FEBRUARY 2017 BAD FAITH CASES: COURT WOULD NOT REMAND DECLARATORY JUDGMENT ACTION WHERE JOINED WITH BAD FAITH CLAIM; BAD FAITH CLAIM ADEQUATELY PLEADED TO SURVIVE MOTION TO DISMISS (Western District)

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The district court refused to remand a declaratory judgment coverage action, principally because there was also a bad faith claim in the case. The court did look at some of the other Reifer factors before rendering its conclusion.

Having maintained jurisdiction, the court refused to dismiss the bad faith claim at the pleading stage. The insured had pleaded that a disclaimer letter prospectively denying a duty to defend was sent five months before any suit was filed. Further, this letter lacked an explanation of the carrier’s reasoning, and a later letter had the same failings in explaining the carrier’s position. The insured also alleged that the insurer failed to respond to the insured’s correspondence in another instance, and the insurer only conducted a cursory investigation into the claim. The insured further alleged that the insurer failed to provide a defense after the insured provided additional information and trial was approaching.

The court noted that the duty to defend is broader than the duty to indemnify, and it was not comfortable deciding the merits of potential coverage issues on a motion to dismiss, on the facts as pleaded. Rather, the court was persuaded that discovery was appropriate and the record should be further developed. The insurer could raise its defense later in the case, via summary judgment.

Date of Decision: January 30, 2017

Chester v. Utica First Ins. Co., No. 16-1671, 2017 U.S. Dist. LEXIS 12096 (W.D. Pa. Jan. 30, 2017) (Barry Fischer, J.)

 

FEBRUARY 2017 BAD FAITH CASES: CONCLUSORY ALLEGATIONS NOT ENTITLED TO PRESUMPTION OF TRUTH, AND FEW FACTUAL ALLEGATIONS DID NOT REACH LEVEL OF BAD FAITH (Philadelphia Federal)

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Plaintiffs failed to plead an adequate bad faith complaint under Twombly/Iqbal, but were given leave to amend.

Among the averments that did not meet muster were allegations that the insurer falsely represented that the loss which was not covered, and that the insurer’s representative knew this representation was false, fraudulent and misleading and made solely for the purpose of depriving plaintiffs of the benefits of the Policy. The representative’s letter was actually was attached to the complaint and explained that “[b]ased on [the] investigation and review of [a forensic analysis and engineering report] . . . the damage to the bridge is the result of wear, tear, deterioration, and erosion, which is not covered under the Policy.”

Other inadequate averments were that the insurer and its agents:

failed to complete a prompt and thorough investigation before denying the claim,

failed to pay in a prompt and timely manner,

failed to objectively and fairly evaluate the claim,

conducted an unfair and unreasonable investigation,

asserted Policy defenses without a reasonable basis in fact,

flatly misrepresented pertinent facts or policy provisions relating to coverages at issue and placed unduly restrictive interpretations on the Policy and/or claim forms,

failed to keep the insureds fairly and adequately advised as to the status of the claim, unreasonably valued the loss and failed to negotiate the amount of the loss,

failed to promptly provide a reasonable factual basis for the denial of the claim,

unreasonably withheld policy benefits,

acted unreasonably and unfairly when responding to the claim,

and unnecessarily and unreasonably compelled a lawsuit.

These allegations did not allege sufficient facts to state a claim of bad faith against defendant. They merely restated the possible conduct that may be considered to be bad faith. They were merely conclusory allegations. While the allegation “that a representative of defendant forwarded correspondence to plaintiffs is a factual allegation, the allegations that this correspondence ‘falsely represented’ that the loss was not covered and that the representative ‘knew this representation was false, fraudulent and misleading and made solely’ to deprive plaintiffs of the benefits of the Policy are conclusory.

The court found such “conclusory allegations … are not entitled to the presumption of truth in determining whether the Complaint states a claim for bad faith.” At most, the factual allegations actually pleaded in the Complaint and the exhibits “allege … that defendant’s analysis of the damage to the Property and/or the Policy’s coverage was incorrect. Without more, the Complaint does not sufficiently allege a claim of bad faith conduct by defendant.”

Date of Decision: January 24, 2017

Alidjani v. State Farm Fire & Cas. Co., 2017 U.S. Dist. LEXIS 9387, *6-8 (E.D. Pa. Jan. 24, 2017) (DuBois, J.)

FEBRUARY 2017 BAD FAITH CASES: INSURER CAN UNILATERALLY RESCIND POLICY ON BASIS OF MATERIAL MISREPRESENTATION IN APPLICATION (Philadelphia Federal)

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This case involved an alleged material misrepresentation in a health insurance policy application. The court found that the insurer did not have to seek rescission via bringing suit in court, but could “unilaterally rescind” the policy, and take the risk that the insured would bring future claims against the insurer for breach or bad faith. Thus, in the court’s reading of Pennsylvania law, “unilateral rescission of a contract remains an optional remedy for an insurance carrier. The fact that carriers often choose to proceed conservatively by bringing suit does not limit the array of remedies permitted by common law….”

Date of Decision: December 19, 2016

King v. Golden Rule Ins. Co., No. 16-3614, 2016 U.S. Dist. LEXIS 175157 (E.D. Pa. Dec. 19, 2016) (McHugh, J.)

FEBRUARY 2017 BAD FAITH CASES: NO BAD FAITH WHERE INSURER DID NOT SECRETLY CONCEDE COVERAGE, NOR RELY UPON A CLEAR ERROR IN ITS DENIAL LETTER (New Jersey Federal)

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The New Jersey federal court had to apply the “reasonably debatable” standard to the bad faith denial claim in this matter. The insured had two theories of bad faith liability.

The first was that the insurer’s adjuster sent an internal email conceding coverage. However, what the email actually stated was that while the damage claims may have fallen within one policy definition, it also referenced potentially applicable exclusions. “Thus, the critical email fails to support [the insured’s] repeated allegation that the email unequivocally reflects that [the insurer] believed that [its insured] had coverage. Instead, the email itself states that exclusions may apply which would negate coverage.”

Second, the insurer’s denial letter included an erroneous interpretation of the policy, affecting the exclusion. The insurer admitted it made this error. There was no bad faith, however, because the insurer never pressed forward on this position, and it “took the same position regarding denial of coverage without reference to either limitation.” By contrast: “If the facts were different, for example if [the insured] had evidence that [the insurer] denied the claims believing that they were in fact covered, but attempted to pull a sleight of hand by pointing to irrelevant policy provisions, the Court’s decision concerning bad faith could be different.” This was not the case, and summary judgment was granted to the insurer on the bad faith claim.

Date of Decision: December 30, 2016

National Manufacturing Co. v. Citizens Ins. Co. of Am., No. 13-314, 2016 U.S. Dist. LEXIS 180145 (D.N.J. Dec. 30, 2016) (Vazquez, J.)

FEBRUARY 2017 BAD FAITH CASES: INSURER NOT REQUIRED TO REIMBURSE PRIVATE DEFENSE COUNSEL (New Jersey Appellate Division)

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A default was taken against the insured, who hired his own counsel to defend the matter, without notice to the insurer. The court found this a breach of the insured’s duty. However, once put on notice of the suit and default, the insurer took prompt action to vacate the default and settle the matter.

Among other things, the insured sued for bad faith on the basis of the insurer’s refusal to reimburse private counsel’s legal fees. The court granted summary judgment, as the insurer never denied coverage, there was no reason to hire private counsel had the insured put the insurer on notice, and there was no permission from the insurer to hire that counsel as required by the policy.

Date of Decision: December 7, 2016

Kim v. Leading Ins. Group & Leading Ins. Servs., No. A-5161-14T1, 2016 N.J. Super. Unpub. LEXIS 2599 (App.Div. Dec. 7, 2016) (Reisner and Sumners, JJ.) (Unpublished)

FEBRUARY 2017 BAD FAITH CASES: COURT PROVIDES GOOD OVERVIEW OF LAW ON DISMISSING BOILERPLATE BAD FAITH ALLEGATIONS (Western District)

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In this case, the insured bad faith plaintiff pleads conclusory language taken from case law and the Unfair Insurance Practices Act, all of which failed to meet the Twombly/Iqbal pleading standards. The opinion provides a list of other cases as reference points of such failed pleadings. That being said, dismissal of the bad faith count was without prejudice, so that the plaintiff could attempt to plead a plausible bad faith claim.

Date of Decision: December 21, 2016

Mondron v. State Farm Mut. Auto. Ins. Co., No. 16-412, 2016 U.S. Dist. LEXIS 176404 (W.D. Pa. Dec. 21, 2016) (Bissoon, J.)

FEBRUARY 2017 BAD FAITH CASES: USE OF UMBRELLA TRADE NAME DOES NOT DEMONSTRATE BAD FAITH (New Jersey Federal)

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The insureds move to remand this New Jersey federal action back to Superior Court. The insureds argued at one point that the insurer defendants, “anticipating a lawsuit, acted in bad faith, using the name ‘Chubb Insurance’ in correspondence to mislead them into naming a defendant that is not a legal entity.” The court stated that: “An entity’s use of an umbrella trade or business name that differs from its legal name does not in itself demonstrate bad faith.”

Date of Decision: December 9, 2016

Fischer v. Chubb Ins., No. 16-8220, 2016 U.S. Dist. LEXIS 170590 (D.N.J. Dec. 9, 2016) (McNulty, J.)

JANUARY 2017 BAD FAITH CASES: THERE CAN BE NO BAD FAITH WHERE THERE IS NO COVERAGE DUE (Western District)

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The court found “’there can be no bad-faith claim [for denial of coverage] if the insurer was correct as a matter of law in denying coverage.’” It relied on the oft-cited 1999 Third Circuit opinion in Frog, Switch & Mfg. Co. v . Travelers. As the court had earlier found there was no viable breach of insurance contract claim, there could be no bad faith claim.

The court also addressed a putative failure to adequately investigate the claim. The insurer adduced various steps it had taken; and the insured alleged problems in investigation, but without providing evidence to resist a summary judgment motion.

Summary judgment was granted on all counts to the carrier.

Date of Decision: January 10, 2017

Wehrenberg v. Metro. Prop. & Cas. Ins. Co., No. 14-1477, 2017 U.S. Dist. LEXIS 3242 (W.D. Pa. Jan. 10, 2017) (Hornak, J.)

JANUARY 2017 BAD FAITH CASES: JUDGE MUNLEY GRANTS SUMMARY JUDGMENT TO CARRIER ON BAD FAITH CLAIMS AS TO ISSUES OF MULITPLE ADJUSTERS AND MULTIPLE ESTIMATES DURING CLAIMS PROCESS (Middle District)

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Judge Munley granted the insurer’s summary judgment motion on bad faith. The insured’s claims rested on two arguments: (1) the insurer “assigned an inordinate number of representatives to her claim.”; amd (2) the insurer “refused to timely pay the full value of her loss. Rather, [it] provided multiple estimates and payments over a seven-month period.”

The court observed, “it is not bad faith to conduct a thorough investigation into a questionable claim.” The insured failed to present evidence that the claim management “was anything other than what it claimed: an attempt to further investigate the water damage at plaintiff’s home to determine the value of her claim.” No expert testimony was offered regarding the nature of the insurer’s investigation. No evidence of internal communications or testimony establishing that the carrier acted out of spite during its investigation was offered. There was “no competent evidence from which a reasonable jury could find that the number of … employees assigned to her claim establishes bad faith.”

Second, the court rejected the insured’s arguments that multiple estimates demonstrate bad faith. There was a difference of $19,000 over six months, and the insured argued this showed the insurer refused to fully investigate her claim and make timely payment. There was no authority to support this argument. The court cited appellate law for the point that “subsequent estimates assign[ing] a higher value to the claim is not ‘clear and convincing’ evidence that the insurer acted in bad faith in arriving at its initial estimate or by standing by that estimate until the appraisal process concluded.’” There was also a history of detailed investigations at the home, and an attempt to reconcile various estimates. At most, the evidence may have demonstrated the estimates were arguably negligent, but mere negligence is not bad faith.

Date of Decision: December 5, 2016

Yatsonsky v. State Farm Fire & Cas. Co., No. 3:15cv1777, 2016 U.S. Dist. LEXIS 167224 (M.D. Pa. Dec. 5, 2016) (Munley, J.)

2017 BAD FAITH CASES: THIRD CIRCUIT AFFIRMS NO DUTY RUNNING TO INSURED’S AVERSARY (Third Circuit, Pennsylvania)

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The Third Circuit upheld the trial court’s dismissal of a bad faith claim. Among other things, it agreed that the plaintiff was not an insured, and the policy plainly set forth a duty to defend and indemnify the insured, not the insured’s adversary. The court observed: “[T]he duty to negotiate a settlement in good faith arises from the insurance policy and is owed to the insured, not to a third-party claimant.”

Date of Decision: December 12, 2016

Leboon v. Zurich Am. Ins. Co., No. 16-2088, 2016 U.S. App. LEXIS 22019 (3d Cir. Dec. 12, 2016) (Cowen, Fuentes, Shwartz, JJ.)