SHOWING REASONABLE INVESTIGATION AND CLAIMS HANDLING; AND COURT OBSERVES THAT WHERE PARTY DOES NOT IDENTIFY AND PROVIDE SUPPORTING FACTS, JUDGES ARE NOT LIKE PIGS, HUNTING FOR TRUFFLES BURIED IN THE RECORD (Middle District)

Print Friendly

The court granted summary judgment to the insurer in this bad faith case arising out of a fire at the insureds’ home. While the insurer provided a detailed factual recount from the record to makes its case, the court stated that the insureds “relied upon bare allegations and narrative argument that does little more than summarize bad-faith law in Pennsylvania, without showing how the facts of this particular case could support a claim under the statute.”   The insurer had paid nearly $150,000 after investigating the fire and losses therefrom, but it argued the items put in dispute by the insured were not connected to the fire, which the insured failed to factually refute.

The court observed that “It is not bad faith for an insurance company to ‘conduct a thorough investigation into a questionable claim.’” The insurer will be successful in defending a bad faith claim based on its investigation of the matter by “showing ‘a reasonable basis’ for investigating a claim, and is … entitled to judgment as a matter of law, where it demonstrates the existence of certain ‘red flags’ which prompted it to further investigate an insured’s claim.”

Red flags existed in this case where “the insurance policy had been purchased immediately prior to the fire and the determination by two fire experts that it had been caused by arson. The record also reveals that, rather than wasting time, [the insurer] began an investigation immediately, while at the same time advancing money to the plaintiffs for immediate needs such as clothing and hotel expenses.” Further, the insurer “promptly undertook investigation into the fire’s cause, the plaintiffs contributed directly to the duration of the investigation by delaying their examinations under oath, which State Farm had requested, roughly two months earlier.” And, “during this investigation, [the insurer] continued to pay the plaintiffs’ housing and living expenses, despite the ongoing nature of the investigation and the possibility that at the end of that process coverage would not be offered.” The insurer ultimately concluded that the matter was not arson, but as stated did not pay every claim the insureds made in connection with the loss.

The insurer routinely and appropriately sent correspondence in response to the insureds, and delays in the process were “not solely or even principally attributable to” the insurer.

Finally, the court rejected the notion that it should review evidence provided by the moving insurer, and “wade into that evidence in order to find some evidence that could rise to the level needed for the plaintiffs to carry their burden on this claim. This invitation is antithetical to good summary judgment practice, and the plaintiffs would do well to remember that “‘[j]udges are not like pigs, hunting for truffles buried in the record.’”

Date of Decision: November 16, 2016

Hoffman v. State Farm Fire & Cas. Co., No. 4:14-1978, 2016 U.S. Dist. LEXIS 158795 (M.D. Pa. Nov. 16, 2016) (Carlson, M.J.)

DECEMBER 2016 BAD FAITH CASES: ANOTHER EXAMPLE OF ERISA PRE-EMPTION (Philadelphia Federal)

Print Friendly

Once more, a court found that ERISA pre-empted statutory bad faith claims.

Date of Decision:  November 17, 2016

Erica A. Shore, P.C. v. Independence Blue Cross, No. 16-5224, 2016 U.S. Dist. LEXIS 160022 (E.D. Pa. Nov. 17, 2016) (McHugh, J.)

 

 

DECEMBER 2016 BAD FAITH CASES: COURT EXPLAINS BASIS FOR ERISA PRE-EMPTION (Philadelphia Federal)

Print Friendly

The Court went over the Third Circuit’s case law history to explain why ERISA pre-empts section 8371 bad faith claims.

Date of Decision: August 1, 2016

Haase v. Metro. Life Ins. Co., No. 15-2864, 2016 U.S. Dist. LEXIS 100113 (E.D. Pa. Aug. 1, 2016) (Robreno, J.)

 

DECEMBER 2016 BAD FAITH CASES: INSURER DID NOT ACT IN BAD FAITH BY SETTLING CLAIMS AGAINST INSURED, WHERE POLICY GAVE INSURER POWER TO SETTLE (Pennsylvania Superior Court) (Not Precedential)

Print Friendly

The appellate court affirmed a decision that an insurer could not have acted in bad faith when settling claims against the insured, because the insurer had the authority to settle by the clear terms of the insurance policy.

Date of Decision: November 17, 2016

Fandray v. Baum, No. 199 WDA 2016, 200 WDA 2016, 2016 Pa. Super. Unpub. LEXIS 4203 (Pa. Super. Ct. Nov. 17, 2016) (Elliot, Jenkins, Lazarus, JJ.) (not precedential)

DECEMBER 2016 BAD FAITH CASES: COURT REFUSES TO BIFURCATE UIM CONTRACT AND BAD FAITH CLAIMS, OR STAY BAD FAITH DISCOVERY WHERE INSURED RESISTED THE STAY AND WAS WILLING TO RISK POTENTIAL PREJUDICE TO THE INSURED HIMSELF DURING CONSOLIDATED DISCOVERY (Philadelphia Federal)

Print Friendly

The insurer sought to bifurcate the breach of contract and bad faith claims in this UIM case, and a stay of discovery on the bad faith claim. In its second bad faith opinion of the day, the court denied the motion as the factors concerning convenience to the parties, avoidance of prejudice, or efficiency did not warrant separation of the two claims or a stay on discovery. The details of the court’s decision are quoted, in part, below: “In commercial or property damage cases, there may be complexities that warrant bifurcation; however, this is a personal injury case arising out of a motor vehicle accident. The key issue in the breach of contract claim is damages and the principal basis of the bad faith claim is delay: neither is a complex issue.”

“[B]ifurcation is not warranted … because [the insurer] has not shown that the level of prejudice it will face from proceeding to one trial on both claims outweighs the detrimental effects of severance. First, we note that although … the issues in the two claims are distinct, they are not as dissimilar as [the insurer] contends.” In arguing that the contract claim focuses on determining damages and the bad faith claim on the insurer’s case evaluation, the insurer “fails to recognize that an evaluation of the reasonableness of an insurer’s investigation necessarily includes analysis of the documentation the insurer relied on in coming to its conclusion. Indeed, ‘[the insurer’s] investigation did not occur in a vacuum,’ and the facts regarding the underlying accident and its consequent damages are relevant to it.”

“There is considerable overlap in the evidentiary proof relevant to each claim. Analysis of both claims is likely to require testimony from [the insured], [his] treating physicians, and [the insurer’s] medical expert as well as documentation regarding the accident, [the insured’s] injuries and the damages he suffered. Although foreseeable additional witnesses for the bad faith claim are the [insured’s] personnel responsible for handling [the] claim, and counsel for either or both parties, it is likely that many witnesses, and much of their testimony, will be the same for both claims. It would be inconvenient and wasteful of judicial resources to require them to appear in two separate trials to testify on overlapping issues.”

The court distinguished two other cases because of the difference in the progress of discovery on the contract and bad faith claims; and because it was unclear in the present case if counsel would have to testify, because counsel’s role was not pivotal to the bad faith claims at issue.

Finally, the insurer contended “without citation to any authority, that separate trials and a stay on discovery in the bad faith claim is necessary in order to assuage the potential for prejudice to both parties in the discovery process.” It argued “that work product it generated in preparation for litigation of the contractual claim would be relevant and discoverable in the bad faith claim, forcing [it] to either forfeit its privilege or claim it and thereby hamper Plaintiff’s litigation of the bad faith claim.”

The court found this did not warrant staying the bad faith claim. “[T]he insurer’s privilege would ‘not disappear merely because work product prepared in anticipation of litigation over one claim may also be relevant to a second claim.’” “Rather, the insurer would simply have to ‘prove its entitlement to work product protection, . . . [a fact] that does not justify the necessary expenditure of judicial resources and time’ that severance would occasion.”

Moreover, “the party most at risk of prejudice under the instant circumstances is [the insured], and he opposes [the insurer’s] motion. By opposing severance, [he] takes the risk that he may be vulnerable to not obtaining documents [the insurer] would otherwise be willing to produce. [He] has chosen this course rather than go through ‘the time and expense of having to participate in two separate rounds of discovery (and inevitable motion practice) accompanied by two separate jury trials.’” The insured’s stance therefore weakened the carrier’s position that severance was necessary to prevent prejudice in the course of discovery.

Date of Decision: November 21, 2016

Zinno v. Geico Gen. Ins. Co., No. 16-792, 2016 U.S. Dist. LEXIS 161250 (E.D. Pa. Nov. 21, 2016) (Baylson, J.)

DECEMBER 2016 BAD FAITH CASES: COMPENSATORY DAMAGES ONLY RECOVERABLE FOR CONTRACTUAL BAD FAITH, NOT FOR STATUTORY BAD FAITH (Philadelphia Federal)

Print Friendly

In this case, the insured improperly sought compensatory and consequential damages as part of his section 8371 claim. Such damages cannot be recovered under section 8371, but may be available for breach of the common law contractual duty of good faith and fair dealing. Thus, while striking the statutory claim for compensatory damages, the court gave the insured leave to amend to plead such damages under the pending common law contract claim.

Date of Decision: November 21, 2016

Koepke v. Allstate Vehicle & Prop. Ins. Co., No. 16-4633, 2016 U.S. Dist. LEXIS 161112 (E.D. Pa. Nov. 21, 2016) (Baylson, J.)

DECEMBER 2016 BAD FAITH CASES: REVERSE BAD FAITH RELIEF AND STATUTORY INSURANCE FRAUD GRANTED ON SUMMARY JUDGMENT (Philadelphia Federal)

Print Friendly

In this case, the record was uncontroverted that the insured stated in the application to his homeowner’s carrier that he did not use alternative heat sources. However, he later admitted to using kerosene heaters. The house burned down, and he made claims for coverage, which were denied. He brought suit for breach of contract.

The carrier counterclaims for breach of the duty of good faith and fair dealing, and insurance fraud under 18 Pa.C.S. § 4117. The Court granted summary judgment to the insurer on both the breach of the contractual duty of good faith and statutory insurance fraud based upon the uncontroverted evidence. It rejected an 11th hour argument that the insured was illiterate, based upon the record showing he was capable of reading.

Date of Decision: November 22, 2016

Payne v. Allstate Ins. Co., No. 11-2546, 2016 U.S. Dist. LEXIS 162376 (E.D. Pa. Nov. 22, 2016) (Schiller, J.)