We are happy to give a shout out to the excellent Tort Talk Blog in our 1300th post since 2006. Today’s Tort Talk post gives a summary of how a Centre County trial judge handled statutory bad faith claims, where, among other things, the insured alleged wrongdoing in the insurer’s litigation conduct.
The court denied an insurer’s motion to bifurcate, and stay, the plaintiff’s bad faith claim that was brought alongside a breach of contract claim. The plaintiff’s complaint alleged that he had been a passenger in a co-worker’s car when they were involved in automobile accident. The Plaintiff filed a UIM claim with his insurance carrier because the benefits he recovered under his co-worker’s policy were not enough to cover the extent of his injuries. The insurer denied plaintiff’s claim on three separate occasions before the plaintiff brought suit.
The insurer put forth three arguments in support of its motion to bifurcate and stay. First, the insurer argued that evidence and testimony regarding the bad faith claim would be irrelevant to the breach of contract claim and would unnecessarily confuse the jury. Next, the insurer argued that allowing the jury to hear evidence presented on the bad faith claim would “undoubtedly bias” the jury and influence the jury’s decision on the breach of contract claim. Finally, the insurer noted that if the breach of contract claim was resolved in its favor then the bad faith claim would be rendered moot. Plaintiff’s rebuttal was simply that bifurcation would be inefficient because “the insurer’s conduct evincing the bad faith is the very same conduct evincing the breach of contract.”
The court determined that the insurer had not met its burden in demonstrating that the prejudice it would face from trying both claims together would outweigh the detrimental effects of bifurcation. The court first explained that bifurcation would be an inefficient manner of proceeding with the case and would unnecessarily prolong the case. The court further explained that while the two claims were distinct, the evidence related to both claims would be similar and that presenting the same evidence to two juries would constitute a “waste of resources.” The court also rejected the insurer’s position that a finding for the insurer on the breach of contract claim would automatically render the bad faith claim moot, noting that “Pennsylvania law allows for recovery due to undue delay in processing claims which is not contingent on a breach of contract.”
The court then turned to the insurer’s argument that it would be prejudiced if forced to litigate the claims together. The court rejected the insurer’s argument that combining the two discovery phases would allow plaintiff to obtain documents reflecting the insurer’s assessment of the case. The court explained that the “work product doctrine does not disappear just because two claims are tried simultaneously,” and that the insurer would have to “provide its entitlement to work product protection as needed.”
The court also observed that plaintiff, by opposing bifurcation, was taking “a risk of more discovery disputes and a greater likelihood that defendant will be unwilling to produce certain documents” but that this was plaintiff’s choice and “not defendant’s argument to make.” Finally, the court opined that “a concern that a jury would be unable to disregard certain evidence” was not a reason to bifurcate the two claims. The court reasoned that there were other adequate procedures available in federal court if this concern was deemed valid as trial approached.
Date of Decision: April 11, 2017
Reeves v. Travelers Cos., No. 16-6448, 2017 U.S. Dist. LEXIS 54932 (E.D. Pa. Apr. 11, 2017) (Baylson, J.)
In our post earlier today, we noted a Pennsylvania Federal Court dismissing bad faith claims for conclusory pleadings, without prejudice. Below is a New Jersey Federal Court doing the same.
Plaintiffs are homeowners who purchased an insurance policy, which they alleged entitled them to coverage for property damage sustained by their home. After the Insurer denied coverage, the Plaintiffs brought suit alleging breach of contract and bad faith. The Insurer later filed a Motion to Dismiss as to the bad faith claim.
The Court granted the motion and agreed that Plaintiffs had failed to state a cognizable bad faith claim. The Court recognized that New Jersey defines bad faith as: (1) the lack of a “fairly debatable” reason for failing to pay a claim, and (2) knowing or reckless disregarded for the lack of a reasonable basis in denying the claim. The lone allegation in the Complaint as to the second element was Plaintiffs’ assertion that the Insurer had “reckless disregard for the rights of the Plaintiffs.”
The Court held that this conclusory allegation was insufficient to state a claim because it left “the Court to infer reckless indifference from the fact that Defendant denied coverage.” The Court declined to take such a leap. The Complaint lacked any allegations explaining how the Insurer acted recklessly, and the Court refused to infer bad faith conduct simply because the Insurer had denied coverage. As the Court explained, this was they very type of speculative pleading forbidden by Twombly and Iqbal. Thus, the Court dismissed the claim, without prejudice.
Date of Decision: April 3, 2017
Williams v. State Farm Fire & Cas. Ins. Co., No. 16-9028, 2017 U.S. Dist. LEXIS 50261 (D.N.J. Apr. 3, 2017) (Rodriguez, J.)
The court granted an insurer’s 12(b)(6) motion on a bad faith claim related to the handling of an insured’s motorcycle accident. The insured’s complaint contained nineteen separate general allegations of conduct that purportedly demonstrated the insurer’s bad faith in handling the insured’s claim. The allegations were broadly worded and included assertions, among others, that the insurer had failed to “properly investigate” the insured’s claim and had “adopted a company practice of intentionally undervaluing uninsured motorist claims and delaying paying said claims for an unreasonable period of time.” The complaint, however, was devoid of any specific facts that the court could reasonably rely on to support a plausible claim for liability toward the insurer.
The court explained that “plaintiff had not alleged sufficient or specific facts to support his claim that [the insurer] had acted in bad faith . . ..” The court further observed that the insured had actually “not set forth any factual allegations to support his general legal claims.” Thus, the court dismissed the insured’s bad faith count, but without prejudice.
Date of Decision: December 5, 2016
Talotta v. State Farm Mut. Auto. Ins. Co., No. 16-55557, 2016 U.S. Dist. LEXIS 167248 (E.D. Pa. Dec. 5, 2016) (Ditter, J.)
The insured brought a consumer protection law claim for allegedly abusive claims handling practices and denial of her insurance claim. The court observed that in the insurance context, Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (UTPCPL) “applies only to conduct related to the sale of an insurance policy, not to the handling of insurance claims.” However, in a footnote, the court added that in Berg v. Nationwide Mut. Ins. Co., Inc., 44 A.3d 1164 (Pa. Super. Ct. 2012), the Superior Court dealt with whether a UTPCPL violation is evidence of statutory bad faith under. Under that case, while the UTPCPL did “not provide for a separate cause of action for a UTPCPL violation, … such violation may constitute evidence to support a bad faith cause of action.”
Date of Decision: April 7, 2017
Machado v. Safeco Ins. Co., No. 16cv1685, 2017 U.S. Dist. LEXIS 53604 (M.D. Pa. Apr. 7, 2017) (Munley, J.)
In this case, among other things, the Superior Court stated the principle that statutory bad faith can exist independently of the insurer’s denying a benefit under the policy. The Court relied upon its earlier decisions in Condio (2006) and Nealy (1997). It did not address what effect, if any, that the Supreme Court’s 2007 decision in Toy v. Metropolitan Life Insurance Company had on those opinions, or to what extent Toy might limit the scope of cognizable claims for statutory bad faith to denial of benefits or conduct that is intertwined with a denial of benefits.
As to the particulars, this case involved title insurance. The insured believed she purchased two parcels, but the deed and title insurance policy only set out the legal description for one parcel. When she attempted to sell the properties years after her initial purchase, the potential buyer withdrew from the agreement and sued for damages because she had promised to convey both properties, but could not. She brought a third party action against the title insurer.
The Court found that the error in describing only one parcel in the original deed was in no way the insured’s fault. The insured alleged “that she … entered into a contract under which [the insurer] agreed to provide ‘real estate transactional services’ — including title searches and the drafting and filing of a deed — for her purchase of the property, and to issue a policy insuring title to the property.” The insured alleged that the title insurer was liable to her because the erroneous description on the deed and “in the Policy resulted from [the insurer’s] failure to conduct a proper title search and to provide a policy covering all of 4 Mill Street and the entire premises covered by her Agreement of Sale.”
In terms of insurance coverage, the Court looked at case law on reasonable expectations and estoppel. It cited numerous cases where mistakes in property descriptions could not be used to avoid coverage. It also looked to general case law on reasonable expectations, where the insurer could not evade the consequences of promises or conduct of its own agents in leading the insured to believe that certain coverage was being provided. (The Court cited the seminal Tonkovic case. It also cited Pressley v. Travelers, 817 A.2d 1131 (Pa. Super. Ct. 2003), where the agent at issue had authority to bind the insurer as its agent, but apparently was the insured’s agent as well). Thus, the court reversed the trial court’s finding that no coverage was due as a matter of law based on the policy language.
As to the bad faith claim, the finding of potential coverage undermined much of the insurer’s argument that it could not have acted in bad faith. In addition, the court found there could be distinct claims for “claims handling conduct which occurred over a six month period before finally advising” that coverage was denied. This would need to be addressed on remand. The Court further stated that the insured made bad faith allegations that the insurer improperly raised defenses alleging that the insured failed to cooperate and that the insured’s own actions, or that of her counsel, were the proximate cause of her own losses. The Court instructed the trial court to review these claims for bad faith on remand.
Finally, the Court remanded the bad faith claim on the insured’s argument that the insurer failed in its duty to defend the insured from the buyer’s claims for breach of the sales agreement.
Date of Decision: April 11, 2017
Michael v. Stock, No. 1229 EDA 2017, Pa. Super. LEXIS 245 (Pa. Super. Ct. Apr. 11, 2017) (Fitzgerald, Olson, Solano, JJ.)
This dispute arises out of a Title Insurance Company’s initial refusal to defend its insured against a third party claim. The plaintiff in the underlying action proceeded pro se, and filed three different complaints before obtaining counsel. Based on the confusing and unclear language in the complaints, the insurer denied coverage.
It was not until a fourth Complaint was filed that the insurer provided a defense under a reservation of rights. Notably, however, the insurer only agreed to defend the covered claims, and refused to provide a defense for the uncovered claims. The insurer’s position went against well-established Pennsylvania case law requiring insurers to defend against both covered and uncovered claims until all potentially covered claims had been dismissed or resolved.
The insured brought suit alleging that the insurer acted in bad faith by delaying its defense, and by refusing to defend against all claims as required under Pennsylvania law. In determining that there was no bad faith, the Court reviewed the policy and held that the insurer correctly determined that its duty to defend was not triggered until the filing of the fourth Complaint. Because the insurer’s refusal to defend was based on a correct interpretation of the policy, its denial of benefits was not unreasonable, and the plaintiff was unable to satisfy the first element of bad faith.
With regard to insurer’s refusal to defend all claims, the court observed that the general rule that if any claim is covered, then under Pennsylvania law, the insurer must defend all claims, i.e., both covered and uncovered claims. The title insurer argued, however, “that title insurance policies should be construed differently, to extend the duty to defend only to those claims within the contours of the policy.” The title insurer relied upon case law from other jurisdictions and the title policy language; and the insured relied upon Pennsylvania public policy as set forth in case law. The court determined that it should rely upon Pennsylvania precedent, and rejected the title insurer’s argument.
As to bad faith, however, the court held that the insurer’s position was not taken in bad faith for two reasons. First, although unsupported by any Pennsylvania case law, this title insurance exception was an issue of first impression and had apparently never been presented before a Pennsylvania court. Second, the insurer’s position was supported by case law from other jurisdictions that had carved out similar exceptions for Title Insurance Companies.
Date of Decision: March 27, 2017
Lupu v. Loan City, LLC, No. 12-4556, 2017 U.S. Dist. LEXIS 45135 (E.D. Pa. Mar. 27, 2017) (Rufe, J.)
In this case, the insured owned two adjacent properties, which both the Magistrate Judge and District Court Judge concluded were distinct properties, and which had distinct insurance policies over time. The policy lapsed on one property (property 1), but a different policy remained in effect on property 2. A fire started on property 1, which ultimately damaged both property 1 and property 2. The insurer for property 2 would not pay for claims on property 1.
The insured asserted breach of contract and bad faith and argued that the insurer failed to act promptly on the insured’s claims, failed to undertake a reasonable investigation and make timely payment, and refused to cover losses arising at an adjoining property, which was not covered under the insured’s policy. The insurer sought summary judgment on the basis that its insurance policy only applied to property 2. The insurer argued that the undisputed facts showed that it properly evaluated the scope of coverage, made good faith payments totaling over $50,000 to the insured, and arranged seven months of temporary housing for the insured, based on the fire damage to property 2.
The court found that the insurer acted reasonably in addressing the insured’s claim, and noted that the insured was seeking coverage from the insurer for losses on a property that was not covered by the insurer’s policy. Additionally, the insurer immediately began investigating the claim after notice of the loss, arranged and paid for immediate short-term housing lasting more than seven months, and promptly attempted to undertake remediation and restoration efforts.
The insurer addressed any coverage questions with the insured, and paid undisputed claims totaling approximately $30,000 within two months of the reported loss. Further, the insurer worked with the public adjuster retained to evaluate other potentially covered losses, and made an additional $20,000 in payments over the course of approximately four months.
The Magistrate Judge found that these facts could not support a finding of bad faith, but may “at most – represent the remnants of a good faith insurance policy coverage contractual dispute.” In adopting the Report and Recommendation, the District Court Judge set forth additional facts supporting the Magistrate Judge’s Report and Recommendation concerning the two properties being distinct, and adopted the Report and Recommendation in granting the insurer’s motion for summary judgment.
Dates of Decisions: February 6, 2017 (Report and Recommendation) and March 24, 2017 (District Court decision)
Porter v. Safeco Ins. Co., No. 15- 759, 2017 U.S. Dist. LEXIS 17142 (M.D. Pa. Feb. 6, 2017) (Carlson, J.)
Porter v. Safeco Ins. Co., No. 15- 759, 2017 U.S. Dist. LEXIS 43498 (M.D. Pa. March 24, 2017) (Mariani, J.)
The Court granted summary judgment to the insurer on a breach of good faith and fair dealing claim for attorney’s fees and costs and expenses, because the National Flood Insurance Act preempts state contract law, including bad faith claims.
Date of Decision: March 31, 2017
Caivano v. Allstate Ins. Co., No. 15-5791, 2017 U.S. Dist. LEXIS 50490 (D.N.J. Mar. 31, 2017) (Simandle, J.)
This bad faith claim arises out of an insurer’s refusal to participate in an appraisal of the insured’s property damage claim. The insurer paid for some of the loss, but refused the insured’s request for appraisal. The insurer asserted that because the request was made a year after the loss, it was not required by the policy. The insured sued for breach of contract and bad faith, alleging that the policy mandated an appraisal.
The insurer filed a Motion for Judgment on the Pleadings, arguing that the factual allegations in the complaint were insufficient to sustain a bad faith claim. The Court agreed, placing its focus on the second element of a statutory bad faith claim – that the insurer knew or disregarded its lack of a reasonable basis for denying benefits. Specifically, the Court found that the Plaintiff had failed to allege any facts to show that the insurer acted knowingly or recklessly. Merely reciting the elements of the bad faith claim, supported only by conclusory statements, is insufficient. In this respect, the Court found the insured’s complaint lacking where it merely alleged, inter alia, that the insurer placed “its interests over the interests of its insureds” and did not have “a reasonable basis for denying Plaintiff the benefits due under the policy.”
Further, the Court refused to consider whether the insurer’s explanation for refusing appraisal was ultimately correct. Instead, the Court found that the sole issue was whether there were any facts in the complaint showing that the insurer knew or recklessly disregarded its lack of a reasonable basis for denying benefits. The correctness of the policy issue itself was an issue best explored in a breach of contract claim, not one for bad faith.
Date of Decision: March 30, 2017
Long v. Farmers New Century Ins. Co., No. 15-6724, 2017 U.S. Dist. LEXIS 47552 (E.D. Pa. Mar. 30, 2017) (Stengel, J.)