APRIL 2016 BAD FAITH CASES: ERISA PRE-EMPTS STATUTORY BAD FAITH CLAIM WHERE INSURANCE AT ISSUE WAS AN ERISA PLAN (Philadelphia Federal)

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In Van Arsdel v. Liberty Life Assurance Company of Boston, the court found that ERISA pre-empted the plaintiff’s state law bad faith claims, whether brought under Pennsylvania or Georgia law. The bad faith claim was related to the alleged denial of benefits under the disability policy at issue, which was an ERISA plan. The court cited numerous examples of ERISA pre-empting Pennsylvania statutory bad faith claims.

Dated of Decision:  March 29, 2016

Van Arsdel v. Liberty Life Assur. Co. of Boston, No. 14-2579, 2016 U.S. Dist. LEXIS 40909 (E.D. Pa. Mar. 29, 2016) (Smith, J.)

APRIL 2016 BAD FAITH CASES: PLAINTIFF WAS NOT AN INSURED UNDER THE POLICY AND SO COULD NOT BRING A BAD FAITH CLAIM (Philadelphia Federal)

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In International Management Consultants, Inc. v. Continental Casualty Insurance Company, the plaintiff was a general contractor doing work for a school district.  As part of the agreement between the contractor and the school district, the school district was required to purchase Builders Risk Insurance.  When the contractor suffered increased costs from the work of one of its subcontractors and/or flooding, it asked the school district to cover those costs, but the school district refused.

The contractor then sought relief against the school district’s insurer, which the insurer refused, as the policy issued to the school district did not encompass the contractor as an insured.  The contractor subsequently brought a bad faith claim, among others, against the insurer.  The court found that the contractor was not an insured under the policy.  As the contractor was not an insured under the policy, it had no standing to bring a bad faith claim against the school district’s insurer.

Date of Decision: April 14, 2016

International Mgmt. Consultants, Inc. v. Cont’l Cas. Co., 2016 U.S. Dist. LEXIS 50726 (E.D. Pa. Apr. 14, 2016) (Jones, II, J.)

APRIL 2016 BAD FAITH CASES: AN INSURER’S DELAY IN ISSUING A COVERAGE DECISION IS NOT, ON ITS OWN, SUFFICIENT TO SUPPORT A BAD FAITH CLAIM (New Jersey Federal)

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In Puzzo v. Metropolitan life Insurance Co., the Court held that an insured could not amend his declaratory judgment complaint to include allegations of bad faith where he failed to allege he was entitled to coverage as a matter of law.

The insured suffered serious brain injuries as a result of a car collision. Pursuant to two insurance policies, the insurer provided the insured with short term disability benefits under both policies, and for approximately two years, provided long term disability benefits.  Approximately two years after the insured’s injury, the insurer terminated the long term disability payments under both policies.  Plaintiff appealed the insurer’s decision under ERISA’s administrative appeals process, but the insurer never issued a final decision on appeal.

The insured brought a declaratory judgment action against the insurer and later sought to amend his complaint under Fed. R. Civ. P. 15(a) to include claims of bad faith.  In the insured’s Motion to Amend he alleged that the insurer acted in bad faith by withholding documents for long periods of time and for failing to obtain necessary medical records before the deadline for issuing a decision on the appeal expired.

The Court denied Plaintiff’s Motion to Amend finding that as alleged, the proposed amendment did not contain sufficient facts to support a finding of bad faith as a matter of law, and was therefore futile.  The Court held that the critical question in a bad faith case was whether there was a “fairly debatable” reason for denying coverage, or in a “delay case”, for delaying a coverage opinion.  Although the insured sufficiently plead that the insurer delayed in responding to his appeal, these allegations were insufficient to show bad faith.  The insured also had to plead that coverage under the policy was not “fairly debatable” and the insurer knew or recklessly disregarded this lack of a reasonable basis when it delayed its coverage decision.   The Court denied the insured’s Motion to Amend, holding that delay, without a corresponding duty to provide coverage, cannot provide a basis for bad faith.

Date of Decision: March 29, 2016

Joseph Puzzo v. Metropolitan Life Ins. Co., NO. 3:15-cv-3190, 2016 U.S. Dist. LEXIS 40766 (D.N.J. March, 29, 2016) (Wolfson, J.)

APRIL 2016 BAD FAITH CASES: INSURED MET FEDERAL PLEADING STANDARDS IN ALLEGING BAD FAITH DELAY IN CLAIMS HANDLING, AND CONSIDERED VIOLATIONS OF STATE REGULATIONS AS WELL IN DECLINING MOTION TO DISMISS (Middle District, Magistrate's Report and Recommendation)

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In Ridolfi v. State Farm Mutual Automobile Insurance Company, the insured brought breach of contract and bad faith claims against its own insurer in connection with an automobile accident.  The insured pleaded that she had been trying to resolve the case with her insurer for over two and one half years.  She alleged that the insurer had misstated its policy limits on at least two occasions; made repeated, redundant and unnecessary requests for medical records; ignored correspondence from the plaintiff and her counsel for months; and attempted to improperly subpoena medical records of the plaintiff without providing the plaintiff proper notice. The insurer moved to dismiss the bad faith count, but the court refused to dismiss the claim. The court found that plaintiff met federal pleading standards. The complaint the claim, and delays caused by an allegedly improper investigation, coupled with an alleged lack of response to numerous legitimate requests for assistance and information from the plaintiffs. The complaint further alleged that the insurer’s claims handling violated specific state insurance claims processing laws and regulations, citing these statutory and regulatory violations as further proof of bad faith. The court refused to go beyond the pleadings, and the Magistrate Judge issued a Report and Recommendation that the motion to dismiss be denied.

Date of Decision:  March 24, 2016

Ridolfi v. State Farm Mut. Auto. Ins. Co., No. 1:15-CV-859, 2016 U.S. Dist. LEXIS 38344 (M.D. Pa. Mar. 24, 2016) (Carlson, U.S.M.J.) (Report and Recommendation)

APRIL 2016 BAD FAITH CASES: ESTATE CAN BRING BREACH OF FIDUCIARY DUTY, BREACH OF GOOD FAITH AND FAIR DEALING, AND STATUTORY BAD FAITH CLAIMS AGAINST INSURER FOR GIVING BAD ADVICE TO INSURED CONCERNING STATUS OF BENEFICIARY (Western District)

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In MONY Life Insurance Company v. Snyder, there was a dispute over whether life insurance proceeds were to be paid to an ex-spouse or current spouse.  The insurer brought an interpleader action and paid the money into court, saying it had no stake in the outcome, while recognizing payment was due.  The current spouse, as executrix of her husband’s estate, filed three counterclaims against the insurer, on the basis of its failure to properly advise the deceased insured as to the beneficiary under the policy it issued: breach of fiduciary duty, breach of the covenant of good faith and fair dealing, and violation of the Unfair Insurance Practices Act (UIPA). The insurer sought to dismiss these claims.

The court recognized that typically a sale of insurance is treated as an arm’s length transaction, but this is not an absolute rule, and a tort claim for breach of fiduciary duty may be a viable cause of action in the context of the insured-insurer relationship.

Next, while there is no tort claim in Pennsylvania against an insurer for the breach of good faith and fair dealing, this is a legitimate contract cause of action, and the breach of good faith claim was allowed to proceed as such.

Finally, prior to hearing the motion, the executrix sought to change the third cause of action from a UIPA violation to a statutory Bad Faith claim.  The court granted leave to amend to restate that claim.

Date of Decision:  March 17, 2016

MONY Life Ins. Co. v. Snyder, 2016 U.S. Dist. LEXIS 34371 (M.D. Pa. Mar. 17, 2016) (Caldwell, J.)

APRIL 2016 BAD FAITH CASES: (1) PLAUSIBLE BAD FAITH CLAIM PLEADED BASED ON INSURER’S IME RESULTS, BUT (2) BAD FAITH CLAIM IS SEVERED AND STAYED (New Jersey Federal)

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In Abiona v. Geico Indemnity Company, the insurer sought to dismiss the underinsured motorist bad faith claim, and if not dismissed, then to sever and stay the bad faith claims.  The claim was not dismissed, but the court did agree to sever and stay the bad faith claim.

The insured alleged that the insurer completely denied UIM benefits, declined to participate in non-mandatory find arbitration, and failed to present any good faith settlement offer, despite the insured’s submitting extensive medical records to support the claim of severe and permanent injury.  This documentation allegedly included the insurer’s own IME report, which opined that “the insured is a surgical candidate from the injuries sustained by this accident if the epidural injection therapy does not resolve the significant pain from the herniated lumbar disc caused by this accident.”

In refusing to dismiss the bad faith claim, the court found that the insurer’s medical opinion that surgery could be required “nudges” the allegation of reckless disregard of the lack of a reasonable basis to deny the claim “across the line from conceivable to plausible.”

Next the court found it had jurisdiction to hear the case, when looking at the contract damages, and potential consequential and punitive damages permitted under New Jersey’s bad faith law.

On the issue of severance and stay, the court observed: “The prevailing practice in both state and federal court is to sever breach of insurance contract claims from bad faith claims, and to proceed with the contract claim before turning to the bad faith claim (if still necessary after adjudicating the contract claim).”  The court added that:  “Severance of a bad faith claim will often be desirable because, as courts have recognized, there is real potential for prejudice to the insurer should it ‘be required to produce its claim file prematurely.’”  The court accepted the insurer’s assertion that it would suffer prejudice without severance, and described the insured as “merely” arguing that judicial economy weighs against severance – a position contrary to the above-stated principles and numerous cases following those principles. It quoted from an earlier state court decision: “The toll on judicial economy by allowing full-disclosure up front . . . is obvious. Requiring simultaneous discovery on both claims will result in a significant expenditure of time and money, generally rendered needless if the insurer prevails on plaintiff’s UM or UIM claim.”  Thus, it granted the motion to stay and sever in the interests of judicial economy and to avoid prejudice to the insurer.

Date of Decision:  March 16, 2016

Abiona v. Geico Indem. Co., 2016 U.S. Dist. LEXIS 34179 (D.N.J. Mar. 16, 2016) (Hillman, J.)

APRIL 2016 BAD FAITH CASES: THERE CAN BE NO BAD FAITH IN FAILING TO PROVIDE INFORMATION TO BENEFICIARY OR DENYING LIFE INSURANCE BENEFITS WHERE INSURED HAD LET POLICY LAPSE BY PREMIUM NON-PAYMENT (Middle District)

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In Moll v. Pruco Life Insurance Company, the Court held that an insurer did not act in bad faith during the claims process or in denying payment on a life insurance policy, after determining that the policy had lapsed for non-payment.

The insurer had issued a life insurance policy, pursuant to which the insured owed premiums on the on the 3rd of every month, but had a 31-day grace period to make a payment before the contract would be void. The insured made monthly payments from September 2012 through February of 2013. Thereafter, the insured elected to cancel the policy.  The insurer mailed several notices of the upcoming March 3rd premium due date, and informed the insured that the policy would lapse at the end of the grace period on April 3rd if he failed to make a payment.  Still, the insured made no further payments.  On April 8th the insured died.

When his beneficiary contacted the insurer about the death benefits, she was informed that the policy had lapsed and no death benefits were due.  In response, she asked for specific information about the policy, but was informed that the insurer could not release any information without a court order appointing the executor/administrator for the insured’s estate.  Four months later, after opening an estate, the now-Administratrix repeated the request on behalf of the insured’s estate.  Although it took an additional four months, the insurer finally released information about the policy.

The estate later brought claims for breach of contract and bad faith.  Among other things, the estate alleged bad faith by failing to release information about the policy until an estate was opened, refusing to answer questions about the denial of benefits in a timely manner, and challenging the insurer’s interpretation of how premiums were to be paid and applied.  In holding that the insurer did not act in bad faith, the Court stated that Pennsylvania does not recognize a common law remedy for bad faith, and analyzed all the claims under Pennsylvania’s Bad Faith Statute, 42 Pa. Cons. Stat. § 8371.

Pursuant to the statute, the Court looked no further than determining that the insurer had a reasonable basis for denying coverage.  Notably, the Court did not even address the arguments regarding the failure to provide information and failure to respond in a timely manner.  Instead, the Court relied on the fact that the insured made no premium payments to avoid lapse.  Thus, the Court held that the insurer appropriately and timely declined the death benefits, and granted summary judgment to the insurer.

Date of Decision:  February 26, 2016

Nicole Moll v. Pruco Life Ins. Co., NO. 1:14-CV-1040, 2016 U.S. Dist. LEXIS 23464 (M.D. Pa. February 26, 2016) (Conner, J.)

APRIL 2016 BAD FAITH CASES: MVFRL DID NOT PRE-EMPT STATUTORY BAD FAITH CLAIMS BASED ON ABUSE OR MISUSE OF PEER REVIEW PROCESS (Middle District)

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In Urena v. Allstate Insurance Company, the court addressed what portions of the undersinsured motorist plaintiff’s statutory Bad Faith claims were pre-empted by Pennsylvania’s Motor Vehicle Financial Responsibility Law (MVFRL).

The basic rule is that “[w]here both the Pennsylvania MVFRL and the Pennsylvania Bad Faith statutes are premised on the same conduct, i.e. an unreasonable denial of first-party benefits, the statutes are irreconcilable and, as the specific provisions of the MVFRL will preempt the general provisions of Pennsylvania bad faith statute.”  On the other hand “where a plaintiff’s claims are premised on conduct beyond the scope of § 1797, such as an insurance company’s alleged abuse of the peer review process, alleged mishandling of the insured’s claims, or unreasonable denial of benefits based on a peer review report, several courts have predicted that the Pennsylvania Supreme Court will find that these claims may proceed pursuant to Pennsylvania’s Bad Faith Statute.”  Relevant to the instant case, “claims of the mishandling of insurance claims and the abuse or misuse of the peer review process fall outside the scope of the protections afforded an insured by the MVFRL because the MVFRL does not provide specific relief for such claims.”

The following claims were pre-empted: failing to pay the first party medical benefits due to the Plaintiff for injuries she sustained in the subject motor vehicle accident; failing to objectively and fairly evaluate Plaintiff’s first party medical benefit claim; refusing to effectuate a prompt and fair resolution of the Plaintiff’s first party medical benefit claim; failing to promptly, objectively and fairly evaluate the Plaintiff’s claim for first party benefits; and failing to investigate the Plaintiff’s claim within a reasonable time limit.

However, taking the allegations in the light most favorable to the plaintiff as the non-moving party, the remaining claims were based on allegations of an abuse or misuse of the peer review process that would permit brining a statutory bad faith claim: compelling the institution of this Complaint in order to obtain policy benefits that should have been paid promptly and without the necessity of litigation; asserting defenses without a reasonable basis in fact; engaging in dilatory and abusive claims handling; repeatedly delaying and terminating the Plaintiff’s first party medical benefits in order to cause her financial hardship so that the Plaintiff would discontinue her treatment and her claims for first party medical benefits; terminating Plaintiff’s first party medical benefits for the sole purpose of placing its own financial interest before that of its insured in order to limit its exposure of paying first party medical benefits pursuant to her policy with a $100,000 coverage limit; deciding to retain a Peer Review Organization for the sole purpose of terminating the first party medical benefits of their insured when Allstate had no reasonable basis to do so and consciously disregarding their lack of reasonable basis to terminate their insured’s first party medical benefits; violating 40 P.S. § 1171.1 (Unfair Insurance Practices Act) and 40 P.S. § 1171.5 (Unfair Methods of Competition and Unfair or Deceptive Acts or Practices) evidenced by the above actions and/or inactions of Defendant Allstate; reporting to offer $100,000 in first party medical benefits, when in fact, Allstate had no intention of providing this coverage; representing that the Plaintiff purchased $100,000 in first party medical benefits, when in fact, said promise was wholly illusory; charging a premium based upon $100,000 in first party medical benefits, when in fact, Allstate purposely avoided fulfilling its contract with the Plaintiff; representing that the Plaintiff purchased $100,000 in first party medical benefits, when in fact, Allstate without justification, refused and continues to refuse to pay said benefits; denying Plaintiff first party medical benefits without a reasonable basis; denying Plaintiff first party medical benefits with the knowledge, or a reckless disregard, that such denial was without a reasonable basis; violating the policy and covenant of Good Faith and Fair Dealing; retaining the Peer Review Organization to challenge the reasonableness and necessity of the Plaintiff’s medical treatment in order to force the Plaintiff’s healthcare providers to stop treatment necessary for accident related injuries and to assist in the defense and to compromise Plaintiff’s claims for first party medical benefits; improperly utilizing the Peer Review process to challenge the reasonableness and necessity of Plaintiff’s medical treatment from all of her medical providers when only obtaining a Peer Review of the Plaintiff’s physical therapy treatment in order to protect its own financial interests and cause financial hardship to the Plaintiff so that the Plaintiff would discontinue or compromise her claim for first party medical benefits; violating 75 Pa. C.S.A. Section 1797(b) by improperly utilizing the Peer Review performed by physical therapists to deny payment of the Plaintiff’s medical treatment from all of her providers; and retaining a Peer Review organization to challenge the reasonableness and necessity of the Plaintiff’s physical therapy treatment and then utilizing the physical therapy Peer Review to deny payment of all of the Plaintiff’s medical treatment from all of her providers in violation of 75 Pa. C.S.A. Section 1797.

Date of Decision:  March 14, 2016

Urena v. Allstate Ins. Co., No. 3:15-CV-570 2016 U.S. Dist. LEXIS 32562 (M.D. Pa. Mar. 14, 2016) (Mariani, J.)

APRIL 2016 BAD FAITH CASES: SEVERANCE AND STAY OF BAD FAITH CLAIM IN UIM CASE

APRIL 2016 BAD FAITH CASES: (1) NO CONSUMER FRAUD ACT CLAIM FOR DENIAL OF BENEFITS; (2) NEGLIGENCE CLAIM UNDER UNFAIR CLAIMS SETTLEMENT PRACTICES ACT NOT ASSIGNABLE OR ACTIONABLE; AND (3) NO BAD FAITH CLAIM WHERE QUESTION WHETHER PROPERTY DAMAGE FELL WITHIN POLICY PERIOD WAS FAIRLY DEBATABLE (New Jersey Federal)

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In Nationwide Mutual Insurance Company v. Caris, the underlying facts involved the alleged fraudulent sale of a property with contamination.  The insureds entered a consent judgment and assigned their rights against the carrier to the buyers.  The buyers then brought various claims against the insurer, including bad faith claims.

The court dismissed a New Jersey Consumer Fraud Act claim because the allegation was that the insurer failed to provide benefits, not that it procured the insurance policy through fraud.

The assignees also had raised a negligence per se claim for improper claims handling and failure to give timely notice that no coverage would be provided.  The court found that the assignees had no standing to bring a claim based upon negligence, as such a claim could not be assigned to them prior to judgment being entered. Moreover, to the extent this was pleaded as an alternative to asserting a bad faith claim, no such cause of action exists under New Jersey law: “[A]n insurance company may be liable to a policyholder for bad faith in the context of paying benefits under a policy. The scope of that duty is not to be equated with simple negligence.” Finally, “there is no private right of action for policyholders against their insurers based on UCSPA violations or negligence.”

Turning to the bad faith claim: the insured “must show: (1) the insurer lacked a reasonable basis for its denying benefits, and (2) the insurer knew or recklessly disregarded the lack of a reasonable basis for denying the claim.”  New Jersey courts apply the “fairly debatable” standard, meaning  “if there are material issues of disputed fact which would preclude summary judgment as a matter of law, an insured cannot maintain a cause of action for bad faith.” “In the case of processing delay, bad faith is established by showing no valid reasons existed to delay processing the claim and the insurance company knew or recklessly disregarded the fact that no valid reasons supported the delay.” This is essentially the same as the fairly debatable standard, and the “mere failure to settle a debatable claim does not constitute bad faith.”

Despite a litany of bad faith allegations, the assignees could not establish the insurer lacked a reasonable basis to deny coverage, or that its coverage position – that there was no property damage caused by an occurrence during the policy period – was unreasonable.  Thus, “[w]hen a carrier proffers ‘plausible reasons for the denial of coverage’ and ‘demonstrates that there is, at the very least, genuine questions regarding whether [an insured’s] claims fall within the coverage provided,’ dismissal of a related bad faith claim is proper, even on a motion to dismiss.”  The burden in this case was on the insureds to prove the property damage occurred during the policy period, and the court found that issue was fairly debatable.  Thus, it granted the motion to dismiss the bad faith claim.

Date of Decision: March 14, 2016

Nationwide Mut. Ins. Co. v. Caris, No. 14-5330, 2016 U.S. Dist. LEXIS 33407 (D.N.J. Mar. 14, 2016) (Rodriguez, J.)