JULY 2016 BAD FAITH CASES: A LOW BUT REASONABLE LOSS ESTIMATE CANNOT BE BAD FAITH (Western District)

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In Gowton v. State Farm Fire & Casualty Company the insured’s sole allegation of bad faith was a conclusory averment that a refusal to pay in the amounts alleged due was bad faith. The complaint also averred at one point that the insurer relied on loss calculations that were unsupportable, without any explanation of why they were inadequate. Under Pennsylvania case law, a low but reasonable estimate of a loss is not bad faith. Thus, an unsupported claim that an insurer estimated low, by itself, cannot be bad faith. The court dismissed with leave to file an amended complaint.

Date of Decision: June 29, 2016

Gowton v. State Farm Fire & Cas. Co., No. 15-1164, 2016 U.S. Dist. LEXIS 84454 (W.D. Pa. June 29, 2016) (Bissoon, J.)

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JULY 2016 BAD FAITH CASES: BAD FAITH CLAIM AGAINST INSURER CONCERNING CRIMINAL CLAIMS AGAINST INSURED FOR HAVING MADE AN INSURANCE CLAIM IS NOT TOLLED UNTIL VINDICATION UNLESS INSURER INSTIGATED CRIMINAL PROCEEDING (Superior Court of Pennsylvania) (not precedential)

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In Fieldhouse v. Metropolitan Property and Casualty Insurance Company, the court provides an overview on when tolling applies to the bad faith statute of limitations where the issue involves criminal charges against an insured for a false insurance claim. The court points out that tolling applies if the insurer instigates the criminal proceeding, until the time when the insured successfully defends against the criminal charges. However, where the criminal process is not initiated through the insurer’s effort, there is no tolling.

Date of Decision: June 21, 2016

Fieldhouse v. Metro. Prop. & Cas. Ins. Co., No. 3056 EDA 2015, 2016 Pa. Super. Unpub. LEXIS 2166 (Pa. Super. Ct. June 21, 2016) (Bowes, Mundy, Musmanno, JJ.) (not precedential)

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JULY 2016 BAD FAITH CASES: REASONABLE INVESTIGATION ELIMINATES BASIS FOR BAD FAITH CLAIM, AS INSURED COULD NOT SHOW BY CLEAR AND CONVINCING EVIDENCE THAT INSURER HAD “NO GOOD REASON” TO DENY COVERAGE (Philadelphia Federal)

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Dougherty v. Allstate Property & Casualty Company involved a claim for water damage from burst pipes. The insurer took the position that the insured failed to properly maintain his furnace, leading to freezing and the burst pipes. The insurer asserted a frozen pipe exclusion and a maintenance failure exclusion. The insured brought breach of contract and bad faith claims. The court granted summary judgment to the insurer on both counts.

On the bad faith count, the court used a “no good reason” to deny coverage standard as a means of measuring bad faith. Thus, it was not unreasonable to focus the investigation on the furnaces’ condition “given that the water damage to the property occurred in January in Pennsylvania in an unoccupied property where the gauge on the oil tank read empty at the time of the loss (even though the gauge was later determined to be faulty).” The furnace had failed due to a clogged nozzle. The insured offered no evidence to show why the insurer should have concluded that “the discharge of water caused the furnace to malfunction and not the other way around.” The court also noted that the “plaintiff testified that he has no evidence that anyone [had] any ill will towards him or that anyone … tried to influence [the expert’s] conclusions.”

Date of Decision: May 5, 2016

Dougherty v. Allstate Prop. & Cas. Ins. Co., No. 14-7270, 2016 U.S. Dist. LEXIS 59667 (E.D. Pa. May 5, 2016)

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JULY 2016 BAD FAITH CASES: COURT RETAINED JURISDICTION OVER INSURER’S DECLARATORY JUDGMENT ACTION, REFUSING TO ABSTAIN UNDER SUMMY/REIFER (Western District)

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In Westport Insurance Corp. v. Hippo, the insured defendant was subject to a professional malpractice action in state court. The insurer brought a declaratory judgment action in federal court, seeking a ruling of no duty to defend or indemnify the state court action. The insured then brought its own declaratory judgment and bad faith action against the insurer in state court. The insured further asked the federal court to decline jurisdiction over the insurer’s declaratory judgment action. The court applied the 8 part Reifer test and decided to exercise jurisdiction over the insurer’s declaratory judgment action.  [Note: Reifer had seemed to indicate additional factors, beyond the Third Circuit’s seminal Summy decision, favoring the exercise of jurisdiction over declaratory judgment actions, though it was a matter clearly to be weighed carefully on either side].

Other 2016 post-Reifer decisions show most district courts declining jurisdiction over insurance declaratory judgment actions, at least in opinions available on Lexis. See, e.g., Kline v. Travelers Personal Security Ins. Co. (Middle District), Rachel II, Inc. v. State National Ins. Co. (Eastern District), Liberty Insurance Corp. v. Higgenbotham, No. 2:16-cv-38 (Western District March 24, 2016), Firemen’s Insurance Co. v. B. R. Kreider & Son, Inc. (Eastern District), Steadfast Insurance Co. v. Environmental Barrier Co. (Western District), Easterday v. Federated Mutual Ins. Co. (Eastern District), State Farm Mutual Automobile Ins. Co. v. Biddle (Western District).

In one other Western District case, the court did retain jurisdiction, Rafferty v. Metropolitan Life Ins. Co.

Date of Decision: April 28, 2016

Westport Ins. Corp. v. Hippo, 2016 U.S. Dist. LEXIS 56573 (W.D. Pa. April 28, 2016) (Gibson, J.)

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JULY 2016 BAD FAITH CASES: NO BAD FAITH ON BASIS OF: (1) LACK OF COMMUNICATION OR INVESTIATION, (2) DIFFERENCE OF OPINION IN CALCULATING LOSS OR (3) PUTATIVE FAILURE TO ASSIGN LARGE LOSS ADJUSTER (Philadelphia Federal)

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Whalen v. State Farm Fire & Casualty Co. involved a first party homeowners’ bad faith claim. The court dismissed that claim on summary judgment. The case involved a significant water damage loss due to a failed line going to an upstairs sink which went undetected for a substantial period while the insured was on vacation.

The first bad faith claim was based on an alleged failure to provide the homeowner with information, conduct a reasonable investigation, and to explain coverage decisions. The court drilled down into the detailed record of the insurer’s efforts and conduct, and found no clear and convincing evidence of bad faith on the summary judgment record. The insurer responded to the public adjuster, and offered reasons for its decision not to pay portions of the claimed losses.

The court next rejected the argument that the insurer’s loss calculations were made in bad faith. A difference of opinion in calculating the loss cannot constitute bad faith.

Finally, the court rejected the argument of bad faith failure to assign a large loss adjuster. The record did not establish by clear and convincing evidence this was factually true, but even if so, it would at most be negligence and negligence is not a basis for bad faith.

Date of Decision: April 25, 2016

Whalen v. State Farm Fire & Cas. Co., 2016 U.S. Dist. LEXIS 54628 (E.D. Pa. Apr. 25, 2016) (Padova, J.)

 

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JULY 2016 BAD FAITH CASES: EVEN A PITHY COMPLAINT CAN STATE A PLAUSIBLE CLAIM WHERE INSURER ALLEGEDLY MADE NO OFFER IN RESPONSE TO ALLEGEDLY COVERED LOSSES (Middle District)

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Turner v. State Farm Fire & Casualty Company was a first party fire loss case. The insurer moved to dismiss a bad faith count under Twombly/Iqbal, which the court denied. The court found the complaint, which was neither lengthy nor highly detailed, was still adequately pleaded.

The insureds alleged the property was insured for contents coverage and other miscellaneous coverages in the amount of $159,060.00. The complaint alleged that despite repeated demands, the carrier refused to make any payment on claims subject to these coverages. The court stated: “Common sense does suggest that the items of personalty in the Plaintiffs’ damaged residence almost necessarily had some value. Because we are told that [the insurer] had offered nothing at the time the suit was filed, we are asked to assume that [the insurer’s] refusal to remit any amount in recognition of these claims is enough to establish that this complaint states a bad faith claim….” The insureds also alleged they documented the value of their claim through the report of a public adjuster, which was furnished to the insurer; and that despite being advised of the extent of the losses, the insurer made no offer to compensate the allegedly covered losses.

This was sufficient to meet the Twombly plausibility standard.

Date of Decision: January 14, 2016

Turner v. State Farm Fire & Cas. Co., Case No. 15-CV-906, 2016 U.S. Dist. LEXIS 4825 (M.D. Pa. January 14, 2016) (Conaboy, J.)

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JUNE 2016 BAD FAITH CASES: COURT REFUSES TO DISMISS INSURER’S CLAIM FOR EQUITABLE RESCISSION OF POLICY; EQUITABLE RESCISSION ACTION DOES NOT REQUIRE PRIOR RETURN OF PREMIUMS (Philadelphia Federal)

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In Aspen Specialty Insurance Company v. Hospitality Supportive Systems, LLC, an insurer sought equitable rescission of its policy. The insured moved to dismiss the rescission claims or for a move specific pleading of fraud under Rule 9. The motion was denied.

The court observed the applicable standard: “an insurer must demonstrate that (1) the insured made a false representation, (2) the insured knew the representation was false or made the representation in bad faith, and (3) the representation was material to the risk being insured.” The court found the insurer clearly pled facts sufficient to state a plausible claim for equitable rescission under Pennsylvania law by averring that the insured knew of potential claims additional named insured faced, while representing that no claims existed. The court found the claims were material to the insured risk, as the insurer potentially would have had the duty to defend and indemnify the insured and the additional named insureds on those claims.

The court distinguished rescission at law, which requires return of premiums before seeking rescission, from equitable rescission which has no such requirement. Moreover, even an expired policy can be rescinded, since it would never have been issued if the relief sought were warranted.  The court further found the insurer did not sit on its rights, but acted promptly after completing its investigation. The court also found the allegations of fraud sufficiently pleaded.

Date of Decision: June 9, 2016

Aspen Specialty Ins. Co. v. Hospitality Supportive Sys., LLC, 2016 U.S. Dist. LEXIS 75110 (E.D. Pa. June 9, 2016) (Dalzell, J.)

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JUNE 2016 BAD FAITH CASES: FAILURE TO ACCEDE TO SETTLEMENT DEMAND ALONE NOT BAD FAITH; ALLEGATION OF FAILURE TO REVIEW MEDICAL RECORDS DISMISSED AS CONCLUSORY (Philadelphia Federal)

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In Camp v. New Jersey Manufacturers Insurance Company, the insurer refused to pay anything beyond the tortfeasor’s settlement of this UIM claim. The court dismissed the original bad faith claim for pleading only conclusory allegations, with leave to amend. The amended complaint added some detail, as set forth below, but the court still found it insufficient. The thrust of the complaint was that the insurer did not make an offer beyond the approximately $80,000 settlement, and her medical records showed a lifetime of medical costs at approximately $221,000.

The court found plaintiff’s allegations of failing to evaluate medical records in a demand package conclusory. The court further found the allegations plainly contradicted by the facts in the same pleading. The amended complaint alleged that the insurer’s representative stated that she had reviewed all relevant records in determining that it would not be approving the UIM claim, and the insured did not plead any contrary facts. Rather the insured only alleged legal conclusions that the claims handler did not do so. Contradicting a factual claim by the insurer with a legal conclusion was not to be afforded any weight.

The insured also alleged a failure to make a settlement offer in response to the insured’s claim. “However, failure of an insurer to ‘immediately accede to a demand for the policy limit cannot, without more, amount to bad faith.’” The insured offered no facts as to why the failure to make a settlement offer was in bad faith. The court cited the proposition that making allegations that the insurer failed to make an offer, “without additional elements of “self-interest” or “ill will” do not amount to a claim for bad faith under 42 Pa. Cons. Stat. § 8371.”

While there is case law that self-interest or ill will are not elements of section 8371 bad faith, the court cited case law where bad faith was inadequately pleaded because: (1) “[n]othing in the complaint sets forth any facts regarding [d]efendant’s actions . . . from which the Court can infer a bad faith claim”; (2) plaintiff “failed to allege facts that reasonably suggest a ‘frivolous or unfounded refusal to pay proceeds of a policy’”; (3) and failing to “provide sufficient facts . . . to suggest that [d]efendant lacked a reasonable basis for the denial of [] benefits” fatal to bad faith claim at pleading stage.

The allegations found inadequate by the court were:

Failing to evaluate the medical records and reports included in plaintiff’s demand package clearly establishing that plaintiff will incur a total lifetime cost of $221, 412.00 for medical treatment and medications related to injuries sustained in the subject motor vehicle accident. See Exhibit B.

Failing to make a settlement offer despite clear and uncontradicted medical records and reports establishing that plaintiff will incur a total lifetime cost of $221,412.00 for medical treatment and medications related to injuries sustained in the subject motor vehicle accident. See Exhibit B.

Failing to evaluate the medical records and reports included in plaintiff’s demand package clearly establishing that plaintiff suffered serious and permanent injuries to her neck, right shoulder and right wrist including significant aggravations to pre existing cervical spondylosis with broad based disc protrusion at C5-6, cervical radiculopathy at C6, right shoulder sprain and strain, and carpal tunnel syndrome requiring surgical intervention. See Exhibit B.

Failing to make a settlement offer despite clear and uncontradicted medical records and reports establishing that plaintiff suffered serious and permanent injuries to her neck, right shoulder and right wrist including significant aggravations to pre-existing cervical spondylosis with broad based disc protrusion at C5-6, cervical radiculopathy at C6, right shoulder sprain and strain, and carpal tunnel syndrome requiring surgical intervention. See Exhibit B.

Failing to evaluate the medical records and reports included in plaintiff’s demand package clearly establishing that plaintiff suffered and continues to suffer from severe pain and discomfort in her neck, right shoulder and right wrist, and will require Nucynta ER, and extended release opiate analgesic, to manage her chronic pain for the foreseeable future. See Exhibit B.

Failing to make a settlement offer despite clear and uncontradicted medical records and reports establishing that plaintiff suffered and continues to suffer from severe pain and discomfort in her neck, right shoulder and right wrist, and will require Nucynta ER, and extended release opiate analgesic, to manage her chronic pain for the foreseeable future. See Exhibit B.

It must be noted that this opinion cites a considerable body of case law, and is a useful research tool and resource.

Date of Decision: June 8, 2016

Camp v. N.J. Mfrs. Ins. Co., 2016 U.S. Dist. LEXIS 74496, *6-7 (E.D. Pa. June 8, 2016) (Heffley, U.S.M.J.)

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JUNE 2016 BAD FAITH CASES: COMMUNICATIONS BETWEEN IN-HOUSE COUNSEL OF (1) TPA AND (2) AUHTORIZED CLAIM REPRESENTATIVE WITH INSURER USING THEIR SERVICES IS PRIVILEGED (Middle District)

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In Heller’s Gas v. International Insurance Company of Hannover, a breach of contract and bad faith case, the insured claimed that documents withheld or redacted did not fall within the attorney-client privilege, the work product doctrine, or reserve information. The insured argued that all but one document was either sent to or from employees of the insurer’s third party administrator (TPA) or its authorized claim representative, and as neither of these entities were subsidiaries of or owned by the insurer, the communications were not privileged.

In the Answer, the insurer did not assert an agency relationship with either the TPA or the authorized claims representative. It took the opposite position in the motion papers, arguing that communications between the TPA’s in-house counsel and/or the claim representative’s in-house counsel with the insurer fell within the scope of attorney-client privilege.

The court reviewed the unredacted documents in camera. The court stated: “After thoroughly examining the documents, this Court finds that the information redacted appropriately falls within the attorney-client privilege and work product doctrine and is consequently information directly related to or referencing legal strategy regarding the instant litigation. The correspondence further supports [the insurer’s] latterly-advanced argument that [the TPA and authorized claims representative] are essentially agents of [the insurer].”

Date of Decision: June 1, 2016

Heller’s Gas, Inc. v. Int’l Ins. Co. of Hannover Ltd., 4:15-CV-01350, 2016 U.S. Dist. LEXIS 71069 (M.D. Pa. June 1, 2016) (Brann, J.)

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JUNE 2016 BAD FAITH CASES: UIM BAD FAITH CLAIM INADEQUATELY PLEADED AND DISMISSED WITH PREJUDICE (Philadelphia Federal)

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In Kiss v. State Farm Insurance Company, the District addressed a UIM bad faith claim. The court found the pleadings inadequate under Twombly/Iqbal, and stated as follows:

“In essence, plaintiff’s factual averments are that (1) plaintiffs are insured by defendant for underinsured motorist coverage; (2) the husband plaintiff was involved in a motor vehicle accident; (3) plaintiffs submitted medical records to defendant; (4) plaintiffs made a demand for payment of the underinsured motorist limits; and (5) plaintiffs did not agree with defendant’s valuation of the claim.”

“Plaintiff’s boilerplate allegations assert that defendant lacked a reasonable basis for denying plaintiffs’ claim for benefits, but do not provide any factual allegations from which the Court could make a plausible inference that defendant knew or recklessly disregarded its lack of a reasonable basis for denying benefits. …. Indeed, it is undisputed that the defendant in this case actually paid the underinsured motorist benefits pursuant to an arbitration award. While such assertions perhaps suggest that a bad faith claim is possible, they do not allow for any non-speculative inference that a finding of bad faith is plausible. …. The Rule 12(b)(6) standards, as interpreted by Twombly and Iqbal, require more.”

Unlike a number of other cases that failed the Twombly/Iqbal standards, this case was dismissed with prejudice.

Date of Decision: May 16, 2016

Kiss v. State Farm Ins. Co., 2016 U.S. Dist. LEXIS 64572 (E.D. Pa. May 16, 2016) (Schmehl, J.)

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