Monthly Archive for June, 2006

JUNE 2006 BAD FAITH CASES
COURT AWARDS $1.1 MILLION IN ATTORNEYS' FEES & COSTS, & $403,553.34 IN INTEREST UNDER STATUTE, DESPITE CONTINGENT FEE ARRANGEMENT & PUNITIVE DAMAGES (Western District)

In Gallatin Fuels, Inc. v. Westchester Fire Insurance Company, the United States District Court for the Western District of Pennsylvania awarded Plaintiff attorney’s fees, costs, and interest under Pennsylvania’s bad faith statute, 42 Pa.C.S. § 8371.

Plaintiff’s counsel had the case on a contingent fee agreement, and the parties disagreed as to whether there could be a separate award of attorneys’ fees under section 8371 in contingency fee cases, and whether attorneys’ fees were needed to make Plaintiff whole in light of a multi-million dollar punitive damages award.  The parties stipulated, however, that in the event the Court were to award attorney’s, the sum due would be $1.1 Million.

Noting that the decision to award fees was discretionary, the court considered the purpose and rationale behind different damages, expressly separating punitive damages from other damage components.  The court remarked that punitive damages address only the goal of legal punishment, while attorney’s fees and costs are premised upon compensating a plaintiff for having to pay an attorney to get that to which the plaintiff was contractually entitled.  Thus, the court awarded the $1.1 Million for attorneys’ fees.

The court also determined that awarding interest was similarly appropriate, as Plaintiff was denied its money and the opportunity to accrue interest thereon for over three years, during which time Defendant was able to use the money for its own benefit without interest concerns.

It will be of interest to parties facing these issues to compare the discussion in this case, with the opinion in Jurinko v. Medical Protective Co., United States District Court for the Eastern District of PA, No. 03-CV-4053, 2006 U.S. Dist. LEXIS 42923 (E.D. Pa. June 23, 2006) (Rufe, J.) [Search “Jurinko” on this site]

Date of Decision:  June 2, 2006

Gallatin Fuels, Inc. v. Westchester Fire Ins. Co., United States District Court for the Western District of Pennsylvania, No. 02-2116, 2006 U.S. Dist. LEXIS 36033 (W. D. Pa. 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.

JUNE 2006 BAD FAITH CASES
CONTINGENT FEE AGREEMENT CANNOT BE USED TO FIX AN ATTORNEY FEE AWARD UNDER THE BAD FAITH STATUTE, RATHER THE LODESTAR AMOUNT SHOULD BE USED (Philadelphia Federal)

Plaintiffs sought recovery of attorney’s fees following a jury award of $6.25 million in punitive damages against the carrier for a bad faith failure to tender policy limits to settle an underlying medical malpractice claim, and for its failure to assign separate counsel to two insureds despite a conflict of interest.  Plaintiffs petitioned the court to award attorneys’ fees in the amount of $2,372,503.50 based upon the thirty percent contingency fee agreement plaintiffs had entered with their counsel.

Plaintiffs argued that pursuant to 42 Pa.C.S. § 8371, the object of the attorney fee award is to make the successful plaintiff whole. The Court rejected this position, and held  that the lodestar method was generally used in cases involving statutory fee shifting. Therefore attorneys’ fees were limited to $323,167.50, the lodestar amount. This sum represented a reasonable award of attorneys’ fees.

The contingency fee arrangement was a direct result of the bargain plaintiffs made with their attorneys, and such an arrangement bears no relationship to the loss the insurer inflicted upon the plaintiff.

In addition, while the Court was very complimentary of the work performed by plaintiffs’ attorneys, the Court concluded that no enhancement of the lodestar award was warranted since the quality of the work performed was already represented in the hourly rate charged by the attorneys.

Date of decision: June 23, 2006

Jurinko v. Medical Protective Co., United States District Court for the Eastern District of PA, No. 03-CV-4053, 2006 U.S. Dist. LEXIS 42923 (E.D. Pa. June 23, 2006) (Rufe, J.)

JUNE 2006 BAD FAITH CASES
PLAINTIFF STATED BAD FAITH CLAIM WHERE “HOUSEHOLD EXCLUSION” DID NOT APPLY TO PREVENT STACKING (Philadelphia Federal)

The court rejected the insurer’s argument that Plaintiff’s insurance claims were excluded.  Specifically, Plaintiff purchased two separate insurance policies after being advised he could not obtain coverage for both of his cars under the same policy.  Plaintiff also elected to retain “stacking of his underinsured motorist coverage,” which included $100,000 in each policy.

After Plaintiff made a claim for underinsured benefits, the carrier argued that the coverages of the two policies could not be stacked, and that the maximum coverage was $100,000.

This argument was based upon a “household exclusion” precluding stacking of coverages; however, the court determined that this provision had no application, since plaintiff was the injured party, and plaintiff was the owner of both of the vehicles insured under the respective policies.

The court accordingly found the above allegations clearly sufficed to allege a basis for bad faith damages, thus denying Defendant’s Motion to Dismiss.

Date of Decision:  June 21, 2006

Kraut v. Farmers New Century Ins. Co., United States District Court for the Eastern District of Pa, No. 06-CV-01086-JF, 2006 U.S. Dist. LEXIS 41944 (E.D. Pa. June 21, 2006) (Fullam, S. J.)

JUNE 2006 BAD FAITH CASES
EVIDENCE SUFFICIENT TO ESTABLISH BAD FAITH IN DENYING CLAIM & IN HANDLING CLAIM;LOSS PAYEE HAS STANDING; PUNITIVE AWARD WITHIN DUE PROCESS (Western District)

In Gallatin Fuels, Inc. v. Westchester Fire Ins. Co., the defendant insurance company filed post-trial motions after the jury returned a verdict in favor of plaintiff on both counts, breach of contract and bad faith.  Plaintiff, who was named as a loss payee under the insurance policy issued by defendant insurance company, filed suit seeking payment under the policy for mining equipment that was destroyed or rendered unrecoverable.

The jury found that the defendant insurance company had lacked a reasonable basis for denying benefits to plaintiff and awarded $20 million in punitive damages on the bad faith claim, which the court reduced to $4.5 million.

Challenging the bad faith award, the insurer asserted that (1) the evidence was not sufficient to find that the loss was caused by an accident; (2) the policy had been cancelled before the date of loss, and (3) the plaintiff had made misrepresentations.

The court concluded that the jury expressly considered and rejected these arguments.  The court further found that a loss payee did have standing to bring a bad faith action, having rights independent of the insured.

Next, the carrier argued that bad faith cannot exist when the claim amount is in dispute.  The trial court found that the evidence introduced at trial established that the insurer knew that the value of the claim was in excess of the policy limits, that it did not offer to pay any portion of the claim, and that it failed to properly handle the claim.

The company then argued that the punitive damage award violated federal due process.  The trial court disagreed, finding that the jury relied on the jury questions that the defendant insurance company proposed, and that the jury was appropriately instructed on the issue of punitive damages.

Lastly, the insurer argued that since bad faith and punitive damages are statutorily reserved for the court, the trial court erred by submitting these issues to the jury.  The trial court concluded that because the court had rejected a similar issue at trial, and the issue was not adequately addressed in the post-trial motions, it would not reverse its previous ruling.

Date of decision:  June 2, 2006

Gallatin Fuels, Inc. v. Westchester Fire Ins. Co., United Stated District Court for the Western District of PA, No. 02-2116, 2006 U.S. Dist. LEXIS 36027 (W.D. Pa. June 2, 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.

 

JUNE 2006 BAD FAITH CASES
STAY OF EXECUTION OF JUDGMENT PENDING APPEAL - DEFENDANT MUST POST BOND FOR ENTIRE JUDGMENT (Western District)

Defendant insurance company filed a motion to stay execution of judgment pending appeal, after the jury found that the company lacked a reasonable basis for denying benefits to plaintiff and awarded $20 million in punitive damages on the bad faith claim.  This award was thereafter reduced by the trial court to $4.5 Million.

The company sought to stay execution of the judgment without posting a bond for the entire judgment. The company argued that the bond it posted during the post-trial motions was sufficient. The trial court disagreed, and held that the company must post a bond representing the full amount of the judgment.  The trial court concluded that the stay would become effective when the entire judgment was posted.

Date of decision:  June 13, 2006

Gallatin Fuels, Inc. v. Westchester Fire Ins. Co., United Stated District Court for the Western District of PA, No. 02-2116, 2006 U.S. Dist. LEXIS 38990 (W.D. Pa. June 13, 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.

 

 

COURT BIFURCATES DECLARATORY JUDGMENT AND BAD FAITH CLAIMS TO PROMOTE JUDICIAL ECONOMY AND TO AVOID PREJUDICE (Philadelphia Federal)

The court was faced with determining the meaning of an asbestosis exclusion to a policy, where no underlying claims were actually pending against insured.

The carrier contended it was not responsible for defending or providing coverage in any action where damages stemmed from any asbestos-related disease or injury.  Plaintiff sought a declaratory judgment that the exclusion solely applied to asbestosis, and not all asbestos-related diseases.  Plaintiff also claimed that the carrier breached the insurance contract and was acting in bad faith for taking the position that all asbestos-related diseases were excluded.

The Court dismissed the breach of contract claim because there were no actions to date against plaintiff for any asbestos related injury, and therefore damages were speculative at best.  The court then decided to bifurcate the trial: first, the court would conduct a bench trial to determine the scope of the coverage pertaining to asbestos; second, if the carrier was determined to have wrongfully denied coverage, the court would conduct a jury trial on the bad faith issue.  This would serve both judicial economy and avoiding prejudice.

The court determined that were Plaintiff successful in obtaining a declaratory judgment for the underlying case, additional evidence would then be introduced, including expert testimony, on the remaining bad faith claim.

The court considered Seventh Amendment case law, which requires that a separate trial of a particular issue cannot be ordered when the issue is so interwoven with the other issues in the case that it cannot be submitted to the jury independently of the others without confusion and uncertainty that would amount to a denial of fair trial.

The court found that such concerns were not raised in the instant case.  Not only would bifurcation preclude the introduction of evidence that would be prejudicial to the remaining Defendants in the underlying declaratory judgment case, but bifurcation was also in the interest of judicial economy.

Date of Decision: June 22, 2006

AstenJohnson v. Columbia Gas Company, United States District Court for the Eastern District of PA, No. 03-cv-1552, 2006 U.S. Dist. LEXIS 42606 (E.D.Pa. June 22, 2006) (Stengel, J.)

JUNE 2006 BAD FAITH CASES
BAD FAITH CLAIM CANNOT BE SUSTAINED BECAUSE COVERAGE EXCLUDED UNDER ABUSE OR MOLESTATION EXCLUSION (Philadelphia Commerce Court)

The Philadelphia Court of Common Pleas, Commerce Court, granted the carrier’s Motion for Judgment on the Pleadings.  The Complaint alleged that the insurer refused to defend Plaintiff in an underlying action; specifically, a woman claimed she had been sexually assaulted by an masseuse employed at the gym.

The Court noted that in deciding the obligations of the parties under an insurance agreement, including whether an insurer has a duty to defend, courts follow a two-step procedure:  first, the Court must determine the scope of the policy’s coverage, and second, it must examine the complaint in the underlying action to ascertain if that pleading triggers coverage.

Because the claims in the underlying sexual assault case were excluded from coverage under the policy’s Abuse or Molestation Exclusion, the Court determined that Defendant had no duty to defend Plaintiff in the underlying action, thus nullifying any claims of bad faith.

Date of decision:  June 12, 2006

12th Street Gym, Inc. v. Philadelphia Indem. Ins. Co., July Term 2005, No. 3393 2006 Phila. Ct. Com. Pl. LEXIS 239 (C.C.P. Philadelphia June 12, 2006) (Sheppard, J.)