MAY 2016 BAD FAITH CASES: COURT ADDRESSES BIFURCATION OF BAD FAITH CLAIM AND WIDE RANGE OF DISCOVERY ISSUES (Middle District)

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In Morris v. USAA Casualty Insurance Company, a UIM case, the Court provided a compact opinion addressing a wide range of discovery issues, and a motion to bifurcate the breach of contract and bad faith claims.  The issues relating to the bad faith claim are summarized as follows:

  1. The motion to bifurcate was denied. The court found there was “an overlap in the issues of the separate claims, and that having one trial would better serve judicial economy.”
  2. The court recognized “generally that an expert opinion is not required in bad faith cases, [but] there are times when expert testimony is appropriate.” Here, the court found testimony from the insured’s expert “would be helpful to the jury, but [the expert was] precluded from offering any legal conclusions.”  The court rejected the argument that report contained no legal conclusions, and found there were portions that went to the ultimate issues in this case and would not be permitted in the final report.
  3. The insurer was required to produce reserve information for a two year period, in line with a prior order.
  4. The court precluded any evidence, argument, comment or reference to any other claims or litigation to which [the insurer] is or has ever been a party, at any time during the course of the trial.”
  5. The insurer had asserted the allegations concerning the insured’s conduct as a defense and the insured sought to preclude evidence of that defense. The court ruled this was premature, and should be addressed via trial objections.
  6. The court rejected the insured’s effort to preclude payments by the tortfeasor. The amount paid is relevant to the bad faith claim.

Date of Decision:  May 3, 2016

Morris v. USAA Cas. Ins. Co., No. 3:12-cv-1664, 2016 U.S. Dist. LEXIS 58948 (M.D. Pa. May 3, 2016) (Kosik, J.)

MAY 2016 BAD FAITH CASES: NO BAD FAITH WHERE ALLEGATIONS IN COMPLAINT FALL OUTSIDE SCOPE OF COVERAGE; FAULTY WORK IS NOT AN OCCURRENCE (Philadelphia Federal)

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In Lenick Construction, Inc. v. Selective Way Insurance Company, the insured brought breach of contract and bad faith claims against the insurer in connection with an underlying suit involving material construction defects and breaches of warranty. The insured, working as a subcontractor in the construction of a condominium project, was sued by the condominium association after owners found defects in the units which caused water infiltration, leaks, and cracks in the drywall.

The insurer originally denied the insured’s demand for a defense and indemnification in the underlying suit, but eventually agreed to defend the insured subject to a reservation of rights. The insured then filed this action, seeking a declaratory judgment as to the insurer’s duty to defend and indemnify it in the underlying suit. The insurer argued that any liability the insured would face arose from its own faulty workmanship, in breach of its contractual duties.  Therefore, the property damage at issue was not caused by an “occurrence” and was not covered. The insured asserted bad faith in denying benefits.

The insured claimed that the insurer denied benefits under the policy without a reasonable basis, and knew or recklessly disregarded the lack of reasonable basis when denying the claim. The court disagreed. It found no duty to defend because the allegations arose out of faulty workmanship in performance of a contract, which was not an “occurrence” under the policy. Additionally, the court found that the insurer had no duty to indemnify because the claims were not potentially within the scope of the policy’s coverage. As the insurer was under no duty to defend or indemnify, the court determined that the insurer’s interpretation of the underlying pleadings was not made with knowing or reckless disregard of whether the denial of coverage was reasonable, and accordingly did not act in bad faith.

Date of Decision:  March 23, 2016

Lenick Constr., Inc. v. Selective Way Ins. Co., No. 14-2701, 2016 U.S. Dist. LEXIS 38119 (E.D. Pa. Mar. 23, 2016) (Rufe, J.)

MAY 2016 BAD FAITH CASES: AN INSURER’S CORRECT INTERPRETATION OF AN INSURANCE POLICY IS A VALID DEFENSE AGAINST BAD FAITH

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In Darwin National Assurance Company v. Luzerne County Transportation Authority, the Court held that an insurer who correctly denied benefits under an insurance policy did not act in bad faith.

The insured was the former operations manager of the Luzerne County Transportation Authority and had been criminally charged with conspiring to defraud the PA Department of Transportation.  The insured submitted a claim for defense and indemnity to the insurer who accepted the claim, but determined that the insured could only collect $100,000 from the policy.

The insured disagreed, arguing that he was entitled to $1 million.  The insured later brought a claim for bad faith, alleging that the insurer’s refusal to pay $1 million in policy proceeds was frivolous and unfounded.

In denying the Insured’s bad faith claim, the Court held that because the insurer’s interpretation of the policy was correct, the insured could not make out the first element of a bad faith claim – that the insurer lacked a reasonable basis for denying benefits.  The Court emphasized that the insurer did not deny benefits outright, but merely found that coverage was limited to $100,000 and even tendered payments towards the insured’s defense costs.

Date of Decision: March 30, 2016

Darwin Nat’l Assur. Co. v. Luzerne Cnty. Transp. Auth., NO. 3:14-cv-2417, 2016 U.S. Dist. LEXIS 41733 (M.D. Pa. Mar. 30, 2016)

1200th POST ---- MAY 2016 BAD FAITH CASES: PARTY INJURED BY INSURED HAS NO STANDING TO BRING BAD FAITH CLAIM AGAINST INSURER BASED ON ALLEGATIONS OF FAILURE TO SETTLE IN GOOD FAITH (Philadelphia Federal)

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This is our 1200th post summarizing individual bad faith cases since beginning this blog 9 years and 11 months ago. The ongoing presence of bad faith litigation represented by just these available opinions reflects the persistence of bad faith claims as a regular presence in insurance coverage litigation.

In Leboon v. Zurich American Insurance Company, the court stated that: “[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.” In that case, the party that had sued the insured subsequently sought to bring bad faith claims against the insurer for failure to settle that plaintiff’s claims against the insured. The court stated that the insurer’s fiduciary duty ran solely to its insureds, and that the underlying plaintiff was a stranger to the insured-insurer relationship. The court dismissed the claims with prejudice.

Date of Decision April 18, 2016

Leboon v. Zurich Am. Ins. Co., CIVIL ACTION NO. 15-05904, 2016 U.S. Dist. LEXIS 51381 (E.D. Pa. Apr. 18, 2016) (Pappert, J.)

 

 

MAY 2016 BAD FAITH CASES: COURT FINDS FACTUAL ALLEGATIONS IN COMPLAINT CONCERNING NATURE OF BREACH OF CONTRACT MUST BE READ ALONG WITH OTHERWISE CONCLUSORY LEGAL ALLEGATIONS OF BAD FAITH IN RULING ON MOTION TO DISMISS (Middle District)

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In Linko v. Nationwide Property & Casualty Insurance, the insured alleged he made monthly insurance payments towards insurance on a particular truck, and that he had insurance on the truck with the insurer.  The insurer denied this, stating it had no record of his purchasing insurance.  The insurer refused coverage when the truck was involved in an accident, and the insured brought breach of contract and bad faith claims.  The insurer moved to dismiss the bad faith claim for merely pleading conclusory allegations of law.

The court denied the insurer’s motion to dismiss plaintiff’s bad faith claim. The court found that the insured pleaded an unreasonable denial of benefits, and that dismissal would be premature.

While some paragraphs in the complaint could be viewed as legal conclusions, the court read those paragraphs “in conjunction with [the] more specific allegations in his breach of contract claim.” These factual allegations bolstered the claim of unreasonable denial of benefits, and were read to support a bad faith cause of action for failure to objectively and fairly evaluate the insured’s claim, and failure to “promptly offer payment of the reasonable and fair value of the claim to plaintiff.”

Date of Decision: April 18, 2016

Linko v. Nationwide Prop. & Cas. Ins., No. 3:15cv2066, 2016 U.S. Dist. LEXIS 51602 (M.D. Pa. Apr. 18, 2016) (Munley, J.)

MAY 2016 BAD FAITH CASES: NO PRIVATE RIGHT OF ACTION UNDER NEW JERSEY’S INSURANCE TRADE PRACTICES ACT OR UNFAIR CLAIMS SETTLEMENT PRACTICE ACT (New Jersey Federal)

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In GEICO v. Korn, the court addressed what it called a muddled claim that appeared to be for bad faith.  The claim referenced both New Jersey’s Insurance Trade Practices Act and Unfair Claims Settlement Practices Act, neither of which allow for a private cause of action. The insured also pleaded that the insured had “failed to act in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become perfectly clear.” The court dismissed the insureds’ claim without prejudice, and with leave to amend.

Date of Decision:  April 21, 2016

GEICO v. Korn, 2016 U.S. Dist. LEXIS 53210 (D.N.J. Apr. 21, 2016) (Bumb, J.)

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)