Monthly Archive for July, 2006

JULY 2006 BAD FAITH CASES
NO BAD FAITH IN DENYING COVERAGE FOR INJUNCTIVE RELIEF, EVEN WHERE COMPLAINT HAD BOILERPLATE REQUEST FOR COSTS, ATTORNEY’S FEES AND FURTHER RELIEF (Western District)

In H.L. Libby Corporation v. Fireman’s Fund Insurance Company, two underlying lawsuits resulted from the alleged pollution of a collection pond following a heavy rain.  In this action, the insured alleged that the carrier acted in bad faith by covering only approximately one-third of the alleged overall legal costs in the first underlying case (Specialty I).  The insured also alleged that it was bad faith for the carrier to deny coverage altogether for the second underlying case (Specialty II).

The basis for denial in Specialty II was that it was it was an action for injunctive relief only, and therefore not covered by the policy.  The United States District Court for the Western District of Pennsylvania was presented with the carrier’s Partial Summary Judgment Motion.  When looking at the factual allegations contained in the Specialty II Complaint, the Court agreed that Specialty II was indeed an action for injunctive relief only.

The Court rejected the argument that the boilerplate phrase, “costs, attorney’s fees and other and further relief as the Court deems just and proper,” is in itself a claim for monetary damages.  In similarly rebuffing the argument that a brief in opposition to dismissal had alluded to monetary relief, the Court followed well-settled Pennsylvania law that the “four corners” of the Complaint determines whether coverage is triggered.  Since the Complaint requested only equitable relief, it did not trigger the carrier’s duty to defend or indemnify.

The insurer’s action in denying coverage in Specialty II did not constitute bad faith.  The Court, without detailed elaboration, denied summary judgment on the bad faith claims for failure to pay costs in Specialty I.

Date of Decision:  July 24, 2006

H.L. Libby Corp. v. Fireman’s Fund Ins. Co., United States District Court for the Western District of PA, Civil Action No. 03-601, 2006 U.S. Dist. LEXIS 50433 (W.D. Pa. Jul. 24, 2006) (Cercone, J.)

JULY 2006 BAD FAITH CASES
DISCOVERY OF OTHER CLAIMS DENIED BASED UPON RELEVANCE (Middle District)

The Court denied Plaintiff’s request to compel the production of information and documents from the carrier.  Specifically, Plaintiff requested documents and information regarding lawsuits and claims under unrelated insurance policies, claiming that such discovery was relevant to Plaintiff’s bad faith claims.  Following a conference with the parties, the Court found that Plaintiff had not demonstrated the relevance of the requested information and documents, and that the request was overly broad and burdensome.

The Court cited a number of cases on the points of relevance, and overly broad and unduly burdensome requests:  McCrink v. Peoples Benefit Life Ins. Co., No. 04-cv-1068 (E.D. Pa. Nov. 29, 2004) ; Cantor v. Equitable Life Assurance Soc’y, No. 97-5711, 1998 WL 306208 (E.D. Pa. June 9, 1998); Hyde Athletic Indus., Inc. v. Cont’l Cas. Co., 969 F. Supp. 289 (E.D. Pa. 1997); Zimmerman v. Harleysville Mut. Ins. Co., 860 A.2d 167 (Pa. Super. Ct. 2004).

Date of decision:  July 21, 2006

Psonak v. Peoples Ben. Life Ins. Co., United States District Court for the Middle District of Pennsylvania, No. 06-CV-0420, 2006 U.S. Dist. LEXIS 49893 (M.D. Pa. 2006) (Conner, J.).

JULY 2006 BAD FAITH CASES
INSURED DISPUTED COVERAGE DENIAL ON BASIS THAT A COVERAGE WAIVER WAS FORGED, BUT COURT FINDS INSURED FAILED TO MEET BURDEN OF PROVING FORGERY (Philadelphia Federal)

The insured was injured when her car was struck by an underinsured motorist’s vehicle.  After recovering part of her damages from the underinsured motorist’s insurer, up to that coverage limit, the plaintiff filed a claim for the remainder of her damages with her insurer.  In denying her underinsured motorists claim (“UIM”), the carrier produced a waiver of UIM coverage document signed by plaintiff.  Plaintiff contended that her signature on the document was a forgery.

The Court ruled that plaintiff had not produced any credible evidence to support that the signature was a forgery, and therefore granted summary judgment in favor of the defendant carrier.

Date of Decision: July 12, 2006

Jackson v. Allstate Insurance Company, United States District Court for the Eastern District of Pennsylvania, No. 05-cv-1480, 441 F. Supp. 2d 728, 2006 U.S. Dist. LEXIS 46898 (E.D. Pa. July 12, 2006) (Brody, J.)

U. S. SUPREME COURT TO HEAR NEW CASE ON PUNITIVE DAMAGES TO INTERPRET REPREHENSIBILITY FACTOR AND ROLE OF IMPACT ON OTHERS (U.S. Supreme Court)

The U.S. Supreme Court has granted certiorari in Williams v. Philip Morris, Inc. on two questions:  (1) “Whether, in reviewing a jury’s award of punitive damages, an appellate court’s conclusion that a defendant’s, conduct was highly reprehensible and analogous to a crime can ‘override the constitutional requirement that punitive damages be reasonably related to the plaintiff’s harm?” and (2) “Whether due process permits a jury to punish a defendant for the effects of its conduct on non-parties.”  This was not a bad faith case, but will likely have a direct impact on bad faith cases, and is the first case following the Court’s last ruling on punitive damages, State Farm Mutual Auto. Ins. Co. v. Campbell, see “Links of Note” on this blog, which dealt with bad faith.  Despite the ruling in Campbell, which would indicate the application of single digit ratios generally, the Oregon Supreme Court upheld a punitive damages award of nearly 100 times the compensatory damages based upon “extraordinarily reprehensible” conduct, and giving consideration to similar harms to others, in the context of discussing and applying the U.S. Supreme Court’s jurisprudence.

Williams v. Philip Morris, Inc., 126 S.Ct. 2329 (2006) (certiorari granted on two issues).

On February 20, 2007, the Supreme Court issued its Opinion in Philip Morris, USA v. Williams, 127 S.Ct. 1057 (2007).  The Court held that a jury could not award punitive damages based upon harm to others, as a taking that violated due process.  However, the Court held that evidence of harm to others was relevant to the reprehensibility prong of the punitive damages analysis.  The Court stated:  “Given the risks of unfairness that we have mentioned, it is constitutionally important for a court to provide assurance that the jury will ask the right question, not the wrong one. … We therefore conclude that the Due Process Clause requires States to provide assurance that juries are not asking the wrong question, i.e., seeking, not simply to determine reprehensibility, but also to punish for harm caused strangers.”

Summing up, the Court stated:

How can we know whether a jury, in taking account of harm caused others under the rubric of reprehensibility, also seeks to punish the defendant for having caused injury to others? Our answer is that state courts cannot authorize procedures that create an unreasonable and unnecessary risk of any such confusion occurring. In particular, we believe that where the risk of that misunderstanding is a significant one — because, for instance, of the sort of evidence that was introduced at trial or the kinds of argument the plaintiff made to the jury — a court, upon request, must protect against that risk. Although the States have some flexibility to determine what kind of procedures they will implement, federal constitutional law obligates them to provide some form of protection in appropriate cases.

The original Oregon Supreme Court Opinion is Williams v. Philip Morris, Inc.,127 P.3d 1165 (Or. 2006)

JULY 2006 BAD FAITH CASES
NO COVERAGE FOR STATUTORY CONSUMER PROTECTION LAW CLAIMS, THUS NO BAD FAITH IN REFUSING DEFENSE AND INDEMNIFICATION UNDER CGL POLICY (Philadelphia Federal)

Plaintiff sought declaratory relief in the U.S. District Court for the Eastern District of Pennsylvania under Pennsylvania’s Bad Faith Statute, claiming that defendant’s failure to defend and indemnify in connection with two underlying lawsuits amounted to bad faith.  In the underlying actions, the Commonwealth of Pennsylvania had filed two lawsuits alleging violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Laws (UTPCPL).

Plaintiff was insured under a commercial general liability insurance policy.  The plaintiff demanded defense and indemnification but the carrier denied coverage.  In granting the insurer’s Motion to Dismiss, the Court determined that the underlying complaints did not assert any of the covered losses under the policy, namely bodily injury, property damage, personal injury or advertising injury.

The Court held that violations of the UTPCPL do not qualify as covered losses, thus Plaintiff could state no claim for bad faith.

Date of decision:  June 30, 2006

GPSC Charters, LTD. V. Fireman’s Fund Ins. Cos., United States District Court for the Eastern District of Pennsylvania, No. 06-1982, 2006 U.S. Dist. LEXIS 44716 (E.D. Pa. June 30, 2006) (Bartle, C.J.)

JULY 2006 BAD FAITH CASES
BAD FAITH ACTION TRANSFERRED ON BASIS OF FORUM SELECTION CLAUSE (Philadelphia Federal)

The court granted Defendant’s Motion to Transfer Venue based upon a forum selection clause in the Group Health Policy.  After a general discussion on forum convenience, the Court concluded that the private and public interest factors involved equally favored both potential Districts.

However, in evaluating the parties’ choices of forum, the Court considered the forum selection clause found in the Skilstaf Group Health Plain, which it upheld as valid and enforceable.  The Court found this clause provided compelling evidence that the parties to this action intended to litigate matters such as bad faith claims exclusively in the Middle District of Alabama, hence granting the Motion to Transfer Venue.

Date of Decision:  June 26, 2006

Rogal v. Skilstaf, Inc., United States District Court for the Eastern District of Pennsylvania, Nos. 05-6073 and 05-6074, 2006 U.S. Dist. LEXIS 44407, 446 F.Supp.2d 334 (E.D. Pa. June 26, 2006) (Joyner, J.)

JULY 2006 BAD FAITH CASES

INSURER’S UNSUCCESSFUL FRAUD COUNTERCLAIM
IN BAD FAITH ACTION WAS NOT CONSIDERED AN ABUSE OF PROCESS IN LATER SUIT BY INSURED (Third Circuit)

The  carrier denied coverage when a fire destroyed the insured’s house.  Coverage was denied because the insured was an arson suspect, and failed to disclose that another property he owned was set ablaze by an arsonist just four years earlier.  In the underlying breach of contract suit, the carrier was found to have breached the contract but not to have acted in bad faith.  The carrier filed a counterclaim for fraud, based on the alleged failure to disclose the earlier arson, an issue decided in the insured’s favor.

Subsequently, the insured sued the carrier and its lawyers in the U.S. District Court for the Western District of Pennsylvania, for wrongful use of civil process and abuse of process, claiming  that the company and its lawyer acted without probable cause and with improper purpose in bringing the “fraud” counterclaim.

The Third Circuit Court of Appeals affirmed the trial judge’s granting summary judgment to both defendants.  The Appellate Court first held that this action was not an attempt to re-litigate the bad faith action, because bad faith concerns the circumstances surrounding the denial of the claim, whereas these claims concern actions surrounding the bringing of a counterclaim.

The Court then affirmed the judgments, reasoning that while the carrier ultimately lost on the counterclaim, its propriety was never in question.  The Court agreed with the observation of the trial Court that this “is not the stuff of which ‘wrongful use of civil proceedings’ actions are made.”

Date of Decision: June 28, 2006

Finney v. Royal Sunalliance Ins. Co. (In re Finney), United States Court of Appeals for the Third Circuit, No. 05-cv-4426, 2006 U.S. App. LEXIS 16369 (3d Cir. June 28, 2006) (Rendell, J.)