Monthly Archive for November, 2006

NOVEMBER 2006 BAD FAITH CASES
BAD FAITH CLAIM DISMISSED FOR LACK OF PROSECUTION (Philadelphia)

Plaintiff passenger filed an underinsured motorist (UIM) claim against Defendant insurer.  The Philadelphia Court of Common Pleas entered a judgment of non pros.  The Court determined that Plaintiff had no substantive claims to appeal as she failed to file a Pa.R.C.P. 3051 petition for relief from judgment of non pros.  In addition, Plaintiff failed to proceed with due diligence by, among other things, creating delays in the claim and the case by failing to provide medical records and then bringing suit against the parties involved.

Further, Plaintiff appealed a court order directing payment of the first arbitrator’s fee and refused to pay the second arbitrator’s request for advance partial payment.

The Court found that Plaintiff’s reasons for delay were not compelling as she was responsible for moving her case forward, not to mention Defendants were prejudiced as the case was inactive for over four years and the underlying accident had occurred 14 years earlier.

Date of Decision:  October 27, 2006

Luff v. Allstate Ins. Co., Court of Common Pleas of Philadelphia County, May Term 2001, No. 02561, 2006 Phila. Ct. Com. Pl. LEXIS 422 (Phila. Ct. Com. Pl. October 27, 2006) (Moss, J.)

 

NOVEMBER 2006 BAD FAITH CASES
MVFRL PREEMPTS BAD FAITH STATUTE (Middle District)

Plaintiff alleged that he was injured in a motor vehicle accident and Defendant refused to pay medical and wage loss benefits in bad faith.  Defendant argued that Pennsylvania’s Bad Faith Statute was preempted by the Pennsylvania Motor Vehicle Financial Responsibility Law (“MVFRL”), which provides that an insured seeking first party medical benefits may be entitled to benefits plus interest, as well as costs and attorneys’ fees, if the court finds that treatment was medically necessary.

The United States District Court for the Middle District of Pennsylvania looked to federal case law, which has held that the MVFRL provides the exclusive first party remedy for bad faith denials by insurance companies with respect to claims arising out of automobile accidents.  Thus, the Court held that the MVFRL preempted Pennsylvania’s Bad Faith statute and dismissed Plaintiff’s claim.

Date of Decision:  October 30, 2006

Cronin v. State Farm Mut. Auto. Ins. Co., United States District Court for the Middle District of Pennsylvania, No. 3:06-CV-1081, 2006 U.S. Dist. LEXIS 82139 (M.D. Pa. October 30, 2006) (Caputo, J.)

 

NOVEMBER 2006 BAD FAITH CASES
MOTION TO DISQUALIFY CARRIER’S FORMER STAFF LAWYER FROM BRINGING BAD FAITH CLAIM AS PLAINTIFF’S ATTORNEY REJECTED (Middle District)

The Court considered Defendant’s Motion to Disqualify Attorney Selingo and his law firm based on assertions that continued representation would violate various rules of professional conduct addressing conflict of interest and attorneys as witnesses.  Selingo was Plaintiff’s counsel in Plaintiff’s underlying Under Insured Motorist (UIM) and bad faith claims.  Selingo was also an employee of Nationwide’s Trial Division from 1996 to 2001, when he primarily represented Nationwide’s insureds in UIM claims, but never in bad faith claims.

Following his employment with Nationwide, Selingo went into private practice as a lawyer and handled several claims against Nationwide, pursuing multiple bad faith and UIM actions, none of which led to Nationwide moving for his disqualification.

Defendant argued Selingo should be disqualified based on Pennsylvania Rule of Professional Conduct 1.9, which hinges on whether the matter is “substantially related” to the matter involved in the former legal representation.  Specifically if the lawyer might have acquired confidential information related to the subject matter of his subsequent representation, then Rule 1.9 would prevent the attorney from representing the second client.  Because Selingo never represented Defendant as a lawyer in any bad faith claims, and because Defendant waived disqualification by not previously seeking Selinger’s disqualification as counsel in other similar cases, the Court denied Defendant’s request to disqualify based on Rule 1.9.

Defendant then argued that Selingo should be disqualified based on Local Rule 43.1 of the Local Rules of the Middle District of Pennsylvania and Rule 3.7 of the Pennsylvania Rules of Professional Conduct, which require withdrawal if an attorney becomes a witness on behalf of a client.  However, the Court narrowly construed the rules to only apply to trials and found that disqualification of the lawyer would be premature at this stage in the litigation.

Finally, Defendant argued that Selingo’s law firm should be disqualified pursuant to Rule 1.10 of the Pennsylvania Rules of Professional Conduct which addresses the imputation of conflicts of interest.

The Court also rejected this argument, as Rule 1.10 relates to conflicts of interest defined in Rule 1.7 and 1.9, and because the Court concluded that Rule 1.9 does not form a basis for disqualification (and Rule 1.7 is not at issue), Rule 1.10 is not applicable.  Accordingly, the Court denied Defendant’s Motion to Disqualify.

Date of Decision:  November 6, 2006.

Javorski v. Nationwide Mut. Ins. Co., United States District Court for the Middle District of Pennsylvania, No. 3:06-CV-1071, 2006 U.S. Dist. LEXIS 81490 (M.D. Pa. November 6, 2006) (Conaboy, J.)

NOVEMBER 2006 BAD FAITH CASES
BAD FAITH CLAIM DISMISSED FOR FAILURE TO PROSECUTE (Philadelphia Federal)

Plaintiff was a passenger in a car in a 1993 automobile accident, and was insured by Allstate.  Plaintiff sought first-party and uninsured motorist payment from Defendant, which were denied.  After Plaintiff’s 1997 bad faith suit was dismissed by the neutral arbitrator for failure to pay arbitration fees, Plaintiff took no action to move her case forward in federal or state court for seven years.  Defendant filed a Motion to Dismiss as Moot because of Plaintiff’s failure to prosecute the case.

The United States District Court for the Eastern District of Pennsylvania established that courts have inherent, discretional authority to dismiss cases for lack of prosecution to prevent undue delays in the disposition of pending cases and to avoid congestion in the calendars of the District Courts.

The Court considered the possible prejudice to Defendant, namely that even if relevant witnesses could be located, memories of the accident and the insurance investigation had undoubtedly been subject to “inevitable dimming” over the extended period of dormancy in this case.  After determining that no alternative sanctions would be appropriate, the Court granted dismissal pursuant to Federal Rule of Civil Procedure 41(b).

Date of Decision:  August 11, 2006

Herrman v. Allstate Ins. Co., United States District Court for the Eastern District of Pennsylvania, No. 97-CV-4290, 2006 U.S. Dist. LEXIS 57396 (E.D. Pa. August 11, 2006) (Brody, J.)

 

NOVEMBER 2006 BAD FAITH CASES
BAD FAITH STATUTE SPECIFICALLY NOT SAVED FROM PREEMPTION UNDER ERISA’S SAVINGS CLAUSE (Western District)

Plaintiffs brought suit alleging breach of contract and bad faith after Defendants denied them insurance coverage for medical treatment.  Defendants removed the case to the United States District Court for the Western District of Pennsylvania, based on federal question jurisdiction, asserting that Plaintiffs were seeking to recover benefits under an employee welfare plan that was controlled exclusively by ERISA.  Defendants then filed a motion to dismiss arguing that Plaintiffs’ claims were preempted by ERISA.

The Magistrate Judge determined it was uncontested that the contract under which Plaintiffs were insured was an ERISA plan.

The Court found the complaint appeared such that the basis of Plaintiffs’ claims for both breach of contract and bad faith were that Defendants improperly denied coverage of medical treatment under the plan by invoking the experimental treatment exclusion.

Accordingly, the Court held that Plaintiffs’ state law claims related to an ERISA plan and were entirely preempted.

However, Plaintiffs argued that their bad faith claim should not be preempted as a whole but only insofar as the punitive damages remedy provided supplants ERISA’s exclusive remedial scheme since a state law is only preempted to the extent that it actually conflicts with federal law.  Plaintiffs also argued that Pennsylvania’s bad faith statute was nevertheless saved from preemption under ERISA’s savings clause.

The Court rejected both arguments after looking to Pennsylvania’s case law, which has held that (1) all state law causes of action are preempted under ERISA when they provide remedies beyond those contained in ERISA itself; and (2) although ERISA contains a “savings clause” whereby a state law will be saved from preemption if it regulates insurance, banking or securities, Courts have specifically found that Pennsylvania’s bad faith statute does not fall within that category.

Date of Decision by Magistrate Judge:  September 25, 2006

Knochel v. Healthassurance Pennsylvania, Inc., United States District Court for the Western District of Pennsylvania, No. 06-426, 2006 U.S. LEXIS 81009 (W.D. Pa. September 25, 2006) (Hay, M. J.)

NOVEMBER 2006 BAD FAITH CASES
SPECULATIVE BAD FAITH DAMAGES NOT SUFFICIENT TO PLEAD AMOUNT IN CONTROVERSY MINIMUM AND CASE REMANDED TO STATE COURT (Middle District)

Plaintiff was involved in a motor vehicle accident as a passenger and subsequently filed a coverage claim.  Defendant refused the claim and Plaintiff brought suit alleging breach of contract and bad faith.  Defendant moved to remove the case to federal court based upon diversity jurisdiction and alleging the amount in controversy would exceed the minimum of $75,000.

The United States District Court for the Middle District of Pennsylvania stated that the burden is on the Defendant to show to a legal certainty that Plaintiff was claiming an amount greater than the statutory diversity minimum.  Due to Plaintiff’s unclear damage pleading, the Court could not make a determination to a legal certainty that the amount would be met by Plaintiff’s claims.

State Farm attempted to establish that punitive damages would get the case over the minimum.  The District Court looked to case law on awarding punitive damages, and that such damages must be reasonable when compared to the actual harm suffered.  Specifically, the Supreme Court had held that few awards exceeding a single-digit ratio between punitive and compensatory damages will satisfy due process.

In consideration of the reasonableness standard, and without knowledge of the compensatory damages sought, the Court could not determine with any accuracy the potential value of a claim for punitive damages, and therefore could not make a calculation as to the total damages Plaintiff sought to recover.

Thus the Court held that Defendant had not met its burden and granted Plaintiff’s Motion to Remand to the State Court.

Date of Decision:  November 7, 2006

Hulse v. State Farm Mut. Auto. Ins. Co., United States District Court for the Middle District of Pennsylvania, No. 3:06-CV-01080, 2006 U.S. Dist. LEXIS 81495 (M.D. Pa. November 7, 2006) (Caputo, J.)

 

NOVEMBER 2006 BAD FAITH CASES
COURT HOLDS 3RD PARTY HAS NO STANDING TO BRING BAD FAITH ACTION AGAINST AUTOMOBILE INSURER (Philadelphia)

Pro se Plaintiff Twila Haynes brought a bad faith suit in Philadelphia’s Municipal Court, alleging that State Farm refused to pay a claim which arose from a car accident.  The case was appealed to Philadelphia’s Court of Common Pleas.  The Court of Common Pleas sustained Defendant’s preliminary objections and dismissed all claims against Defendant with prejudice.

The Court sustained the preliminary objections on the basis that the complaint failed to state upon which relief could be granted.  The Court observed that the Complaint was signed by “Kelly Haynes,” and not Plaintiff Twila Haynes.  The Court remarked that if Twila Haynes was a third-party victim in this case, she had no direct action against the insurer of an alleged tortfeasor unless there was a statutory or policy provision which allowed such an action.

The Court determined that Plaintiff was not a third-party beneficiary of the contract of insurance between the insured and Defendant and she did not have an assignment from the insured which would allow her to pursue a bad faith claim against Defendant.  As the Complaint failed to state a claim upon which relief may be granted, the Court sustained the preliminary objections and dismissed the action with prejudice.

Date of Decision:  October 11, 2006

Haynes v. State Farm Ins. Co., Common Pleas Court of Philadelphia County, April Term 2006, No. 2752, 2006 Phila. Ct. Com. Pl. LEXIS 399 (Phila. Ct. Com. Pl. October 11, 2006) (Glazer, J.)

NOVEMBER 2006 BAD FAITH CASES
BAD FAITH CLAIM PREEMPTED BY ERISA (Philadelphia Federal)

Plaintiff filed suit to recover disability benefits under a group disability plan, administered by Defendant on behalf of Plaintiff’s employer.  Plaintiff alleged various state law claims, including bad faith.

The United States District Court for the Eastern District of Pennsylvania looked to ERISA’s express preemption provision, which provides that ERISA “shall supersede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan.”  The Court recognized that state law claims that are subjected to express preemption are displaced and thus subject to dismissal.

The Court found that Plaintiff’s bad faith claim under Pennsylvania’s bad faith statute related to an employee benefit plan and was expressly preempted by ERISA.  Thus the Court granted Defendant’s Motion to Dismiss Plaintiff’s bad faith complaint.

Date of Decision:  October 31, 2006

Maldonado v. Unum Life Ins. Co. of America, United States District Court for the Eastern District of Pennsylvania, No. 06-2481, 2006 U.S. Dist. LEXIS 79822 (E. D. Pa. October 31, 2006) (Tucker, J.)

 

NOVEMBER 2006 BAD FAITH CASES
INSURED HELD TO HAVE DUTY OF GOOD FAITH AND FAIR DEALING TO INSURER (Western District)

The Court considered Plaintiff’s Motion to Dismiss Defendant insurers’ counterclaim alleging Plaintiff’s breach of a duty of good faith and fair dealing.  The claims arose from a steel mill construction project that turned into a disaster, with delays and significant cost overruns, which led to claims against Kvaerner, among others pieces of litigation, for tens of millions of dollars.

Kvaerner had two policies from different carriers (a project-specific policy and a professional insurance policy), and additional excess insurers on a Kvaerner brought suit against these insurers.  It brought suit against the carriers, with the particular issues in this case involving the excess carriers.

In their counterclaims, these carriers allege that Kvaerner entered into a collusive settlement with the underlying plaintiff, failed to properly notify the carriers of the scope of the claims, failed to properly manage litigation costs incurred by Plaintiff’s counsel, and wrongfully demanded excess insurance coverage even though the original policy had not been exhausted.

Kvaerner filed a motion to dismiss the counterclaims, arguing that insureds, unlike insurers, have no duty of good faith and fair dealing pursuant to an insurance contract.  However, the Court recognized that the majority rule in Pennsylvania is that all contracts impose an implied duty of good faith and fair dealing on each party.  The Court looked to numerous district court cases that have specifically held that insurers may sue insureds for a breach of their duty of good faith.

The Court remarked that it could find “no cogent reason why such an implied contractual duty should not be reciprocal.”  Accordingly, the Court denied Plaintiff’s motion to dismiss Defendants’ counterclaim.

Date of Decision:  October 26, 2006

Kvaerner U.S. Inc. v. Kemper Envtl. Ltd., United States District Court for the Western District of Pennsylvania, No. 2:06-cv-403, 2006 U.S. Dist. LEXIS 78005 (W. D. Pa. October 26, 2006) (McVerry, J.)

NOVEMBER 2006 BAD FAITH CASES
PLAINTIFF MUST PLEAD REQUISITE STATE OF MIND TO SET FORTH AN ACTIONABLE CLAIM FOR BAD FAITH OR CLAIM WILL BE DISMISSED, AS IN THIS CASE (Middle District)

Plaintiffs claimed, among other things, breach of contract and bad faith as a result of Defendant’s denial of benefits under an auto insurance policy.  The Complaint alleged only the basic facts, e.g., that the insureds filed an auto insurance claim and Defendant denied coverage.

The United States District Court for the Middle District of Pennsylvania looked to Pennsylvania’s bad faith statute, which specifies that in order to state a claim against an insurer for bad faith, a plaintiff must allege and set forth information indicating that the insurer: (1) did not have a reasonable basis for its actions and (2) knew or recklessly disregarded its lack of a reasonable basis for its actions.

The Court determined that in this bare bones Complaint,  Plaintiff failed to aver that Defendant possessed the requisite wrongful state of mind.  Accordingly, the Court held that Plaintiff failed to state a proper claim for the bad faith denial of insurance coverage and granted Defendant’s motion to dismiss.

Date of Decision:  October 31, 2006

Kojeszewski v. Infinity Ins. Co., United States District Court for the Middle District of Pennsylvania, Civil Action No. 3:06-CV-1261, 2006 U.S. Dist. LEXIS 79306 (M. D. Pa. October 31, 2006) (Caputo, J.)