If you want to get an overview on the law of removal and remand in bad faith cases, this is the case for you.

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Eastern District Judge Marston reviews three lines of U.S. Supreme Court and Third Circuit precedent in determining when, and whether, the burden of proof in establishing the jurisdictional minimum for removal purposes is “legal certainty” versus “preponderance of the evidence.”  She concludes that in cases where the insured specifically pleads compensatory damages are less than $50,000, a “legal certainty” test still applies until the Third Circuit says otherwise. This is so even if the plaintiff additionally demands punitive damages, attorney’s fees and super-interest under the bad faith statute.

In this context, a removing defendant’s allegation that punitive damages and attorneys’ fees could result in overall damages exceeding $75,000, fails to meet the legal certainty test.

[Comment: The upshot appears to be that if a plaintiff specifically alleges compensatory damages will not exceed $75,000 (typically not to exceed $50,000 in Pennsylvania state pleadings), even while additionally seeking statutory punitive damages and attorney’s fees, removal is not going to be possible.  Under Rule 11, the removing party would have difficulty averring to a certainty that punitive damages and attorney’s fees will be awarded to a legal certainty, and will use qualifying language such as “court be awarded” or “if awarded”.  Moreover, it is unlikely a defendant insurer will want to establish legal certainty by making a detailed argument against itself as to why it should be encumbered with punitive damages for its own reckless or intentional conduct.

Among the questions that arise: Why is a bad faith claim for punitive damages any less a legal certainty than a contested claim for compensatory damages? Put another way, doesn’t a contested claim for punitive damages or attorney’s fees have as much reality as a contested claim for compensatory damages?

Bad faith claims only allow for three types of damages: super-interest, punitive damages, and attorney’s fees.  There is no statutory bad faith claim for compensatory or incidental damages. Thus, to even plead a bad faith claim meeting Rule 11 standards, the plaintiff must believe that punitive damages, attorney’s fees, or super-interest are warranted, as this is the only possible form of relief provided under section 8371.

Just as a plaintiff believes and pleads it is entitled to $49,312.25 in compensatory damages — and this number is treated as an undisputed fact for jurisdictional purposes even if a defendant insurer completely rejects that sum — so too must the plaintiff believe that it is entitled to punitive damages, attorney’s fees and/or super-interest in bringing the bad faith claim.  Yet this distinct damage claim, under a separate legal theory, may come to be treated as a nullity for purposes of calculating the jurisdictional minimum.

One possibility here could be the potential damages available under section 8371 are discretionary and not mandatory. Thus, it might be that the trier of fact may not award any of these damages at the end of the day, or may make a minimal award.  It also might be the case, however, that the trier of fact will find at the end of the day that the same plaintiff’s compensatory damage claim is meritless or only a fraction of the sum requested. Yet, that number as pleaded is treated as truth.]

The Facts of the Case

Plaintiffs brought breach of contract and bad faith claims in this water damage case.  Their contract claim’s ad damnum clause sought “judgment against Defendant in an amount not in excess of $50,000 together with interest and court costs.” In the bad faith count’s ad damnum clause, Plaintiffs requested “statutory damages including interest…, court costs, attorneys’ fees, punitive damages, and such other compensatory and/or consequential damages as are permitted by law.”

The carrier removed the case from Philadelphia’s Court of Common Pleas to federal court, and Plaintiffs moved to remand.  The District Court remanded.

The court observed “’[i]t is now settled in this Court that the party asserting federal jurisdiction in a removal case bears the burden of showing, at all stages of the litigation, that the case is properly before the federal court.’”  As set out above, the issue was whether the court should set the burden at “legal certainty” or “preponderance of the evidence.”  After doing a lengthy and detailed historical analysis of each strand of case law, the court concluded that, in a case such as this where the insured specifically pleaded the compensatory damage claims were less than $50,000, the “legal certainty” test applied.

The court observed it could aggregate the demands against a single defendant in determining jurisdiction. Further, punitive damages could be considered, so long as the estimates were realistic, with all doubts construed in favor of remand.  Such an analysis must be objective and not “pie-in-the-sky”.

The compensatory damages were a little over $24,000. The insurer argued that it was “not unreasonable to expect that a punitive damage award three or four times the amount in controversy, or beyond, could be rendered by the trier of fact.” It suggested, however, that the court should apply a 2-1 ratio ($48,000) and a measure of attorney’s fees at $30,000, as that “would not be unreasonable to expect that [fee sum] over the course of an approximate ten-month litigation…” This would place the claim at over $100,000, sufficient for jurisdiction.  The court rejected the argument.

The court looked at earlier case law finding such arguments failed to reach the level of “legal certainty.” In those cases, the qualifying language presented the fatal flaw, e.g., “claims for punitive damages and attorney fees, amongst other relief…could exceed $75,000.”; “it is ‘certainly possible for the damages to meet or exceed the jurisdictional limit of $75,000.’” A “suggestion of possible future events,” however, is not enough.

In one case relied upon to support remand, the compensatory damages were $11,000 and the punitive damages needed to be six times that amount to obtain jurisdiction. The court remanded for two reasons: (1) there was no certainty the plaintiff would “recover punitive damages at all, as she has not alleged any particular facts suggesting bad faith on the part of [the insurance company], other than her assertion that she was entitled to benefits but has not received them.”; (2) the carrier “supplied no basis for the Court to find that [the plaintiff] will recover the necessary amount of punitive damages.”

[Comment: This analysis implies a number of considerations, akin to the comment above. In determining remand, the court is looking to the merits of the plaintiff’s case in evaluating whether defendant met its burden.  The court basically determined on a motion to remand that the plaintiff’s bad faith claim, as pleaded, could not withstand a federal motion to dismiss.  The court then put the burden on the defendant to make the case against itself as to why punitive damages should be awarded against it.]

Judge Marston found the instant case akin to these earlier cases. In the present case, the carrier only alleged “that it is not ‘unreasonable’ to find that punitive damages ‘could’ amount to three or four times the amount in controversy, and that it would ‘not be unreasonable’ to find that attorney’s fees ‘could’ approach $30,000.This did not “satisfy [the defendant’s] burden by pointing to the mere possibility that the [insureds] ‘could’ be awarded punitive damages and attorney’s fees above the amount in controversy threshold.” “Moreover … [the insureds] are ‘not certain to recover punitive damages at all,’ because the complaint does not allege ‘any particular facts suggesting bad faith on the part of [the insurance company], other than [the] assertion that [they were] entitled to benefits but ha[ve] not received them.’”

The court held: “Without more, we cannot find that [the insurer] has carried its burden of showing to a legal certainty that the amount in controversy exceeds $75,000, and we must remand the case. However, if on remand, [the insurer] uncovers new evidence which shows that the amount in controversy exceeds $75,000, it may again seek removal to this Court.”

Date of Decision:  August 4, 2020

Sciarrino v. State Farm Fire and Casualty Company, U.S. District Court Eastern District of Pennsylvania No. 2:20-CV-2930-KSM, 2020 WL 4470611 (E.D. Pa. Aug. 4, 2020) (Marston, J.)

INSURED FAILS TO ADEQUATELY PLEAD BAD FAITH; CAN CONDIO BE USED TO DEFINE THE SCOPE OF THE BAD FAITH STATUTE AFTER TOY (Philadelphia Federal)

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The insured failed to plead a plausible bad faith claim in this first party property loss case.

We will address two things about this case.  First, the details in the court’s decision granting the motion to dismiss.  Second, the court’s finding that statutory bad faith can consist of more than the denial of first party benefits or the denial of a defense and indemnification in third party claims.

Failure to Plead a Plausible Bad Faith Claim

As discussed many times by the federal district courts addressing bad faith claims, conclusory allegations simply carry no weight in adequately pleading a bad faith claim. Courts will parse the complaint to determine what non-conclusory facts have actually been pleaded, what allegations are merely conclusory boilerplate and can be disregarded, and whether facts left standing after that process can support a plausible bad faith claim.

In this case, the facts pleaded only included the location of covered property, that a peril covered under the policy caused direct physical loss and damage to the property, that prompt and timely notice of loss was given to the carrier, and that the insured fully complied with all necessary policy terms and conditions.

The complaint went on to aver generically 13 forms of bad faith behavior, with no factual detail (listed below). The court readily found these allegations conclusory.

The court gave particular attention to a few of these conclusory allegations. For example, the complaint alleges the carrier “’misrepresent[ed] pertinent facts or policy provisions relating to coverages at issue’ and ‘sen[t] correspondence falsely representing’ that Plaintiff was not entitled to benefits under the Policy….” However, the complaint failed “to explain what those misrepresentations may have been.”

Plaintiff also averred that the insurer “’fail[ed] to fairly negotiate the amount of [Plaintiff’s] loss” … but provides no details describing what was unfair about the negotiations.”  Judge Padova added that “[t]he Complaint’s remaining bad faith allegations merely assert that [the insurer] was not prompt, thorough, fair, or reasonable in how it handled or denied the claim, but does not provide any facts explaining how [it] was not prompt, thorough, fair, or reasonable.”

The Complaint was dismissed with leave to amend.

Can Courts Rely on the Superior Court’s 2006 Condio Decision to Determine the Scope of the Bad Faith Statute after the 2007 Supreme Court Decision in Toy v. Metropolitan Life

Though not ultimately relevant to the court’s decision, the opinion states that:

“‘[S]ection 8371 is not restricted to an insurer’s bad faith in denying a claim. An action for bad faith may [also] extend to the insurer’s investigative practices.’” Greene v. United Servs. Auto. Ass’n, 936 A.2d 1178, 1187 (Pa. Super. Ct. 2007) (alterations in original) (quoting Condio, 899 A.2d at 1142). Indeed, the term bad faith “‘encompasses a wide variety of objectionable conduct’” including “‘lack of good faith investigation into facts, and failure to communicate with the claimant.’” Id. at 1188 (quoting Condio, 899 A.2d at 1142).

The Superior Court decided Condio in 2006.

In the 2007 Supreme Court Toy v. Metropolitan Life decision, Chief Justice Cappy, writing for the majority, observed that at the time of the Bad Faith Statute’s 1990 enactment, “the term ‘bad faith’ concerned the duty of good faith and fair dealing in the parties’ contract and the manner by which an insurer discharged its obligations of defense and indemnification in the third-party claim context or its obligation to pay for a loss in the first-party claim context.” “In other words, the term captured those actions an insurer took when called upon to perform its contractual obligations of defense and indemnification or payment of a loss that failed to satisfy the duty of good faith and fair dealing implied in the parties’ insurance contract.”

Justice Eakin, writing in concurrence, found this reading too narrow. In their competing opinions, Justices Cappy and Eakin specifically debate the meaning and application of Condio in statutory bad faith actions. Justice Eakin cites Condio, among other Pennsylvania Superior Court cases, to argue the majority’s interpretation of the bad faith statute is too narrow.

In response, Chief Justice Cappy does not reject the Condio opinion, but states that Condio is addressing a different aspect of “bad faith” than what the court had to decide that day.

Justice Cappy finds there are two aspects to “bad faith” in the context of section 8371.  “As we observe in footnotes 17 and 18, we do not consider what actions amount to bad faith [conduct], what actions of an insurer may be admitted as proof of its bad faith, whether an insurer’s violations of the UIPA are relevant to proving a bad faith claim or whether the standard of conduct the Superior Court has applied to assess an insurer’s performance of contractual obligations in bad faith cases is the correct one.”  Rather, “[i]n this area, the term ‘bad faith’ refers not only to [1] the claim an insured brings against his insurer under the bad faith statute, but also, [2] to the conduct an insured asserts his insurer exhibited and establishes that it is liable. These matters although related, are nonetheless, separate and distinct. We write to the former.  The concurrence appears to write to the latter.”

Justice Cappy specifically describes the issue in Condio, and other Superior Court cases cited by Justice Eakin, as “whether the evidence offered at trial by the insured as to the insurer’s behavior was sufficient to prove the bad faith claim and/or admissible in a § 8371 action.” Thus, it appears, Condio does not address the scope of what claims are cognizable under the Bad Faith Statute in the first instance, but addresses the adequacy of evidence in proving bad faith.

In light of (1) this distinction raised by the Toy Majority between the two uses of the term “bad faith”, (2) in direct response to Justice Eakin’s argument that statutory bad faith claims should broadly encompass the kind of behavior identified in Condio, and that such claims not be limited to “the manner by which an insurer discharged its obligations of defense and indemnification in the third-party claim context or its obligation to pay for a loss in the first-party claim context,” then (3) it is questionable that Condio, and other pre-Toy Superior Court cases, can expand the category of cognizable claims under the Bad Faith Statute to include conduct beyond “the manner by which an insurer discharged its obligations of defense and indemnification in the third-party claim context or its obligation to pay for a loss in the first-party claim context….”

See this article for a more detailed discussion.

Date of Decision: August 4, 2020

HARRIS v. ALLSTATE VEHICLE AND PROPERTY INSURANCE COMPANY, U.S. District Court Eastern District of Pennsylvania No. CV 20-1285, 2020 WL 4470402 (E.D. Pa. Aug. 4, 2020) (Padova, J.)

Conclusory allegations in the Complaint

  1. by sending correspondence falsely representing that Plaintiff’s loss [was not] caused by a peril insured against under the Policy [and that Plaintiff] was not entitled to benefits due and owing under the Policy;

  2. in failing to complete a prompt and thorough investigation of Plaintiff’s claim before representing that such claim is not covered under the Policy;

  3. in failing to pay Plaintiff’s covered loss in a prompt and timely manner;

  4. in failing to objectively and fairly evaluate Plaintiff’s claim;

  5. in conducting an unfair and unreasonable investigation of Plaintiff’s claim;

  6. in asserting Policy defenses without a reasonable basis in fact;

  7. in flatly misrepresenting pertinent facts or policy provisions relating to coverages at issue and placing unduly restrictive interpretations on the Policy and/or claim forms;

  8. in failing to keep Plaintiff or [her] representatives fairly and adequately advised as to the status of the claim;

  9. in unreasonably valuing the loss and failing to fairly negotiate the amount of the loss with Plaintiff or [her] representatives;

  10. in failing to promptly provide a reasonable factual explanation of the basis for the denial of Plaintiff’s claim;

  11. in unreasonably withholding policy benefits;

  12. in acting unreasonably and unfairly in response to Plaintiff’s claim;

m. in unnecessarily and unreasonably compelling Plaintiff to institute this lawsuit to obtain policy benefits for a covered loss, that Defendant should have paid promptly and without the necessity of litigation.

PLEADING A DISPUTE OVER VALUE AND SUBMITTING MEDICAL RECORDS TO SUPPORT ONE VALUE DOES NOT MAKE OUT A BAD FAITH CLAIM (Western District)

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This Western District UM bad faith decision aligns with recent Eastern and Middle District cases in finding that the insureds failed to plead a plausible bad faith claim.

Pleading Standards, General

Among other things, the court observed:

  1. Although a complaint does not need to allege detailed factual allegations to survive a Rule 12(b)(6) motion, a complaint must provide more than labels and conclusions.

  2. A “formulaic recitation of the elements of a cause of action will not do.”

  3. “Factual allegations must be enough to raise a right to relief above the speculative level” and be “sufficient to state a claim for relief that is plausible on its face.”

  4. Facial plausibility exists “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”

  5. “The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully. [ ] Where a complaint pleads facts that are ‘merely consistent with’ a defendant’s liability, it ‘stops short of the line between possibility and plausibility of ‘entitlement to relief.’”

Pleading Principles in Bad Faith Cases

The court also looked at prior case law in adducing pleading principles applied in insurance bad faith cases:

  1. In the bad faith context, district courts have required more than “conclusory” or “bare-bones” allegations that an insurance company acted in bad faith by listing a number of generalized accusations without sufficient factual support.

  2. Thus, the assessment of the sufficiency of a particular complaint often turns on the specificity of the pleadings and calls for recital of specific factual allegations from which bad faith may be inferred in order to defeat a motion to dismiss.

  3. Where a complaint’s § 8371 bad faith claim simply relies upon breach of contract allegations, coupled with a conclusory assertion that the failure to pay under an insurance policy was “unreasonable” or made in bad faith, courts have dismissed such claims, but typically have afforded litigants an opportunity to further amend and articulate their bad faith claims.

  4. A motion to dismiss will be granted where the “[p]laintiff’s generic invocation of statutory language is insufficient to satisfy his federal pleading burden.”

  5. There is no plausible claim stated in a statutory bad faith case where the complaint is devoid of “any facts that describe who, what, where, when, and how the alleged bad faith conduct occurred.”

Application of Law to Facts Pleaded Leads to Dismissal with Leave to Amend

The complaint alleges plaintiffs were injured by an uninsured motorist and sought UM coverage from the carrier. The policy had $100,000/$300,000 limits. Plaintiffs submitted a demand package, including relevant medical records.  The carrier offered a total of $23,000 to both plaintiffs. One plaintiff later submitted a lost wages claim of $18,000. The insurer increased the offer by another $3,000, but made clear it would not evaluate the lost wage claim.

Plaintiffs’ bad faith count relied on these factual allegations, which the court described as “breach of contract allegations,” and then added “a laundry list of generic allegations that may amount to bad faith….” This was not enough.

First, the court pointed out that plaintiffs failed to attach any exhibits to the complaint. Further, they did not plead “any facts to explain how or why the offer made by [the insurer] is nothing more than a legitimate dispute over the value of the claim.” The court made clear that disputes over value do “not necessarily give rise to bad faith; rather, a plaintiff must allege ‘factual content indicating that [the insurance company] lacked a reasonable basis for its tendered offer or that it knew or recklessly disregarded a lack of reasonable basis for the offer.”

The court dismissed the bad faith claim, with leave to amend.

Date of Decision: August 4, 2020

TAYLOR v. GEICO CHOICE INSURANCE COMPANY, No. 2:20-CV-00729-CRE, 2020 WL 4474926 (W.D. Pa. Aug. 4, 2020) (Reed Eddy, M.J.)

Our thanks to Attorney Daniel Cummins of the excellent Tort Talk Blog for bringing this case to our attention.

“DEEMS EXPEDIENT” CLAUSE UNDERMINES BAD FAITH SETTLEMENT CLAIM; 4 YEAR STATUTE OF LIMITATIONS APPLIES TO CONTRACT BASED BAD FAITH CLAIMS (Philadelphia Federal)

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The essence of the insured’s case is the insurer settled claims against the insured without the insured’s knowledge or permission, and without adequate investigation.  The insurer paid $995,000 out of a $1 Million policy to the person injured in the insured’s ambulance. The insured asserts the carrier overpaid to settle, resulting in $200,000 in damages from increased premiums.

The complaint did not include any reference to statutory bad faith, 42 Pa.C.S. § 8371. Thus, the court found that the sole “bad faith” claim at issue was a breach of the contractual duty of good faith and fair dealing.

The insurer moved to dismiss based on section 8371’s two-year statute of limitations. Since this is a contract based bad faith claim, however, the statute of limitations is four years, and that argument was rejected.

As to the merits, the carrier asserts the policy language expressly provides it can settle any claim or suit as it considers appropriate. Thus, it has complete authority to settle within policy limits at any amount.  The insured argues this is “absurd,” but offers no authority to support its position.

The court ruled for the insurer, observing: “Pennsylvania law disfavors bad faith claims where a policy grants the insurer discretion to settle and where such settlement is within policy limits. However, ‘in limited circumstances,’ ‘a claim for bad faith may … be asserted against the insurance company notwithstanding a ‘deems expedient’ provision … if such settlement was contrary to the intent and expectation of the parties.’” Here, the court found the “settle when appropriate” language to be the equivalent of a deems expedient provision.

The court cited two precedents where a deems expedient provision undermined the possibility of a bad faith claim. In the first, there was no evidence the parties did not freely negotiate policy terms. As to the second, the Third Circuit interpreted “’deems expedient’ clauses broadly—so broadly as to allow insurers to settle claims subject to such clauses ‘for nuisance value of the claim’ or even where a ‘suit … presents no valid claim against the defendants.’”

In the present case, the insured does not contend the deems expedient clause was not freely negotiated. Moreover, even if the insurer could have done more to investigate the underlying claim, “the ‘deems expedient’ clause in its policy afforded [the insurer] the option of settling … simply because it preferred settlement over further investigation of his claim.”

Thus, the bad faith claim was dismissed with prejudice.

Date of Decision: July 22, 2020

Healthfleet Ambulance, Inc. v. Markel Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 20-2250, 2020 U.S. Dist. LEXIS 129185 (E.D. Pa. July 22, 2020) (Beetlestone, J.)

NO BAD FAITH POSSIBLE WHERE DISPUTE OF FACT EXISTS OVER CAUSE OF LOSS; CFA DOES NOT APPLY TO BENEFIT DENIALS (New Jersey Federal)

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The insureds wanted coverage for a fire loss. The carrier’s investigator concluded the fire was set intentionally, but the insureds offered the fire marshal’s conclusion that the fire was of undetermined origin and still under investigation. The carrier denied the claim, and the insured sued. The suit included bad faith and Consumer Fraud Act (CFA) claims, among other causes of action. The insurer successfully moved for summary judgment on the bad faith and CFA claims.

Bad Faith Claim

The court observed generally, “Under New Jersey law, an insurer owes a duty of good faith to an insured when processing first-party claims under an insurance policy. This good faith obligation is greater than that owed under a typical commercial contract because of the fiduciary obligation an insurer owes its insureds. A plaintiff seeking to recover for the bad faith conduct of an insurer is not required to prove bad motive or intention. However, a bad faith claim cannot succeed where the insurer’s conduct amounts to mere negligence.”

Further, “[t]o succeed on a claim against an insurer for the denial in bad faith of benefits under an insurance policy, the insured must demonstrate that no debatable reasons existed for the denial. A plaintiff who cannot establish as a matter of law a right to summary judgment on the issue of coverage cannot succeed on a claim for bad faith denial.”

The court granted summary judgment on the bad faith claim. It reviewed the conflicting fire reports, and found that “[b]ased on conflicting evidence in the record, it is genuinely disputed whether [the insured] caused or did not cause the fire to plaintiffs’ home. A reasonable juror could find that he intentionally set the fire. It follows that plaintiffs could not prevail on a motion for summary judgment that coverage under the policy exists.”

CFA Claim

The Court then addressed the CFA claim. “To prevail on a CFA claim, a plaintiff must establish: (1) the defendant engaged in conduct which violates the CFA; (2) the plaintiff suffered an ascertainable loss; and (3) a causal relationship exists between the unlawful conduct and the loss.” The court also granted the insurer summary judgment on this claim.

“Fraudulently selling or inducing the sale of an insurance policy is a violation of the CFA. However, ‘while the CFA encompasses the sale of insurance policies as goods and services that are marketed to consumers, it was not intended as a vehicle to recover damages for an insurance company’s refusal to pay benefits.’” Date of Decision: July 16, 2020

Watson v. Liberty Mutual Fire Ins. Co., U.S. District Court for the District of New Jersey CIVIL ACTION NO. 19-11994, 2020 U.S. Dist. LEXIS 125361 (D.N.J. July 16, 2020) (Bartle, J.)

 

PLAINTIFF WAS NOT A NAMED INSURED AND COULD NOT CLAIM THE INSURER BREACHED A FIDUCIARY DUTY UNDER THE POLICY (Philadelphia Federal)

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Plaintiff asserted that the insurer breached a fiduciary duty. The insurer moved to dismiss, alleging plaintiff was not a named insured. Rather the policy was issued to his mother.  The court rejected plaintiff’s argument that because he was a co-owner of the underlying asset he should be treated as an insured, and the claim was dismissed with prejudice.

The court observed that under Pennsylvania law:

  1. “[A]n insurer does not have a fiduciary duty to an insured, except in limited circumstances such as where the insurer asserts a right to defend claims against the insured.”

  2. “[T]he existence of a fiduciary duty . . . is predicated upon an existing contractual relationship between the insurer and the insured.”

  3. “To determine who is an insured under a given policy, the Court ‘must look to the terms of the [p]olicy.’”

Applying these principles, the plaintiff could not claim a breach of fiduciary duty when he was not a named insured.  “Notwithstanding his alleged co-ownership of the underlying asset, plaintiff cannot claim that the defendants owed him a fiduciary duty or that he was entitled to recover under the terms of the policy.”

Date of Decision: July 13, 2020

Deckard v. Steven Emory, U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-5182, CIVIL ACTION NO. 19-2001, 2020 U.S. Dist. LEXIS 122720 (E.D. Pa. July 13, 2020) (DuBois, J.)

COURT WOULD NOT REMAND BAD FAITH CASE EVEN THOUGH INSURED PLEADED CLAIM WAS WORTH LESS THAN $75,000; BAD FAITH CLAIM DISMISSED FOR MAKING BOILERPLATE ALLEGATIONS (Philadelphia Federal)

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This property damage bad faith case was removed to federal court, and plaintiff wanted a remand.

Judge Jones observed that once the amount in controversy is challenged, the removing defendant has the burden to prove by a preponderance of the evidence that the case value exceeds $75,000, the jurisdictional minimum.  In a bad faith case, the court can consider punitive damages and potential attorney’s fees in making this calculation.

The property damage claim was in excess of $65,200, and it would appear that with punitive damages and attorney’s fees the bad faith claim would easily exceed the $75,000 minimum.  However, plaintiff apparently pleaded in his ad damnum clause that the damages exceeded $50,000 (avoiding arbitration), but were not in excess of $75,000 (attempting to avoid removal).  Judge Jones found this language in the ad damnum clause did not prevent removal.

Specifically, after discussing prior case law and pleading standards under Pennsylvania’s Rules of Civil Procedure, Judge Jones (who sat for many years as a Court of Common Pleas judge) found that the insured’s “attempt to artificially cap the amount in controversy ‘as less than $75,000.00’ through an ad damnum clause is inconsistent with Pennsylvania’s pleading rules.”  The opinion cites numerous cases where the punitive damage and attorney fees claims pushed an actual damage claim otherwise below the $75,000 minimum over the jurisdictional threshold.

Judge Jones next addressed the insurer’s motion to dismiss the bad faith claim. The insurer argued that the bad faith count failed to set forth a single fact, relying solely on boilerplate generic allegations. The court agreed, observing “[t]he allegations in Plaintiff’s Complaint purporting to state a claim for bad faith are in fact identical to the allegations from a prior complaint filed by Plaintiff’s counsel in another case, which this Court found to be insufficient to state a claim in … Clapps v. State Farm Ins. Cos….” The court did grant leave to file an amended complaint.
Date of Decision: July 10, 2020

Thach v. State Farm Fire & Casualty Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-5050, 2020 U.S. Dist. LEXIS 121758 (E.D. Pa. July 10, 2020) (Jones II, J.)

COURTS SPLIT ON WHETHER STATUTORY BAD FAITH EXISTS WHERE NO BENEFITS ARE DUE UNDER AN INSURANCE POLICY (Philadelphia Federal and Lackawanna County Common Pleas)

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Anyone following this blog has been made aware, ad naseum, that courts are divided on whether statutory bad faith can exist where no benefit is denied.  In this context, denial of a benefit includes a bad faith delay in providing a benefit owed. Thus, the issue is not whether a belated payment or defense can constitute bad faith.  Rather, the issue is whether a statutory bad faith claim is cognizable if an insurer owes no duty to indemnify in a first party case, or to defend or indemnify against a third party claim.

We have pointed out that the 2007 Pennsylvania Supreme Court decision in Toy v. Metropolitan Life strongly appears to have answered this question: There is no statutory bad faith possible if no benefit is denied.  Thus, if no benefit is due, it would appear section 8371 is not the remedy for poor claims handling practices, standing alone.

Last week, Eastern District Judge McHugh ruled in a case that no coverage was due under the policy at issue.  After so ruling, he then addressed the bad faith claim in one sentence.  “Because I have concluded that [the insurer] acted in accordance with the terms of the policy, it cannot be deemed to have acted in bad faith.”  Hemphill v. Landmark Insurance Company. Another example of this principle is found in Judge DuBois’ 2019 Buck decision, which specifically cites Toy.

One day earlier, Lackawanna County Common Pleas Judge Nealon concluded that statutory bad faith did not require denial of a benefit. In fact, a carrier could win summary judgment that no coverage was due under an insurance policy, but still be subject to a statutory bad faith claim.  Farber v. Erie Insurance Exchange.

Judge Nealon states that the success of a statutory bad faith claim does not depend on the success of the underlying contract claim. Citing a 1999 Superior Court opinion, he adds that “because ‘[a] bad faith action under Section 8371 is neither related to nor dependent on the underlying contract claim against the insurer,’ [the insured] is ‘not required to await a judicial determination of the coverage issue’ before pursuing a bad faith claim….”

There are numerous cases out of Pennsylvania’s Superior Court and Federal Courts finding there is a subset of statutory bad faith claims that do not require the denial of a benefit.  Despite Toy’s importance on this issue, these cases typically do not cite Toy. Of course, some of the cases were decided before Toy, but many are not.   Rather, these post-Toy cases cite case authority that ultimately relies on pre-Toy precedent.

The Farber opinion cites Superior Court case law relying on authority from the 1990s, as well as Middle District Judge Rambo’s 2019 Ferguson opinion.  In Ferguson, Judge Rambo addressed the issue head on, and concluded that there are cognizable statutory bad faith claims that do not require denial of a benefit. Unfortunately, Ferguson does not consider the Toy opinion in reaching this conclusion.

Here are links to our various posts on the subject over the last two years: May 4, 2020, April 16, 2020, March 25, 2020, February 24, 2020, January 28, 2020, December 9, 2019, November 21, 2019, August 19, 2019, January 30, 2019, and October 31, 2018.

Dates of Decision: July 8, 2020 and July 9, 2020

Farber v. Erie Insurance Exchange, Court of Common Pleas of Lackawanna County, No. 19 CV 2302 (July 8, 2020) (Nealon, J.)

Hemphill v. Landmark Insurance Company, U.S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 19-5260, 2020 U.S. Dist. LEXIS 120447 (E.D. Pa. July 9, 2020) (McHugh, J.)

Our thanks to attorney Daniel Cummins of the excellent and valued Tort Talk Blog for bringing the Farber case to our attention.

FAILURE TO DISCLOSE AUTOMATIC COVERAGE/PREMIUM INCREASES STATES CLAIM FOR NEW JERSEY CFA VIOLATION (New Jersey Federal)

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The insured had an ongoing relationship with its carrier, obtaining multiple commercial general liability policies over the years. The insured alleges that the carrier used an undisclosed “inflation guard” program to raise its coverage and premiums over the years, contrary to the insurer’s own requirement that the premium guard program be disclosed to the insured.

Alleging that it was kept in the dark, and would not have agreed to the coverage and premium increased, the insured brought Consumer Fraud Act (CFA) and common law fraud claims against the carrier. The insured describe the carrier’s conduct as “an unconscionable practice of applying undisclosed or hidden automatic premium escalations to insurance contracts that do not appear to call for or disclose such escalations.” The court denied the carrier’s motion to dismiss the fraud and CFA claims.

As to the CFA claims, the court found the insured’s “allegations necessarily implicate an extracontractual fraud. Without disclosure of these charges, Plaintiff was deprived of the opportunity to negotiate them away or seek an alternative carrier. While it is true the product Plaintiff received increased his coverage limits to protect against inflation, non-disclosure of such procedures – and as Plaintiff alleges, intentional concealment of them – may be viewed as unlawful and fraudulent behavior. This type of allegedly unfair and undisclosed business practice is within the spirit and scope of the NJCFA.”

Date of Decision: June 24, 2020

Trocki v. Penn National Mutual Casualty Insurance Co., U.S. District Court District of New Jersey 1:19-cv-13638-NLH-KMW, 2020 U.S. Dist. LEXIS 111150 (D.N.J. June 24, 2020) (Hillman, J.)

THIRD PARTY ADMINISTRATOR IS NOT AN INSURER FOR BAD FAITH PURPOSES (New Jersey Appellate Division)

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Yesterday, we summarized another case brought by the instant plaintiff against his homeowner’s insurer.

In this opinion, rendered the same day, the same plaintiff brought bad faith, negligence, and unfair trade practice claims against a hospital’s third party administrator (TPA). The hospital’s alleged medical malpractice practice purportedly resulted in the death of plaintiff’s godfather. Plaintiff brought suit in his own name, and not, e.g., as executor.

Plaintiff alleged that the TPA failed to facilitate negotiations to settle the medical malpractice suit. The trial court dismissed the claim with prejudice and the Appellate Division affirmed.

Generally, insurers have an obligation to explore settlement possibilities. A third party administrator, however, is not an insurer. Thus, the claim failed.

Further, plaintiff was not an insured or an insured’s assignee. The court observed “[a]n insurer’s duty of good faith and fair dealing . . . has never been applied in New Jersey to recognize a bad-faith claim by an individual or entity that is not the insured or an assignee of the insured’s contract rights.”

The Appellate Division found the claims could not be salvaged, and affirmed dismissal with prejudice.

Date of Decision: June 22, 2020

Yew v. Inservco Insurance Services, Superior Court of New Jersey Appellate Division DOCKET NO. A-4604-18T2, 2020 N.J. Super. Unpub. LEXIS 1202, *1 (N.J. App. Div. June 22, 2020) (Messano, Ostrer, JJ.)