Monthly Archive for October, 2006

OCTOBER 2006 BAD FAITH CASES
COURT HELD THERE CAN BE NO BAD FAITH WITHOUT DENIAL OF BENEFITS (Western District)

In Borden v. Amica Mutual Insurance Company, Plaintiff insureds filed suit against Defendant insurer alleging that Defendant acted in bad faith during the adjustment and settlement of a building loss claim resulting from an accidental fire that destroyed Plaintiffs’ home.  Specifically, Plaintiffs contended that Defendant acted in bad faith by offering an unreasonably low figure to resolve the building loss claim and in requesting appraisal to resolve the dispute.

The United States District Court for the Western District of Pennsylvania looked to case law that held there could be no bad faith in the absence of a denial of benefits.

The Court determined that this case did not involve a denial of benefits or unreasonable delay in the payment of benefits; rather, it was Plaintiffs’ contention that Defendant acted in bad faith by offering an unreasonably low figure to resolve the claim and in requesting arbitration to resolve the dispute.  The Court held that the bad faith claim failed because Defendant had never adopted a final position relative to the loss estimate in general and the appropriateness of two alternatives:  smoke remediation as opposed to gutting and rebuilding in particular.

The Court also held that a request for appraisal, which was a dispute resolution mechanism specifically provided for in the insurance contract, followed within days by an agreement on the part of the carrier to hire an expert to provide a second opinion, was not the “stuff” of which bad faith was made.

Finally, the Court found that the bad faith claim failed because Plaintiffs failed to demonstrate by the heightened “clear and convincing” standard that the smoke remediation approach initially propounded by the carrier was objectively unreasonable under the circumstances.  After reviewing the evidence, the Court held that Defendant did not breach its duty of good faith in handling of this fire loss claim and was not motivated by self interest or ill will against Plaintiffs.

The Court accordingly entered judgment in favor of Defendant.

Date of Decision:  September 30, 2006

Borden v. Amica Mut. Ins. Co., United States District Court for the Western District of Pennsylvania, Civil Action No. 04-175, 2006 U.S. Dist. LEXIS 75069 (W.D.Pa. September 30, 2006) (McLaughlin, J.).

OCTOBER 2006 BAD FAITH CASES
EXPANSIVE LEAD-IN CLAUSE PRECLUDED LIABILITY AND BAD FAITH (Middle District)

Plaintiff insurer sought a declaratory judgment that the insurance policy it issued to Defendant insured did not cover the mud and water damage to the insured’s bowling alley following a heavy rainstorm.  Plaintiff contended that it was not obligated to cover the loss by reason of the policy’s exclusions; specifically, that the damage at issue was not covered by the policy because it was cause at least in part, by earth movement and water within the meaning of the policy exclusions.

Defendant countered by arguing that coverage remained available if the damage was proximately caused by a non-excluded event or factor, even if an excluded event or factor contributed to the damage. However, the United States District Court for the Middle District of Pennsylvania held that Defendant insured’s argument conflicted with the “lead-in” clause to the policy’s exclusions section, which stated, “[w]e will not pay for loss or damage cause directly or indirectly by any of the following [enumerated exclusions].  Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.”

Because there were no Pennsylvania cases directly on point, the Court looked to other jurisdictions that have held that the efficient proximate cause doctrine does not apply in the face of an expansive qualifying lead-in clause, like the one found in this case.

With regards to the policy’s exclusions, the Court held that although there was a jury question concerning the applicability of the earth movement exclusion, the surface water exclusion and the lead-in clause unambiguously combined to exclude the loss at issue from coverage under the policy.

In any case, the Court held that this ruling necessarily meant that Defendant could not recover on its contractual and statutory bad faith counterclaims.

Date of Decision:  October 11, 2006

T.H.E. Ins. Co. v. Charles Boyer Children’s Trust, United States District Court for the Middle District of Pennsylvania, No. 3:CV-04-1652, 455 F.Supp. 2d 284, 2006 U.S. Dist. LEXIS 73983 (M.D.Pa. October 11, 2006) (Vanaskie, J.).

This decision was affirmed in T.H.E. Ins. Co. v. Charles Boyer Childrens Trust

OCTOBER 2006 BAD FAITH CASES
PLAINTIFF STATED CLAIM FOR BOTH STATUTORY AND CONTRACTUAL BAD FAITH IN ALLEGING IMPROPER INVESTIGATION, NEGOTIATIONS AND DENIAL OF CLAIMS (Western District)

Defendant insurer moved to dismiss Plaintiff insured’s bad faith allegations, arguing that Plaintiff’s bad faith Count failed to state a claim upon which relief could be granted.  The United States District Court for the Western District of Pennsylvania determined that the insured had alleged the type of conduct that would support a bad faith claim pursuant to Pennsylvania’s bad faith statute.

Among other things, Plaintiff’s Complaint alleged that the insurer:  (1) conducted an unfair, unreasonable and inadequate investigation of Plaintiff’s claims related to a fire; (2) failed to fairly negotiate the amount of the loss sustained by Plaintiff; and (3) knowingly and/or recklessly denied the balance of Plaintiff’s claims without having a reasonable basis for doing so.

The Court looked to Pennsylvania’s case law, which clearly held that to support a finding of bad faith, the insurer’s conduct must be such as to import a dishonest purpose, and bad faith would be shown where an insurer has for a frivolous or unfounded reason refused to pay the proceeds of a policy to its insured.

Accordingly, the Court held that the allegations contained in Plaintiff’s Complaint, which are assumed to be true for purposes of Defendant’s Motion to Dismiss, clearly include averments sufficient to surmount dismissal.

Defendant further argued that Plaintiff’s purported claim for lost business income or business reputation must be dismissed insofar as it was incorporated within the bad faith Count.  However, though compensatory damages are not recoverable under Pennsylvania’s bad faith statute, the Court held that said Counts appeared to allege not only a cause of action under Pennsylvania’s bad faith statute, but also a violation of the covenant of good faith and fair dealing.

Thus, although the bad faith statute does not allow recovery of compensatory damages, such damages would still be available under Pennsylvania’s common law of contracts, even where the action was brought under a bad faith theory.

Date of Decision:  September 29, 2006

Miller Pools, Inc. v. Nationwide Mut. Ins. Co., United States District Court for the Western District of Pennsylvania, Civil Action No. 2006-366J, 2006 U.S. Dist. LEXIS 70859 (W.D. Pa.) (Gibson, J.)

OCTOBER 2006 BAD FAITH CASES
COURT PERMITS PLAINTIFF TO ANALOGIZE TO UNFAIR INSURANCE PRACTICES ACT IN PLEADING COMPLAINT TO DEFINE STATUTORY BAD FAITH CLAIM (Western District)

Plaintiffs sustained an automobile accident while insured by Defendant with full tort automobile insurance.  Defendant disputed Plaintiff’s chiropractic bills, contending that such “adjunctive services” were outside of its policy coverage.  Plaintiffs brought suit alleging, among other things, breach of contract and bad faith.

Defendants moved to dismiss certain counts of Plaintiffs’ Complaint, including a paragraph in Plaintiffs’ Amended Complaint that recited the definition of “bad faith” under Pennsylvania’s Unfair Insurance Practices Act (UIPA), which does not itself provide for a private right of action.

Defendant argued that this paragraph citing to the UIPA was impermissibly alleging a cause of action under that statute, even though Pennsylvania law is well settled that there is no private cause of action afforded to an insured against an insurer for violations of the UIPA.

The case originally went before a Magistrate Judge of the United States District Court for the Western District of Pennsylvania, who issued a Report and Recommendation.  The Magistrate Judge rejected Defendant’s argument, finding that Plaintiffs had only provided the definition in their pleadings by way of analogy, in support of the statutory bad faith claim which was the subject of the count.

The Magistrate Judge accordingly did not dismiss or strike the paragraph addressing the UIPA standards.  The substance of the Report and Recommendation was adopted as the Opinion of the District Court on September 11, 2006.

Date of Decision by Magistrate Judge:  July 7, 2006.

Alberty v. Nationwide Mut. Ins. Co., United States District Court for the Western District of Pennsylvania, Civil Action No. 05-1319, 2006 U.S. Dist. LEXIS 68783 (W. D. Pa. July 7, 2006) (Lenihan, M. J.)

Date of Decision in District Court:  September 11, 2006

Alberty v. Nationwide Mut. Ins. Co., United States District Court for the Western District of Pennsylvania, Civil Action No. 05-1319, 2006 U.S. Dist. LEXIS 68790 (W. D. Pa. Sept. 11, 2006) (Conti, J.)

OCTOBER 2006 BAD FAITH CASES
FACTUAL ISSUES REMAINING IN BREACH OF CONTRACT CLAIM, SUBJECT TO FLORIDA LAW, PRECLUDE SUMMARY JUDGMENT ON PENNSYLVANIA BAD FAITH CLAIM (Western District)

Plaintiff claimed breach of contract and bad faith against Allstate resulting from Allstate’s refusal to defend or indemnify Plaintiff for claims arising from a car accident.  Plaintiff’s parked car was hit by an insured’s daughter, who had no driver’s license and was not permitted to drive her father’s car.  Plaintiff brought suit, alleging Defendant, the father’s insurance company, wrongfully and in bad faith refused to defend or indemnify the daughter for claims resulting from the accident.

Defendant contended that it was entitled to summary judgment on the grounds that the daughter was not an “insured person” under the policy and that, even if she was, the vehicle that she negligently operated was not an “insured auto” under the policy.

The United States District Court for the Western District of Pennsylvania concluded that the applicable language in the policy was ambiguous and left the interpretation of the insurance contract up to the finder of fact.  Florida law applied to the contract’s interpretation, but Pennsylvania law applied to the statutory bad  faith claim.

The Court then looked to Pennsylvania’s bad faith standard, namely that to recover under a claim of bad faith, the Plaintiff must show that the Defendant did not have a reasonable basis for denying benefits under the policy and that defendant knew or recklessly disregarded its lack of reasonable basis in denying the claim.  Having determined that Plaintiff’s breach of contract claim could not be resolved at the summary judgment state, the Court concluded that the bad faith issue must be analyzed independently by the fact finder in accordance with Pennsylvania law.

Date of Decision:  September 25, 2006

Trunzo v. Allstate Ins. Co., United States District Court for the Western District of Pennsylvania, No CV-04-1789, 2006 U.S. Dist. LEXIS 68566 (W.D. Pa. Sept. 25, 2006), (Conti, J.).

OCTOBER 2006 BAD FAITH CASES
FEGLIA PARTIALLY PREEMPTS BAD FAITH STATUTE FOR PUNITIVE DAMAGES AND COURT COSTS, BUT NOT FOR INSURANCE PROCEEDS, INTEREST OR ATTORNEYS’ FEES (Middle District)

Plaintiff sought bad faith damages against Defendant insurer for its alleged refusal to pay $98,000.00 in insurance proceeds upon the death of his wife, an insured under a Federal Employees’ Group Life Insurance (FEGLI) Policy.  Defendant argued, among other things, that the Federal Employees’ Group Life Insurance Act (FEGLIA) provides the exclusive remedy for disputes concerning the proceeds of an insured’s FEGLI policy.

The United States District Court for the Middle District of Pennsylvania recognized that FEGLIA preempts state law to the extent that state law is inconsistent with the provisions of an insurance contract issued pursuant to FEGLIA; however, the Court determined the policy at issue was not inconsistent with Pennsylvania’s bad faith statute and Plaintiff’s bad faith claim was thus not preempted.

The Court distinguished FEGLIA from ERISA’s broader preemption clause, recognizing that FEGLIA’s clause preempts state laws inconsistent with the terms of a FEGLI policy while ERISA preempts state law that conflicts with any of its statutory sections.  The Court acknowledged that Plaintiff’s FEGLI policy did not authorize the recovery of punitive damages, court costs or certain prejudgment interest, due to this inconsistency with the Pennsylvania bad faith statute which allows such damages.

The Court held that FEGLIA’s preemption clause operated to preempt Plaintiff’s bad faith claims for punitive damages and court costs. Though the Court denied Defendant’s motion to dismiss, it dismissed Plaintiff’s claim for punitive damages, court costs, and prejudgment interest insofar as inconsistent with the terms of the original policy.

The Court also stated that because the complaint alleged a refusal to pay the optional insurance proceeds despite the insured’s payment of the premiums and representations regarding the insured’s coverage, and refusal to pay the proceeds despite plaintiff’s request that it do so stated a bad faith claim, and defendant’s allegation that its practice is to pay insurance benefits as determined by the government could not defeat the claim on a motion to dismiss.

Date of Decision:  September 21, 2006

Fernbaugh v. Metro. Life Ins. Co., United States District Court for the Middle District of Pennsylvania, No. 1:CV-06-1361, 2006 U.S. Dist. LEXIS 67765 (M.D. Pa. Sept. 21, 2006) (Caldwell, J.)

OCTOBER 2006 BAD FAITH CASES
COURT LOOKS TO STATUTORY CONSTRUCTION OF BAD FAITH TO INTERPRET MVFRL (Pennsylvania Supreme Court)

Plaintiff’s medical care was covered under an HMO contract issued by Defendant insurer.  After an automobile accident settlement, Defendant asserted a subrogation lien for its costs.  After paying the costs, Plaintiff brought a class action suit alleging unjust enrichment and that the lien violated Section 1720 of Pennsylvania’s Motor Vehicle Financial Responsibility Law (MVFRL).

The MVFRL provides that in actions arising out of the maintenance or use of a motor vehicle, there shall be no right of subrogation from a claimant’s tort recovery with respect to, among other things, benefits paid by a group contract or other similar arrangement.  Defendant asserted it was exempt from the MVFRL because of Section 1560(a) of the HMO Act, which provides that HMOs are not subject to state laws relating to insurance companies.

The Supreme Court of Pennsylvania looked to Pennsylvania’s bad faith case law, where Pennsylvania courts have interpreted that the facially comprehensive language of the bad faith statute was not sufficient to preclude application of the HMO exemption to bad faith claims.  Based upon this specific statutory interpretation, the Court determined that although the MVFRL included a “program, group contract or other arrangement,” this was not specific and exact enough to apply to HMOs.

The Court concluded that an HMO is exempt from complying with the anti-subrogation provision of the MVFRL.

Date of decision:  August 22, 2006

Wirth v. Aetna U.S. Healthcare, No. 28 EAP 2006, Supreme Court of Pennsylvania, 904 A.2d 858, 2006 Pa. LEXIS 1537 (Newman, J.)

OCTOBER 2006 BAD FAITH CASES
STATE COURT BAD FAITH CLAIM PLEADED LESS THAN $50,000, & IN ARBITRATION, NOT REMOVABLE BECAUSE OF AMBIGUOUS DISCOVERY RESPONSE (Philadelphia Federal)

Plaintiff filed a breach of contract and bad faith Complaint in Philadelphia’s Court of Common Pleas, specifically stating that damages were less than $50,000 (Philadelphia’s arbitration limit).  During the litigation, in response to a request for admissions as to whether the damages would exceed $50,000, $75,000 and $150,000, Plaintiff responded that he “cannot state with certainty that should bad faith damages be awarded” his damages would exceed these thresholds.

The carrier removed the case to federal court, using this answer to argue that it created a basis for removal because the parties were diverse and the sum at issue could exceed $75,000 (the jurisdictional minimum).

The United States Court for the Eastern District of Pennsylvania rejected this argument and remanded the case.  The applicable legal principles required that Defendant establish by a preponderance of the evidence to a legal certainty that the “amount in controversy” exceeded $75,000.  Defendant could not do this in an arbitration case where damages were capped at $50,000 by the state court rules.  Further, “Defendant cannot base diversity jurisdiction on the mere possibility that damages could exceed $ 75,000 if punitive damages and/or attorney fees were awarded.”

That Plaintiff would not speculate in its answers to the requests for admissions as to how much the case might be worth did not confer jurisdiction.

Finally, although mooted, the Court found that if new information had arisen during the course of litigation that met the legal certainty test for establishing a claim in excess of $75,000, removal may have been possible.

Date of Decision:  Sept. 28, 2006

Howard v. Allstate Ins. Co., United States District Court for the Eastern District of Pennsylvania, No. 06-4017, 2006 U.S. Dist. LEXIS 71915 (E.D. Pa. Sept. 28, 2006) (Stengel, J.)

OCTOBER 2006 BAD FAITH CASES
SUMMARY JUDGMENT REVERSED AS MATERIAL FACTS EXISTED AS TO WHETHER OVERHEAD AND PROFIT WERE DUE INSURED WHERE INSURED DID OWN REPAIRS (Pennsylvania Superior Court)

Plaintiff had purchased a homeowner’s policy from Defendant insurer.  After Plaintiff suffered loss to his home as a result of an overflowing toilet, Defendant insurer refused to pay benefits to Plaintiff for overhead and profit (OP) for the repairs because Plaintiff repaired the work himself instead of hiring a general contractor.

Plaintiff filed a class action suit against Defendant insurer, claiming breach of contract and bad faith, and appealed the lower court’s grant of summary judgment.

The Superior Court of Pennsylvania looked to Pennsylvania case law, which indicated that a homeowner was entitled to OP where use of a general contractor would have been reasonably likely, even if no contractor was used.  Whether the use of a general contractor was reasonably likely depended on the nature and extent of the damage and the number of trades needed to make repairs.

The Court held that if Plaintiff could establish that the use of a general contractor would be reasonably likely, he could prevail.

Thus the Court concluded a genuine issue of material fact existed to whether Defendant acted in bad faith by not paying OP on Plaintiff’s claim, and remanded the case for further proceedings.

Date of Decision:  September 14, 2006.

Mee v. Safeco Ins. Co. of Am., Superior Court of Pennsylvania, No. 2006 EDA 2005, 2006 PA Super 257 (Pa. Super. Ct. 2006) (Hudock, J.)

 

OCTOBER 2006 BAD FAITH CASES
COURT HELD PLAINTIFF COULD NOT ESTABLISH PRIMA FACIE BAD FAITH CASE (Third Circuit)

Plaintiff widow’s husband applied for a life insurance policy from Defendant insurer, which was approved and mailed to him on March 3, 2004.  The policy provided that the policy year would begin on the date of issue, but that no coverage would be provided until the first premium was paid by the husband while he remained in good health.  The husband died unexpectedly on March 10, 2004, the same day he received the policy in the mail; his widow mailed the first premium to Defendant insurer the next day.  After a denial of benefits, Plaintiff brought suit alleging breach of contract and bad faith.

The United States Court of Appeals for the Third Circuit found that the payment of the first premium was a condition precedent to liability on the part of Defendant insurer.  The Court held that because there was no insurance policy in effect at the time of the husband’s death, Plaintiff could not establish a prima facie case under Pennsylvania’s bad faith statute.  The Court affirmed the District Court’s dismissal of Plaintiff’s claim.

Date of Decision:  August 21, 2006

Wise v. Am. Gen. Life Ins. Co.,  U.S. Court of Appeals for the Third Circuit, No. 5-2715, 459 F.3d 443 (3d Cir. Aug. 21, 2006) (Fuentes, J.)