Monthly Archive for April, 2006

APRIL 2006 BAD FAITH CASES
NO BAD FAITH WHERE ADJUSTER’S INVESTIGATION DID NOT SHOW DISHONEST PURPOSE OR ILL WILL, AND NO CLAIM/DEMAND HAD EVER ACTUALLY BEEN MADE ON THE CARRIER (Superior Court of Pennsylvania)

Plaintiff decedent’s car drove over an embankment with decedent and his friend inside.  Decedent was found dead in the passenger’s seat, while the friend was found alive on top of the decedent.  The applicable insurance policy would only cover decedent if he was the passenger.  The carrier continued pursuing the investigation and took the position that the decedent was the driver.

The Superior Court of Pennsylvania held the insurer did not act in bad faith.

The court noted that in the context of Pennsylvania’s bad faith statutes, in the absence of evidence of a dishonest purpose or ill-will, it is not bad faith to take a stand with a reasonable basis. In describing the balance, the court stated:  “While the legal relationship of the parties may change in the context of a U-claim, i.e., become adversarial, the insurer’s duty does not change … an insurance company’s duty to its insured is one of good faith and fair dealing. It goes without saying that this duty does not allow an insurer to protect its own interests at the expense of its insured’s interests. Nor does it require an insurer to sacrifice its own interests by blindly paying each and every claim submitted by an insured in order to avoid a bad faith lawsuit.”

Also, there was no bad faith in allegedly failing to take action in response to the estate’s initial letter, as the letter did not make a firm claim or demand for coverage, instead using the terminology that there was the “potential for the underinsured/uninsured claim.”

The Superior Court reasoned that common sense dictates that a claim cannot be denied until it has been made, and a claim is a demand for payment by a claimant and not an inquiry concerning coverage.  Thus, where the insurer’s claims adjuster wrote a letter to the estate’s attorney stating that the insurer was taking the position that the decedent was the operator of his own vehicle, this did not constitute a bad faith denial since, at that point, no claim had been made so no denial could have been made.

Date of Decision:  April 25, 2006

Condio v. Erie Ins. Exch., Superior Court of PA, Nos. No. 841 WDA 2004, 1032 WDA 2004, 2006 PA Super. 92 (Pa. Super. Ct. 2006) (Hudock, J.) (reargument denied).

APRIL 2006 BAD FAITH CASES
NO DUTY TO DEFEND IF COVERAGE NOT DUE UNDER POLICY, AND THUS NO BAD FAITH (Third Circuit)

After determining that there was no coverage, the U. S. Court of Appeals for the Third Circuit rejected the bad faith claim against a carrier, which had correctly concluded that its employer’s liability coverage was not invoked under the circumstances of that case.  The Court cited its prior case law for the proposition that “’bad faith claims cannot survive a determination that there was no duty to defend, because the court’s determination that there was no potential coverage means that the insurer had good cause to refuse to defend.’”

While recognizing that the duty to defend may be broader than the duty to indemnify, such a duty ends when the insurer can confine the claim to recoveries outside the scope of the insurance coverage.  Liberty Mutual had denied coverage under a WC/EL policy, where non-workers’ compensation claims were asserted by USX Corp. employees on the basis of asbestos exposure, and the employer’s liability portion of the policy did not cover claims for bodily injury by disease unless there was a written claim or suit filed within 36 months of the policy period’s end.

Date of Decision:  April 10, 2006

USX Corp. v. Liberty Mutual Insurance Company, 444 F.3d 192 (3d Cir. 2006) (Greenberg, J.)

APRIL 2006 BAD FAITH CASES
NO CLAIM AGAINST CARRIER FOR FAILING TO INCLUDE COSTS FOR GENERAL CONTRACTOR OVERHEAD WHERE INSUREDS DID NOT INTEND TO HIRE GENERAL CONTRACTOR (Philadelphia Commerce)

The Philadelphia Commerce Court granted summary judgment to the insurer in Plaintiffs’ action alleging breach of contract, bad faith, and violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law.  After sustaining damage to their home during a wind storm, Plaintiffs were entitled to replacement costs under the policy.  Plaintiffs hired a public adjuster who included overhead and profit costs for a general contractor in its estimate, while Defendant’s adjuster did not include such costs.

The court cited U.S. Supreme Court case law which held that these costs must be advanced only when an insured is “reasonably likely” to need a general contractor.  The Court noted that Plaintiffs themselves testified that they never intended to hire a general contractor, and held that Plaintiffs were not entitled to profit by receiving compensation for a general contractor when one was neither used nor even contemplated.

Date of Decision:  April 10, 2006

Crowley v. Travelers Prop. Cas. Ins. Co., Court of Common Pleas, Philadelphia, August Term 2003, No. 2689, 2006 Phila. Ct. Com. Pl. LEXIS 185 (C.C.P. Philadelphia April 10, 2006)(Bernstein, J.)

 

APRIL 2006 BAD FAITH CASES
STAY OF EXECUTION ON PUNITIVE DAMAGES AWARD ON BAD FAITH CLAIM GRANTED, ON CONDITION THAT A $5.825 MILLION BOND WAS POSTED (Western District)

In Gallatin Fuels v. Westchester Fire Insurance Company, defendant filed a Motion for Stay of Execution of Judgment in response to the earlier judgment in favor of Plaintiff in the amount of $1.325 million on plaintiff’s breach of contract claim and $4.5 million in the form of punitive damages on plaintiff’s bad faith claim.

The U.S. District Court for the Western District of Pennsylvania granted the motion in part and denied it in part. Defendant moved under the proper vehicle for a stay of execution of the judgment, Rule 62(b) of the Federal Rules of Civil Procedure, which requires the court to take into account “the security of the adverse party.” After due consideration, the court found that it would be unfair to plaintiff to grant a stay of execution without requiring defendant to post a bond; therefore, defendant’s motion for stay was granted on the condition that defendant post a bond in the amount of $5.825 million, the amount of the judgment, within two days, while the motion was denied in all other respects.

Date of Decision:  April 12, 2006

Gallatin Fuels v. Westchester Fire Ins. Co., United States District Court of the Western District of Pennsylvania, Civil Action No. 02CV2116, 2006 U.S. Dist. LEXIS 22144 (W.D. Pa. April 12, 2006) (Ambrose, C.J.)

This case was affirmed in part and reversed in part on appeal by the U. S. Court of Appeal for the Third Circuit.

APRIL 2006 BAD FAITH CASES
BAD FAITH CLAIM BARRED BY STATUTE OF LIMITATIONS IN JUDGMENT ON THE PLEADINGS (Philadelphia Federal)

The plaintiff claimed that the carrier intentionally withheld documents from its own expert in an effort to win a UIM arbitration.  The evidence supporting this allegation came out during a November 6, 2003 arbitration hearing.  The plaintiffs did not file their bad faith claim until November 8, 2005.

The federal trial court focused on the denial of coverage as triggering the two year statute of limitations.  Although the carrier brought a judgment on the pleadings, the court would have considered a letter declining coverage, attached to the answer but not the complaint, as sufficiently integral to the bad faith claim to be part of the record in deciding the judgment on the pleadings.

The court found that even without considering this letter (dated nearly five years before the bad faith action was filed), however, there was still no dispute that the plaintiffs knew that the carrier denied coverage at a time sufficiently prior to the November 6, 2003 hearing as to be barred by the two year statute of limitations.

Date of decision:  April 7, 2006

Blitshtein v. Hartford Fire Ins. Co., United States District Court for the Eastern District of PA, No. 05-6390, 2006 U.S. Dist. LEXIS 17960 (E.D.Pa. April 7, 2006) (Bartle, C.J.)

APRIL 2006 BAD FAITH CASES
ACTION STAYED BY FEDERAL COURT PENDING RESOLUTION OF WIDER DISPUTE IN NEW YORK STATE COURT (Philadelphia Federal)

Plaintiff sued an insurance carrier for declaratory relief, bad faith and for breach of contract.  The carrier moved to dismiss the action or stay the proceedings, contending that the instant action was only a part of a much larger coverage dispute, pending in New York, involving more parties and issues than were named in the operative Pennsylvania complaint.

In granting the insurer’s motion, the U.S. District Court for the Eastern District of Pennsylvania determined that the outcome of the bad faith and breach of contract claims depended on the resolution of the declaratory judgment claim.

The Court found that the same issues of insurance policy construction, including scope of coverage and construction of the indemnity agreement and its extension, lay at the heart of both the declaratory judgment claims before it, and the New York action.  Plaintiff additionally attempted to argue that the bad faith claims would not be adequately adjudicated in New York as those claims may be subject to Pennsylvania’s bad faith statute.

However, the Court disagreed, finding that New York had adopted a common law tort for the bad faith breach of contract by an insurer. 

Date of Decision:  April 13, 2006

ITT Indus. v. Pac. Emplrs. Ins. Co., U.S. District Court, Eastern District of PA, Civil Action No. 05-5223, 2006 U.S. Dist. LEXIS 19022 (E. D. Pa. April 13, 2006) (Robreno, J.)

APRIL 2006 BAD FAITH CASES
BAD FAITH CLAIM INITIATED BY WRIT OF EXECUTION/GARNISHMENT IS REMOVABLE TO FEDERAL COURT (Middle District)

Judge Edwin Kosik of the United States District Court for the Middle District of Pennsylvania synthesized prior federal case law to test the propriety of removing bad faith actions brought by way of garnishment and writ of execution based on a judgment against the insured. These are cases where the insured has often settled with the underlying plaintiff, and the bad faith claims are assigned to that plaintiff.  The Court stated that this required a flexible analysis asking:  (1) is “the issue sought to be resolved in the garnishment proceeding … separate from the issues presented in the prior state court action”; and (2) was “the true defendant in the garnishment proceeding … also a defendant in the related state action.”

“Unity of either issue or defendant in the prior state action and subsequent garnishment proceeding will favor the conclusion that the garnishment proceeding is merely ancillary to, or a continuation of, the prior state case. The presence of disparate issues and defendants supports a holding that the garnishment proceeding is a distinct ‘civil action,’ subject to removal under 28 U.S.C. §1441(a).” Fineman, Krekstein & Harris were counsel successfully removing action.

Date of Decision:  April 5, 2006

Scanlin v. Utica First Ins. Co., U.S. District Court, M. D. Pa., No. 6-CV-385, 2006 U.S. Dist. LEXIS 21093, 426 F. Supp. 2d 243 (M.D.Pa. April 5, 2006) (Kosik, J.)