NOVEMBER 2016 BAD FAITH CASES: NO BAD FAITH WHERE HIGHER UM/UIM LIMITS ALLEGEDLY NOT EXPRESSLY OFFERED AT THE TIME LIABILITY LIMITS WERE INCREASED (Third Circuit, New Jersey)

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The insured alleged a breached the implied covenant of good faith and fair dealing in this UM/UIM context. There were 4 putative bases pleaded, all of which the Third Circuit rejected in affirming dismissal of this claim: failure to offer the insureds the option of higher available UM/UIM coverage limits when the insureds increased their coverage limits (ii) using unlicensed agents to sell insurance with the increased coverage limits, and so using agents unaware of their obligation to so advise insureds of higher UM/UIM limits (iii) failing to provide CSFs and Buyer’s guides after insureds purchased increased liability limits, and (iv) denying the UM/UIM claims based on the reduced limits.

The insured had to show that the insurer either “act[ed] in bad faith or engage[d] in some other form of inequitable conduct in the performance of a contractual obligation.” The covenant of good faith and fair requires that “neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.” The

covenant is “an independent duty and may be breached even where there is no breach of the contract’s express terms”.

The insured failed to allege with sufficient particularity how the insurer “fail[ed] to act in good faith by offering UM/UIM coverage limits up to the increased BIL coverage limits.” The insured also failed to sufficiently allege how insurer engaged in “inequitable conduct in the performance of [their] contractual obligation” to her. Thus, the dismissal was affirmed.

Date of Decision: October 31, 2016

Ensey v. GEICO, No. 15-1933, 2016 U.S. App. LEXIS 19562 (3d Cir. Oct. 31, 2016) (Ambro, McKee, Scirica, JJ.)

NOVEMBER 2016 BAD FAITH CASES: MISREPRESENTATION ALONE CANNOT VOID POLICY WITHOUT PROOF OF INTENT AND MATERIALITY; ISSUE OF INSURER BAD FAITH IN CLAIMS HANDLING WAS FOR JURY (Philadelphia Federal)

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This case involved accusations of bad faith running in both directions. The insurer sought to void numerous life insurance policies on the deceased insured, based on claims that the insured made material misrepresentations in his insurance applications (he had multiple life insurance policies). The insured’s estate brought claims of bad faith based on the insurance investigation (alleging that the insurer at different times claimed the insured was not dead, had committed suicide and/or had been the victim of foul play, in addition to arguing that the policy should be voided on the basis of misrepresentations in the applications). Summary judgment was sought all around.

There was no issue that misrepresentations were made on the insurance application. However, there were genuine issues regarding both the insured’s intent in making those misrepresentations, and whether they were material, i.e., whether the policies still would have been issued if the truth were known to the carrier. Thus, summary judgment was denied to the insurer, since determination of the insured’s intent and how the insurer would have handled the true information were jury questions.

The court denied summary judgment to both parties on the insured’s bad faith claim. This being a federal action, plaintiff’s statutory bad faith claim was subject to a jury trial. The issue was the manner in which the insurer investigated the death of the insured, and a delay in paying benefits. The court found that the jury had to decide issues regarding whether the estate provided sufficient proof of death, and whether the insurer’s investigation “demonstrated a reasonable basis for questioning and refusing the claims.”

Date of Decision: October 20, 2016

Lincoln Benefit Life Company v. Bowman, No. 15-6697, et al., 2016 U.S. Dist. LEXIS 145327 (E.D. Pa. Oct. 20, 2016) (Savage, J.)

NOVEMBER 2016 BAD FAITH CASES: NO BAD FAITH FOR FILING DECLARATORY JUDGMENT ACTION; AND WHERE RECORD SHOWS GENUINE INVESTIGATION AND NOT PUTATIVE PREDISPOSITION TOWARD DENIAL (Third Circuit, Pennsylvania) (Not precedential)

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This non-precedential Third Circuit opinion affirmed the trial court’s opinion granting summary judgment to the insurer on a statutory bad faith claim. (We will not repeat the facts, but instead link to our previous summary of the trial court opinion).

In reciting the elements of bad faith, among other things, the appellate panel stated that because the carrier “ultimately paid the full policy limit, Appellants’ bad faith claim is based on the company’s investigation of [the] claim.” The court cited the Superior Court’s decision Rancosky v. Wash. National Ins. Co., for the proposition that “Bad faith conduct includes lack of good faith investigation into the facts.” The court does not address the issue of whether poor claims handling alone, without the denial of a benefit, can be bad faith. The trial court had noted that a long enough delay in handling the claim can be treated as the equivalent of a denial of a benefit, but the Third Circuit did not address this nuance.

(Pennsylvania’s Supreme Court has taken up Rancosky to give address to the elements of what constitutes a statutory bad faith claim.)

In addressing the merits, the appellate court first looked at plaintiff’s assertions that there was a “predisposition toward denial” and that the insurer “focused upon exclusion and accepted no facts contrary to its initial conclusion” (theories that harken bank to the 2003 Luzerne County Corch decision). However, the Third Circuit agreed that “the claims file showed that [the insurer] evaluated [the]claim, consulted with legal counsel, and tried to determine” the key issue of employment status.

Moreover, the insurer did not deny the claim, but filed a declaratory judgment action to determine this key issue and how it affected coverage. The insurer’s ultimately paying the policy’s liability limit demonstrated its willingness to consider new evidence and adjust its position. The court added that: “In any event, [the insurer] had the right to investigate [the]claim and determine whether it was covered under the policy, regardless of whether [the insurer] initially sought to exclude the claim. Citing its own prior precedent: “[A]n insurer does not act in bad faith by investigating and litigating legitimate issues of coverage.”

The appellate court agreed that there was no bad faith under Pennsylvania law in filing a declaratory judgment action to seek a coverage determination, to resolve legal ambiguities after it had investigated the facts of the claim. The court observed that the insurer had consulted with in-house counsel before the decision to file the declaratory judgment action, showing that the insurer was still considering the insured’s claim.

The court affirmed the grant of summary judgment on the bad faith claim.

Date of decision: October 4, 2016

Bodnar v. Nationwide Mut. Ins. Co., No. 15-3485, 2016 U.S. App. LEXIS 17903 (3d Cir. Oct. 4, 2016) (Hardiman, McKee, Rendell, JJ.)

 

ON VETERANS DAY, WITH GREAT RESPECT AND GRATITUDE TO ALL WHO HAVE SERVED OUR NATION HONORABLY

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NOVEMBER 2016 BAD FAITH CASES: BAD FAITH CLAIM TIME BARRED WHERE SUIT BROUGHT 4 YEARS AFTER INSURER CLEARLY PROVIDED AN END DATE TO MEDICAL BENEFITS (Middle District)

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This first party injury case involved an insurer’s demanding independent medical examinations of the insured. The court found that the Motor Vehicle Financial Responsibility Law controlled, and that the insurer had to petition and show good cause for an IME. The insurance policies allowed for unlimited medical examinations, so long as they are reasonably required, and the insurer sought an IME under this provision. The insured’s attorney did not agree to the conditions the insurer requested, and the insurer stopped paying first party medical benefits. The insured brought a breach of contract claim, successfully, but lost his bad faith claim on statute of limitations grounds.

Statutory bad faith claims are governed by a two-year statute of limitations. The insurer provided a clear and unambiguous letter setting forth the date it would stop paying medical benefits. The insured’s action was commenced 4 years later. Thus, the claim was time-barred and summary judgment was entered for the insurer on the bad faith claim.

Date of Decision: October 6, 2016

Scott v. Travelers Commercial Insurance Company, 14-CV-534, 2016 U.S. Dist. LEXIS 138728, (M.D. Pa. Oct. 6, 2016) (Schwab, M.J.)

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NOVEMBER 2016 BAD FAITH CASES: ALLOWING REINSURER TO IMPROPERLY HANDLE CLAIM EXPOSES INSURER TO BAD FAITH CLAIMS; REINSURER CANNOT BRING DIRECT CLAIMS AGAINST INSURED FOR REVERSE BAD FAITH OR INSURANCE FRAUD (Western District)

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This factually complicated case involved reverse bad faith and 18 Pa.C.S. § 4117 insurance fraud claims by an insurer and reinsurer, and bad faith claims by the insured against its insurer.

The court first ruled that a reinsurer could not void an insurance policy to which it was not a party, since it had no contractual privity with the insured. It then concluded that the reinsurer could not be considered an insurer for purposes of section 4117(g) fraud claims. Finally, after discussing the state of the law on “reverse bad faith”, the court again found this to be a contractually based claim, and the reinsurer simply did not have a contract with the insured. Summary judgment was granted against the reinsurer on all of these issues.

The insured claimed that the insurer breached the insurance contract by allowing the reinsurer to adjust the claim and to take the lead in decision making on claims handling. The court ruled this was an issue for the jury to decide and would not grant summary judgment. However, the court also left it to the jury whether the insured could recover if the insured’s conduct also breached the insurance agreement.

As to the insurer’s summary judgment motion on the insured’s counterclaims, the court found that in electing to affirm the contract and pursue money damages, rather than to seek rescission, the insured cannot argue that a breach of its own obligations under the policy can somehow be ignored in addressing the insurer’s defense.

As to the alleged fraud claim against the insured, the insured took the position that the alleged fraud was carried out by a third party. The insurer argued apparent authority, and the court concluded that the issue of apparent authority in making out a fraud claim against the insured was a jury issue. There was also extensive and detailed discussion of the particulars of the alleged fraud, which will not be addressed here.

The insured also brought claims for common law and statutory bad faith against its insurer. [In looking at the statutory bad faith case law, the court cited authority reiterating the questionable theory that the bad faith statute was intended to address conduct beyond the denial of a benefit.] The court found that the both claims survived summary judgment.

The insured’s basic theory was that the insurer “essentially abandoned its insured during the claims adjustment process by turning [the insured’s] fate over to an unrelated third party that, as a practical matter, was not subject to [the insurer’s] control, had no contractual accountability to [the insured], and had a financial incentive to minimize the amount of payments that would be made to [the insured] under the Policy.” The third party is the reinsurer, and evidence was presented to the court that the reinsurer “was given the final say on various issues that were important, if not critical, to the adjustment of [the] loss and the continuation of [the insured’s] business, including the valuation of [the insured’s] daily revenue value (which were important for purposes of calculating its business income losses), the determination that business income payments would cease upon [the insured’s] relocation to the new … facility, and the ultimate decision to cancel the Policy. [The insured] has also produced evidence from which a factfinder could infer that [the reinsurer], in exercising its discretion, placed its own financial interests ahead of [the direct carrier’s] insured.

The court also cited to conflicts in claims handling mandates of the reinsurance treaty, and evidence suggesting that the insurer disagreed with the reinsurer’s “course of action in important respects, yet failed to take any corrective action for the benefit of its insured.” The court stated that the direct insurer “may be held liable … for the acts committed by [the reinsurer] in connection with the investigation and adjustment of its claim.” Thus, the court concluded that the evidentiary record construed in the non-movant insured’s favor “could support a finding of bad faith on the part of [the insurer] as it relates to the investigation and adjustment of [the insured’s] loss.” Summary judgment was thus denied to the insurer on the bad faith claims.

Date of Decision: September 29, 2016

Hartford Steam Boiler Inspection & Insurance Company v. International Glass Products, LLC, No. 2:08cv1564, 2016 U.S. Dist. LEXIS 135045 (W.D. Pa. Sept. 29, 2016) (Cercone, J.)

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NOVEMBER 2016 BAD FAITH CASES: CLAIMS HANDLING CONDUCT IS SUBJECT OF BAD FAITH STATUTE, NOT CONSUMER PROTECTION LAW (Philadelphia Federal)

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This federal district court was faced with virtually identical claims for the same conduct, one alleging violation of Pennsylvania’s Bad Faith Statute, and the other a violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (UTPCPL). Following Pennsylvania Supreme Court precedent, the court concluded that the bad faith statute was aimed at claims handling, not how an insurer solicited an insured to purchase insurance; and that deceptive practices in selling insurance were subject to the UTPCPL. As the complaint’s allegations were actually focused on claims handling, the UTPCPL claim was dismissed with leave to re-plead facts addressing solicitation of the policy (if such existed).

Date of Decision: September 27, 2016

Doherty v. Allstate Indemnity Company, No. 15-5165, 2016 U.S. Dist. LEXIS 132027 (E.D. Pa. Sept. 27, 2016) (Pappert, J.)

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NOVEMBER 2016 BAD FAITH CASES: STATUTORY BAD FAITH CLAIM CONSIDERED IN DETERMINING WHETHER DIVERSITY MINIMUM JURISDICTIONAL SUM MET (Philadelphia Federal)

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The court deemed the $75,000 jurisdictional amount met, even though the insured was only seeking to collect a $28,000 judgment on the contract claim, because the insured also asserted a statutory bad faith claim.

Date of Decision: September 28, 2016

Duncan v. Omni Insurance Company, CIVIL ACTION NO. 16-1489, 2016 U.S. Dist. LEXIS 133134 (E. D. Pa. September 28, 2016) (Bartle, J.)

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NOVEMBER 2016 BAD FAITH CASES: COURT WOULD NOT REMAND, EVEN WHERE ACTION WAS STARTED AS COMMON PLEAS ARBITRATION, WHERE COMPLAINT MADE CLEAR CLAIM COULD BE OVER $136,000 AND PUNITIVE DAMAGES WERE LEGITIMATELY CONSIDERED (Philadelphia Federal)

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This bad faith and breach of contract case was removed to federal court by the insurer, and the insured sought remand. The case was originally filed as an arbitration matter in the Court of Common Pleas of Philadelphia, i.e., it was filed with the representation that the matter was worth less than $50,000. Moreover, the parties even stipulated in the Court of Common Pleas that the matter was worth less than $50,000. However, subsequent to that stipulation the insured filed an amended complaint, indicating damages of over $136,000, though the matter appeared to still be no the arbitration track.

The court first observed that the arbitration statute in Pennsylvania does not create a mandatory damages cap of $50,000; but only a requirement that if a matter is alleged to involve less than $50,000 it is subject to de novo arbitration in the first instance. The court parsed authority going both ways on this issue in the Eastern District, and came down on the side of those courts finding this should not be treated as a damage cap. It then considered other evidence.

The proponent of federal jurisdiction must show “to a legal certainty” that the amount in controversy exceeds $75,000. “Because Pennsylvania state law permitted [the insured] to limit her monetary claims, see 42 Pa. Cons. Stat. § 7361; Pa. R. Civ. Pro. 1021(c), the Court [looked] to whether [her] ‘actual monetary demands in the aggregate exceed the threshold, irrespective of whether [the insured] states that the demands do not.’”

In this case, the insured’s had multiple ad damnum clauses seeking damages “not in excess of $50,000”; however, the amended complaint also stated a description of various losses, with invoices attached as exhibits, totaling $136,905.20. Such facts stood in “clear contrast to recent cases in this District holding that a defendant did not meet the burden to show the amount in controversy exceeded the $75,000 limit.” Thus, the insurer “met its heightened burden to prove to a legal certainty that the amount in controversy exceeds $75,000 because [the insured], in her own Amended Complaint, submitted proof that her damages exceeded $75,000.” In addition, the court observed that the insured sought punitive damages under the bad faith statute. “A district court must consider punitive damages when calculating the amount in controversy unless the claim for punitive damages is frivolous.” The present punitive damages claim was not frivolous because it was provided for in the bad faith statute’s language. “While a claim for punitive damages alone is too speculative to push the amount in controversy over the jurisdictional threshold … the Court finds that, in conjunction with estimated damages of $136,905.20, [the insured’s] claim for punitive damages weighs in favor of a determination that the amount in controversy requirement is met in this case.

Date of Decision: September 20, 2016

Pecko v. Allstate Ins. Co., CIVIL ACTION NO. 16-1988, 2016 U.S. Dist. LEXIS 1129569 (E.D. Pa. September 20, 2016) (Pratter, J.)

 

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NOVEMBER 2016 BAD FAITH CASES: BAD FAITH STATUTE ONLY APPLIES TO INSURERS, NOT INSURANCE ADJUSTERS (Philadelphia Federal)

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The court reiterated that Pennsylvania’s Bad Faith Statute only applies to insurance companies. Thus, insurance adjusters are not subject to the statute.

Date of Decision: September 9, 2016

Corley v. National Indemnity Company, No. 2:16-cv-00584-MMB , 2016 U.S. Dist. LEXIS 122911 (E.D. Pa. Sept. 9, 2016) (Baylson, J.)

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