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In this case, the plaintiff attempted to bring various claims against an insurer, including a bad faith claim. Pennsylvania is not a direct action state. The pleadings revealed that the insurer defendant did not insure the plaintiff. The plaintiff thus had no claims against the insurer, and all claims against the insurer were dismissed.

Date of Decision: June 20, 2017

ABC Capital Invs., LLC v. CNA Financial Corporation, No. 16-CV-4943 2017 U.S. Dist. LEXIS 95433 (E.D. Pa. June 20, 2017) (Joyner, J.)



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The UIM insured brought breach of contract, common law contractual bad faith, and statutory bad faith claims. The court recognized that the scope of common law bad faith damages described by the Supreme Court’s Birth Center decision in the third party context, also applies in the first party context. Thus, while payment of full UIM benefits might moot the contract claim, it does not automatically address a potential common law bad faith claim for consequential damages.

In this case, policy limits were tendered after litigation began, so the court looked at the claim for additional damages in evaluating the common law bad faith claim. The insured asserted that an award in excess of the policy limits would fall within the kind of consequential damages allowed for in a common law bad faith claim. However, looking at Birth Center and Cowden, the court concluded that an excess verdict on a first party claim does not fall within the category of consequential damages permitted in common law bad faith claims. Thus, the contract claim and common law bad faith claim were dismissed.

The court also made clear that compensatory and consequential damages cannot be recovered for statutory bad faith.

Date of Decision: June 14, 2017

Koerner v. GEICO Casualty Co., NO. 3:17-cv-455, 2017 U.S. Dist. LEXIS 91836 (M.D. Pa. June 14, 2017) (Conaboy, J.)

The court had previously refused a motion to remand this action.



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This suit was brought by an insurer against its insured’s attorneys and an expert retained by its insured’s attorneys in a Washington State class action against the insurer. The following are excerpts from the court’s strongly worded opinion. The court dismissed the case as a sanction, under its inherent authority.

“A few years ago, two class actions were filed … in Washington state court. Not surprisingly, as in any litigation, a dispute arose about the use of documents in these Washington class actions. Rather than meet and confer with the plaintiffs’ lawyers (or file a motion in Washington court) about this dispute, [the insurer] sued them here in Philadelphia. That, however, was not enough to quench [the insurer]’s thirst for aggression. [It] also sued the plaintiffs’ lawyers’ expert witness and his company.”

“[The insurer] weaves some clever arguments in an attempt to justify its acts of obstruction. However, practicality, legal analysis, and common sense all make clear [the insurer] is attempting to stalemate the Washington class actions by suing the plaintiffs’ lawyers thousands of miles away from where those class actions are currently being litigated. The red herrings in this case are [the insurer]’s alleged ‘claims’ for trade secret misappropriation and unjust enrichment. Even if these ‘claims’ were anything more than red herrings—which they are not—they fail as a matter of law.”

“The defendants filed a motion to dismiss. In the alternative, defendants move to transfer this action to the U.S. District Court for the Western District of Washington. While transfer might be appropriate in this case, there is no need. I will not tolerate the attempted manipulation of our judicial process in this case. The case is dismissed.”

“In this case, while a close call, I cannot conclude that Rule 11 sanctions are proper because I do not find the [insurer]’s claims ‘patently unmeritorious or frivolous.’” “The claims are weak, to be sure, but they do possess a modicum of substance, thereby elevating them slightly above the level of ‘patently unmeritorious or frivolous.’” “Consequently, Rule 11 sanctions cannot be imposed.”

“However, I will impose sanctions, pursuant to my inherent power, for ‘conduct which abuses the judicial process.’” The insurer’s “conduct, in filing this lawsuit, was done in bad faith, vexatiously, and for oppressive reasons.” “This is the exact type of case where a response to ‘abusive litigation practices’ is warranted.”

The court dismissed the complaint “in its entirety, without prejudice. Whether [the insurer] will again be subject to sanctions under my inherent authority (or under Rule 11) will depend upon the renewed strength and plausibility of [the] claims in its amended complaint, should it decide to take this route and file one.”

Date of Decision: June 13, 2017

GEICO v. Nealey, No. 17-807, 2017 U.S. Dist. LEXIS 91219 (E.D. Pa. June 13, 2017) (Stengel, J.)



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The case involved a fire loss. The insured brought claims seeking coverage, and the insurer filed insurance fraud counterclaims under Pennsylvania’s Insurance Fraud Statute. Before suit, the insurer took the insured’s examination under oath, and during that examination had asked the insured to preserve his cell phone data.

During litigation, the insurer requested cell phone data in discovery. The insured objected, and later reported that he had lost his cell phone. The insurer brought a motion for sanctions, asserting spoliation.

The court observed no material difference between the law governing spoliation under state or federal practice. “Spoliation occurs where ‘the evidence was in the party’s control; the evidence is relevant to the claims or defenses in the case; there has been actual suppression or withholding of evidence; and, the duty to preserve the evidence was reasonably foreseeable to the party.’” “Failure to produce evidence can have the same practical effect as destroying it and so, ‘under certain circumstances, nonproduction of evidence is rightfully characterized as spoliation.’”

Sanctions rest within the court’s discretion. In federal court, the court’s authority comes for the Federal Rules of Civil Procedure and the court’s inherent power. Sanctions may include “dismissal of a claim or granting judgment in favor of the prejudiced party, suppression of evidence, an adverse inference, fines, and attorneys’ fees and costs.” “In considering what sanctions to impose, the trial court should consider ‘(1) the degree of fault of the party who altered or destroyed the evidence; (2) the degree of prejudice suffered by the opposing party; and (3) whether there is a lesser sanction that will avoid substantial unfairness to the opposing party and, where the offending party is seriously at fault, will serve to deter such conduct by others in the future.’”

The court readily found that three of the four spoliation elements met, e.g., the cell phone location history, text messages and search history were “hugely relevant to both parties’ claims.”

However, the question of actual suppression or withholding goes to intent, and is much harder to establish. The court examined the evidence closely, and found the insured lacked credibility, and that other evidence supported a finding of spoliation.

The court found that the insured’s degree of fault in the spoliation was unmitigated, and the spoliation was prejudicial, but chose not to impose the harshest sanction. The court retained the right to impose more severe sanctions, however, if it was later established that the spoliation was more prejudicial to the insurer than the court presently believed.

The court ruled that it would instruct the jury “they may infer that if Defendants were permitted to inspect [the] cell phone, any evidence would have been unfavorable to Plaintiff.” The court ordered the insured to pay all fees and costs association with the spoliation motion and all efforts to obtain records from the cell phone carrier.

Date of Decision: June 9, 2017

Brown v. Certain Underwriters at Lloyds, London, 2017 U.S. Dist. LEXIS 89527, *5 (E.D. Pa. June 9, 2017) (Joyner, J.)


Picture by M. M. Ginsberg



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This summary judgment opinion involved a bad faith dispute based on alleged delay in claims handling in the course of an appraisal process valuing property loss. The court had earlier dismissed the insureds’ breach of contract claim, but had allowed the bad faith claim to proceed.

The court first observed that in its earlier decision, the dispute over the claim value was not the basis for a breach of contract claim, where the insureds could not show the actual breach of a contractual duty. In allowing the bad faith claim to proceed, the court had “expressly found that the amended complaint limited the bad faith claim to the delay in the appraisal process,” not value. Thus, it rejected the insureds’ current effort to assert bad faith for undervaluing of the claim, which the court found “irrelevant.”

The court summarized the law concerning delay and bad faith. “[A] bad faith insurance practice can include an unreasonable delay in handling or paying claims.” “Thus, even when ‘an insurance claim has been settled and paid, Pennsylvania’s bad faith statute provides insurance claimants a means of redressing unreasonable delays by their insurers.’”

To establish a claim of bad faith based on the insurer’s delay in paying the claim, the plaintiff must show that (1) the delay was attributable to the insurer; (2) the insurer had no reasonable basis for causing the delay; and (3) the insurer knew or recklessly disregarded the lack of a reasonable basis for the delay.” It is “[t]he plaintiff [who] bears the burden of establishing delay by clear and convincing evidence.” “A long period of time between demand and settlement does not, on its own, necessarily constitute bad faith.” Further, “’[i]f delay is attributable to the need to investigate further or even to simple negligence, no bad faith has occurred.’”

The court closely analyzed the history of the parties’ conduct of the appraisal process. The court found the first alleged delay of 5 weeks in acknowledging the appraisal demand was de minimis, and could not lead a reasonable jury to find bad faith. Moreover, after acknowledging the demand, the insurer’s appraiser reached out to the insureds’ appraiser, but the insureds’ appraiser stated he could not begin work until he had a signed agreement with the insureds. Once he had that signed agreement, the two appraisers then executed a joint declaration and began their inspections. This could not be the basis for a bad faith claim.

The court also rejected the argument for bad faith during a subsequent 5-month period during the appraisal process. Both appraisers carried out investigations during the first three months of this period. The insurer’s appraiser also had lab tests done regarding asbestos remediation, investigated the HVAC system, and conducted extensive research in response to the insureds’ claim for engineering and architectural fees, which involved multiple interviews with the plaintiffs’ engineer and architect. Part of a month-long time lapse thereafter included deference by the insurer to the insureds’ appraiser traveling to Florida for his mother’s funeral. Once he returned, both appraisers spoke again, and submitted the claim to an umpire.

In sum, plaintiffs could not meet their burden to establish that the putative “delay was unreasonable, that it was solely attributable to [the insurer] or that [the insurer] had no reasonable basis for causing any such delay.” Any alleged delays were “an ordinary part of legal and insurance work.” The eight months at issue from the time of demand to the time of the umpire’s meeting was “relatively minimal,” and during “that period, both parties’ appraisers were actively conducting investigations, with much of the actual delay attributable to plaintiffs’ own adjuster.”

The court granted summary judgment for the insurer.

Date of Decision: June 8, 2017

Dagit v. Allstate Property & Casualty Insurance Company, No. 16-3843, 2017 U.S. Dist. LEXIS 87971 (E.D. Pa. June 8, 2017) (O’Neill, Jr., J.)



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This case centered on plaintiff’s allegations that the defendant insurers simply refused to pay claims under an applicable policy.  The insured pleaded the policy was in effect at the time of the injuries at issue. The insurers argued that the policy had been cancelled. The court could not resolve this fundamental issue at the pleading stage, and so denied the motion to dismiss the insured’s bad faith claim.

Date of Decision: June 9, 2017

TNT Services Corp., LLC v. Houston International Insurance Group, No. 3:16cv1505, 2017 U.S. Dist. LEXIS 89119 (M.D. Pa. June 9, 2017) (Munley, J.)




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The excellent Tort Talk Blog has updated its reporting on post-Koken UIM case law on motions to bifurcate, this most recent case being a denial of such motion.



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This property loss case provides a good summary of basic bad faith law leading into its analysis of the facts, and then some strong language on bringing a bad faith claim where the insured’s own conduct led to the delays at issue.

Quoting the Court:

“To succeed on a bad faith claim, a Plaintiff must demonstrate “(1) that the insurer lacked a reasonable basis for denying benefits; and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis.” Verdetto v. State Farm Fire and Casualty Company, 837 F.Supp 2d. 480, 484 (M.D.Pa. 2011), affirmed 510 Fed. Appx. 209, 2013 W.L. 175175 (3d. Cir. 2013)(quoting Klinger v. State Farm Mutual Insurance Company, 115 F.3d 230, 233 (3d. Cir. 1997). In addition, a Plaintiff must demonstrate bad faith by clear and convincing evidence. Polselli v. Nationwide Mutual Fire Insurance Company, 23 F.3d 747, 751 (3d. Cir. 1994). For an insurance company to show that it had a reasonable basis to deny or delay paying a claim it need not demonstrate that its investigation yielded the correct conclusion, or that its conclusion more likely than not was accurate. Krisa v. Equitable Life Assurance Company, 113 F.Supp 2d. 694, 704 (M.D.Pa. 2000). The insurance company is not required to show that “the process by which it reached its conclusion was flawless or that the investigatory methods it employed eliminated possibilities at odds with its conclusion.” Id. Instead, an insurance company must show that it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action. Id. “The ‘clear and convincing’ standard requires that the Plaintiff show ‘that the evidence is so clear, direct, weighty and convincing as to enable a clear conviction without hesitation, about whether or not the defendants acted in bad faith.'” J.C. Penney Life Insurance Company v. Pilosi, 393 F.3d 356, 367 (3d. Cir. 2004).”

In this case, the insurer paid “no less than $347,000” for real and personal property loss from fire, with a remaining dispute over $17,000 for landscaping issues. That contract dispute could not be resolved on summary judgment. However, the bad faith claim was resolved on summary judgment, where the court found it “unthinkable” on the facts that a jury could find bad faith.

The bad faith claim centered on the timing of making payments for personal property loss (which had been ultimately paid to the policy limits). The court observed that the analytic framework for measuring claims of delay in making such payments began with the terms of the insurance policy itself. Unambiguous policy language placed most responsibility for the timing and amount of payments on actions required of the insureds. In this case, the insureds did not provide required documentation for over a year.

The court analyzed the history and concluded: “In short, Plaintiffs’ failure to perform their reporting duty under the contract impeded, wittingly or unwittingly, [the insurer’s] investigation of their claim. Thus, the delay in payment for the value of their personal property was a direct result of Plaintiffs’ failure to perform their contractual duties and, as such, may not serve as an appropriate basis for a finding of bad faith on Defendant’s part. Stated another way, Plaintiffs may not now seek to profit due to their lack of action.”

Date of Decision: May 30, 2017

Turner v. State Farm Fire & Cas. Co., No. 3:15-CV-906, 2017 U.S. Dist. LEXIS 81922 (M.D. Pa. May 30, 2017) (Conaboy, J.)




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In this case, the court determined on the facts that the insured’s life insurance policy had lapsed for non-payment. It rejected the estate’s efforts at construing relevant insurance statutes, concerning payment timing, against the carrier’s coverage position.

Addressing bad faith, the court found that the insurer’s “actions did not constitute bad faith because [it] had a reasonable basis for denying benefits.” The insured “knew of his ‘impending policy lapse’ but ‘made no premium payments to prevent this lapse, [so] [the insurer] appropriately and timely declined to pay the death benefits.’”

Date of Decision: May 18, 2017

Moll v. Pruco Life Insurance Co., 2017 U.S. App. LEXIS 8698 (3d Cir. May 18, 2017) (Greenaway, Jordan, Rendell, JJ.)



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On May 25, 2017, the New Jersey Supreme Court issued its opinion in Oxford Realty Group Cedar v. Travelers Excess & Surplus Lines Co., setting out a number of principles on interpreting commercial insurance policies, application of the reasonable expectations doctrine and the doctrine of contra proferentem, and the nature of surplus lines insurance. A list of these principles, as quoted from the majority Opinion, is set out below.

  1. Surplus lines insurance and party sophistication.

“Surplus lines insurance policies, governed by N.J.S.A. 17:22-6.40 to -6.84, offer coverage in specialized situations. Surplus lines policies insure ‘risks which insurance companies authorized or admitted to do business in [New Jersey] have refused to cover by reason of the nature of the risk.’ …. These policies are unique in that the insured parties ‘engage[] in high risk enterprises for which insurance could only be obtained from a surplus lines carrier’ through a broker.’ …. Insureds procure surplus lines policies covering commercial risk through insurance brokers, thus involving parties on both sides of the bargaining table who are sophisticated regarding matters of insurance.”

  1. The role of the Property Coverage Form in shaping policy interpretation.     

“The Property Coverage Form constitutes the insuring agreement and proceeds to delineate the boundaries of coverage under the Policy. It thus establishes the structure for analyzing how the Policy’s parts work together.”

  1. The first step in determining the meaning of policy language and plain language.

“In assessing the meaning of provisions in an insurance contract, courts first look to the plain meaning of the language at issue. ….   ‘If the language is clear, that is the end of the inquiry.’”

  1. How to look at “ambiguity”.

(a)        “[I]n the absence of an ambiguity, a court should not ‘engage in a strained construction to support the imposition of liability’ or write a better policy for the insured than the one purchased.”

(b)        “The presence of an ambiguity is key because ‘if an ambiguity exists, the court will resort to tools and rules of construction beyond the corners of the policy.’”

(c)        “But our courts will not manufacture an ambiguity where none exists.”

(d)       “An ‘insurance policy is not ambiguous merely because two conflicting interpretations of it are suggested by the litigants.’”

(e)        “Nor does the separate presentation of an insurance policy’s declarations sheet, definition section, and exclusion section necessarily give rise to an ambiguity.”

  1. Ambiguity and the doctrine of contra proferentem; sophisticated and unsophisticated insureds.

(a)        “Ordinarily, our courts construe insurance contract ambiguities in favor of the insured via the doctrine of contra proferentem. …. In applying contra proferentem, courts‘adopt the meaning that is most favorable to the non-drafting party.’”

(b)        Sophisticated commercial insureds, however, do not receive the benefit of having contractual ambiguities construed against the insurer. …. Contra proferentem is a consumer-protective doctrine ‘only available in situations where the parties have unequal bargaining power. If both parties are equally ‘worldly-wise’ and sophisticated, contra proferentem is inappropriate.’”

  1. Ambiguity and the doctrine of reasonable expectations.

(a)        “The doctrine of reasonable expectations is a related doctrine [to contra proferetem] commonly applied in cases where an ambiguity is alleged. …. Under that doctrine, “the insured’s ‘reasonable expectations’ are brought to bear on misleading terms and conditions of insurance contracts and genuine ambiguities are resolved against the insurer.’”

(b)        “Similar to the doctrine of contra proferentem, the doctrine of reasonable expectations is less applicable to commercial contracts.”

  1. The litigants cannot themselves create ambiguity in language.

In rejecting an argument raised by the insured on the existence of ambiguity, the Court stated that the insured’s “alternative reading presents a conflicting interpretation suggested by litigants rather than a genuine ambiguity.”

Oxford Realty Group Cedar v. Travelers Excess & Surplus Lines Company, No. A-85 September Term 2015, 077617 (New Jersey Supreme Court May 25, 2017) (Opinion by Justice Fernandez-Vina, joined by Chief Justice Rabner, and Justices LaVecchia, Patterson, and Solomon)

Fineman, Krekstein & Harris, P.C.’s coverage group is headed by Hema P. Mehta, Esquire.