Monthly Archive for May, 2006

MAY 2006 BAD FAITH CASES
JURY DECIDES BAD FAITH ISSUE AS TO DECLINING FIRE COVERAGE ON BASIS THAT POLICY ISSUED FOR MULTIPLE FAMILY DWELLING ACTUALLY USED AS REHAB CENTER (Philadelphia Commerce)

The plaintiff owned a property which was insured for three-family occupancy.  Unbeknownst to her insurer, however, plaintiff had leased the dwelling to an entity providing boarding-house accommodations to eleven unrelated recovering addicts in eight distinct units.  She sued the insurer for bad faith after the insurer refused coverage for damages stemming from a fire.

The insurer moved for summary judgment (judgment as a matter of law), arguing that the insured’s bad faith claim should be barred.  The insurer reasoned that by representing that three families occupied the property, and by failing to disclose that eleven unrelated individuals actually lived on the premises, the insured breached the insurance contract and rendered the policy void from the onset.

The insurer’s employee who wrote the insurance policy in question testified that “[t]he use of the insured property is material to the issuance of an insurance policy as it determines the premium amount and whether the policy can be written at all.”

However, the Philadelphia Commerce Court found that the insurers, as moving parties, had failed to demonstrate that [no genuine issue of fact exists as to whether] insuring the property under a three-family occupancy posed fewer or less significant risks than insuring the same premises under an occupancy of eleven unrelated adults.

In addition, the Court applied a long-standing Pennsylvania rule (the so-called “Nanty-Glo Rule”) that where the testimony of the party having the burden of proof is oral, the credibility of that testimony is always for the jury.  Therefore, the Court declined to enter judgment as a matter of law.

Date of Decision:  May 26, 2006

Pietrak v. Certain Underwriters at Lloyd’s, December Term 2004, No. 2026, 2006 Phila. Ct. Com. Pl. LEXIS 219 (C.C.P. Philadelphia  May 26, 2006)  (Abramson, J.).

MAY 2006 BAD FAITH CASES
COURT REJECTS EFFORT TO OBTAIN INSURER’S ATTORNEY-CLIENT COMMUNICATIONS ON BASIS OF CRIME-FRAUD EXCEPTION TO THE ATTORNEY-CLIENT PRIVILEGE (Philadelphia Federal)

The plaintiff was involved in two motor vehicle accidents, in 1993 and 2000.  The insurer paid benefits in 1993, but gave less than plaintiff hoped for in 2000.  Plaintiff was not satisfied at the arbitration and the case wound up in Federal Court.  Plaintiff sought attorney client communications surrounding both incidents, claiming that these would reveal the carrier’s fraud in challenging the 2000 injuries.

The Court rejected the effort, observing that there was no prima facie showing that (1) the carrier intended a fraud, and (2) then communicated with its lawyers to further that fraud.

Further, the Court rejected the idea that it automatically had to review the document in camera; rather, an in camera review is only called for where the movant presents evidence “sufficient to support a reasonable belief that in camera review may yield evidence that establishes the exception’s applicability.”

Date of decision:  May 26, 2006

Weniger v. Nationwide Insurance Company, United States District Court for the Eastern District of PA, No. 05-5396 (E.D.Pa. May 26, 2006) (Bartle, III, C.J.)

MAY 2006 BAD FAITH CASES
DISPUTED FACTS SURROUNDED TERMINATION OF LIFE INSURANCE POLICY FOR NON-PAYMENT OF PREMIUMS IN BAD FAITH ACTION (Philadelphia Federal)

The insureds had purchased a $10 Million life insurance policy, paying $25,000/quarter, which was held in trust by PNC.  There was a failure to pay premiums and the policy was terminated.  The policyholders claimed that they only missed the payment because of inaccurate assurances by the carrier’s representatives, and the carrier claimed (1) this was not true and (2) even if true, that there was no reasonable reliance on the incorrect information as a matter of law.

The Court found there were disputes of material fact over what, if any, assurances were given, and whether or not any reliance was reasonable.  The court added that it could not rule as a matter of law on whether the insureds’ own alleged errors broke the chain of causation from any allegedly wrongful conduct by the carrier.  Thus, summary judgment was denied.

Date of decision:  May 25, 2006

PNC Bank, National Association, Trusteee of the Harold G. Fulmer, III Irrevocable Deed of Trust v. Amerus Life Ins. Co., United States District Court for the Eastern District of PA, Civil Action No. 05-02966 (E.D.Pa. May 25, 2006) (Fullam, S.J.)

In a subsequent bench trial, the court ruled in the insured’s favor. PNC Bank v. Amerus Life Insurance Company, No. 05-02966, 2006 U.S. Dist. LEXIS 48152 (E.D.Pa. July 17, 2006).  This was reversed by the Third Circuit.  PNC Bank v. Amerus Life Insurance Company, No. 06-3742, 2007 U.S. App. LEXIS 24148 (3d Cir. October 15, 2007) (Fuentes, J.).  The trial court had ruled on the facts that the carrier improperly cancelled the policy, because the carrier itself provided incorrect information which caused the premium payments to lapse, and then refused to accept late payment and cancelled the policy.

The appellate court found that the proximate cause was not a mistaken statement by the carrier’s agent, but the failure of the trustee responsible vis-à-vis payments to heed notices to make the payments was the proximate cause of the harm and/or a superseding cause.

The key difference with the trial court’s authority, is that in those cases the insurer itself prevented the insured from performing as required on the policy; but in this case, the trustee was not prevented from performance by the insurer’s acts, even though mistaken.  The trustee had received notices after the initial mistake that could and should have been acted on to prevent the lapse.

L.A.

MAY 2006 BAD FAITH CASES
TRIAL COURT CANNOT TAKE JUDICIAL NOTICE OF GUILTY PLEA BY INSURED IN DETERMINING MOTION TO DISMISS BAD FAITH CLAIM (Superior Court)

The insureds (parents and their son under 21 at the time of the incident) brought claims against their carrier for breach of contract, bad faith and consumer protection law violations.  The carrier had refused to cover damages the son incurred for personal liability in causing damage to a fish hatchery.

The Complaint omitted the fact that the son pleaded no lo contendere to criminal charges, and admitted the elements of the crimes in a signed guilty plea statement.  The carrier asserted the guilty plea statement as the basis to deny coverage, and successfully moved to dismiss the case before the Court of Common Pleas of Clinton County, which took judicial notice of the criminal action and guilty plea statements.

The Superior Court reversed, finding that a trial court could not take judicial notice of the criminal action, never mentioned in the Complaint, at the motion to dismiss stage; rather, these facts had to be asserted as an affirmative defense to which the plaintiff could respond.

Date of decision:  May 23, 2006

Styers v. Bedford Grange Mutual Ins. Co., Superior Court of PA, No. 1362 MDA 2005, 2006 Pa.Super. LEXIS 984 (May 23, 2006) (Lally-Green, J.)

MAY 2006 BAD FAITH CASES
SUPERIOR COURT REJECTS LULLING ARGUMENT ASSERTED TO TOLL STATUTE OF LIMITATIONS ON BAD FAITH CLAIM (Superior Court)

The Superior Court of Pennsylvania affirmed the trial court’s determination that Plaintiff’s breach of contract claim was barred by the statute of limitations.  Plaintiff asserted that the two-year limitation clause in the insurance contract should be suspended because Harleysville participated in the filing of related arson charges; however, the intermediate appellate court disagreed, as Plaintiff could point to no such evidence of record.

In addition, the Superior Court affirmed the trial court’s denial of Plaintiff’s bad faith claim, but on the different grounds, i.e., that the bad faith claim was also time barred.  The Court based its decision on the determination that Harleysville’s actions did not have any impact on Plaintiff’s ability to seek recourse for the denial of coverage under the policy.

Specifically, Harleysville did not lull Plaintiff from pursuing her rights under the policy when it reopened its investigation of Plaintiff’s claim and actively sought information before issuing a second denial letter.

Date of Decision:  May 2, 2006

Jones v. Harleysville Mut. Ins. Co., Superior Court of PA, No. 1060 WDA 2005,  2006 PA Super 100 (Pa. Super. May 2, 2006) (Del Sole, P.J.E.)