Monthly Archive for June, 2007

June 2007 BAD FAITH CASES
COURT RULES THAT STATEMENT OF AN UNAVAILABLE INSURANCE REPRESENTATIVE IS ADMISSIBLE BASED ON THE RARELY INVOKED RESIDUAL HEARSAY EXCEPTION (Philadelphia Federal)

The insured alleged breach of contract and bad faith.  Two days before a homeowners insurance policy was to be cancelled, the property was damaged by fire.  After reporting the fire, an investigation was conducted.  The insurer then informed the insured that the policy had been voided more than a month prior to the fire and, as a result, the insurer would not be liable for any claims.

At trial, the insured sought to introduce evidence concerning statements and correspondence made by an insurance representative during the policy application process; while the insurer sought to introduce evidence of a recorded statement of that same representative who handled the policy, which the insured opposed.  The representative was unavailable to testify.

The court examined the rarely invoked residual hearsay exception in order to determine whether to admit the recorded statement.

To fall within the residual hearsay exception and be admissible in court, the statement must be trustworthy, material, probative, in the interests of justice, consistent with the purposes of the Rules of Evidence, and accompanied by proper notice.  The court held that the recorded statement fell within the residual hearsay exception.

All of the exception’s factors were met, largely because the representative was no longer available for comment and because the insured would present a one-sided version of events unless the statement was admitted.  The court sought to ensure fundamental fairness by allowing both parties to present evidence of their interaction with the insurance representative responsible for the policy at issue.

As a result, the court determined that the insurer met its heavy burden and found the statement admissible.

Date of Decision: June 22, 2007.

Wezorek v. Allstate Insurance Company, United States District Court for the Eastern District of Pennsylvania, No. 06-CV-1031, 2007 U.S. Dist. LEXIS 45595, (E.D. Pa. June 22, 2007) (Rice, M. J.)

JUNE BAD FAITH CASES
COURT REJECTS BAD FAITH PLAINTIFF’S EXPERT TESTIMONY FOR HIGHER DUTY IN FIRST PARTY CLAIMS AND THAT FIRST PARTY CLAIMS ARE NOT ADVERSARIAL (Pennsylvania Superior Court)

The Pennsylvania Superior Court reversed the trial court’s $75,000 judgment entered against the insurer following a non-jury trial on a bad faith claim made by the insureds.  The bad faith claim arose after the insured was struck by an automobile while walking his dog.  He was diagnosed with a torn rotator cuff and underwent arthroscopic surgery.  The insured settled his claim against the tortfeasor for the $15,000 policy limits.

The insured then made a claim against his own automobile insurance policy, for first party benefits, which were paid to the limits of coverage.  The insured then made a claim for underinsured motorist benefits.  The insured had total stacked coverage of $150,000 for three insured vehicles.

He demanded the policy limits.  The insurer, however, offered $32,000.  The case went to arbitration and the insured was ultimately awarded $95,000.  The insured then filed a bad faith claim.

The trial court found that the insurer acted in bad faith by failing to make a partial payment for excess wage loss claims, undervaluing the claim, thereby forcing it to arbitration, never raising the offer and telling trial counsel that plaintiff would not accept anything less than $150,000 to settle.

On appeal, the Superior Court first found that the insured’s expert’s trial testimony was factually and legally incorrect.  The expert testified on several occasions that a UIM claim is not an adversarial situation and implied that there is some form of heightened duty to a “first party” claimant as opposed to a third party adversarial claimant.  The Superior Court specifically rejected the notion of a higher duty to a first party claimant and held that the duty of the insurer is the same no matter what the party status.

The remaining issues in this case are discussed in a separate summary in the June 2007 archive.

Date of Decision: June 8, 2007

Richard Zappile and Stephanie Zappile, H/W v. AMEX Assurance Company, Superior Court of Pennsylvania, No. 1274 EDA 2006, 2007 Pa. Super. LEXIS 1580 (Pa. Super. 2007) (Klein, J)

JUNE BAD FAITH CASES
INSURER DID NOT ACT IN BAD FAITH WHEN IT FAILED TO MAKE A PARTIAL PAYMENT, UNDERVALUED THE CLAIM AND FAILED TO RAISE IT’S OFFER (Pennsylvania Superior Court)

Tthe Pennsylvania Superior Court reversed the trial court’s $75,000 judgment entered against the insurer following a non-jury trial on a bad faith claim made by the insureds.  The bad faith claim arose after the insured was struck by an automobile while walking his dog.  He was diagnosed with a torn rotator cuff and underwent arthroscopic surgery.  The insured settled his claim against the tortfeasor for the $15,000 policy limits.

The insured then made a claim against his own automobile insurance policy, for first party benefits, which were paid to the limits of coverage.  The insured then made a claim for underinsured motorist benefits.  The insured had total stacked coverage of $150,000 for three insured vehicles.

He demanded the policy limits.  The insurer, however, offered $32,000.  The case went to arbitration and the insured was ultimately awarded $95,000.  The insured then filed a bad faith claim.  The trial court found that the insurer acted in bad faith by failing to make a partial payment for excess wage loss claims, undervaluing the claim, thereby forcing it to arbitration, never raising the offer and telling trial counsel that plaintiff would not accept anything less than $150,000 to settle.

On appeal, the Superior Court first found that the insured’s expert’s trial testimony was factually and legally incorrect.  The expert testified on several occasions that a UIM claim is not an adversarial situation and implied that there is some form of heightened duty to a “first party” claimant as opposed to a third party adversarial claimant.

The Superior Court specifically rejected the notion of a higher duty to a first party claimant and held that the duty of the insurer is the same no matter what the party status.

Next, the court held that the insurer’s failure to make a partial payment of undisputed amounts was not bad faith.  In making this determination, the court found that Pennsylvania law does not recognize a duty to make partial payments.

The court found that the insured’s failure to pay a $4,000 portion of a $150,000 demand, in and of itself did not constitute bad faith and as a general rule, the failure of an insurer to cut out certain portions of a general damages claim, especially where the insurance contract makes no representation that such a procedure will be followed, does not constitute bad faith.

In addition, the court also reversed the trial court’s finding that the insured instructed defense counsel not to evaluate the claim as the insured would accept nothing less than the policy limits.  The court found that although the insurer never officially raised it’s offer, the insured never officially reduced his demand.  Therefore, there was no bad faith as it could not be said that the insured kept coming down while the insurer never went up.

Finally, the insurer’s desire to review medical records from a subsequent accident of the insured and other actions which caused a delay in the arbitration was not evidence of bad faith.

Overall, although the court did find that the insurer undervalued the insured’s claim, there was no evidence that this was done out of some ill-will or that the insured’s actions had no reasonable basis.  For that reason, the court reversed the judgment of bad faith against the insurer.

Date of Decision: June 8, 2007

Richard Zappile and Stephanie Zappile, H/W v. AMEX Assurance Company, Superior Court of Pennsylvania, No. 1274 EDA 2006, 2007 Pa. Super. LEXIS 1580 (Pa. Super. 2007) (Klein, J)

JUNE BAD FAITH CASES
PENNSYLVANIA’S PUBLIC POLICY DOES NOT FORBID ALL LIABILITY POLICIES FROM COVERING CONTRACT BASED CLAIMS (Philadelphia Federal)

The court decided that in the absence of a policy exclusion for contract-based claims in a Directors, Officers and Corporate Liability Policy, Pennsylvania’s public policy does not bar coverage for a claim that arises for a contractual duty.  Defendant-insured, in the underlying action, was sued for failing to timely perform a series of contractually promised acts.

The insured submitted the claim to the insurer, however, the insurer contended that the insurance policy did not cover the insured’s contractual obligations.  Thereafter, the insured filed an action asserting breach of contract and bad faith.

The policy did not contain a contractual liability exclusion, however, it provided that the insurer will pay for a “loss arising from claims” and “loss” does not include matters which are uninsurable under the law pursuant to which the policy is construed.

The insurer filed a motion for summary judgment contending that Pennsylvania public policy barred liability coverage for contractual breaches and, therefore, the insured’s claim was “uninsurable” under Pennsylvania law.  The Court, finding no Pennsylvania case law that declined insurance coverage for all contract based claims as against public policy, denied the insurer’s motion for summary judgment.

Date of Decision: May 21, 2007

Verticalnet, Inc. v. U.S. Specialty Insurance Co., United States District Court for the Eastern District of Pennsylvania, No. 06-4245, 2007 U.S. Dist. LEXIS 36945 (E.D. Pa. 2007) (Dalzell, J.)

JUNE BAD FAITH CASES
ACTING IN BAD FAITH FOR INITIALLY DENYING BENEFITS, THEN REVERSING BASED ON MISTAKE OR NEW EVIDENCE (Western District)

There was a genuine issue of material fact as to whether the insurer acted in bad faith in initially denying benefits even though the denial was reversed.  In this case, the insurer through its administrator Princeton Corporation issued a group policy of accident insurance to AAA.  AAA advised the insured that since the insured was a member for six or more years, he was eligible to receive recuperation and accident hospital indemnity benefits;  he could either enroll in a basic plan which provided $300 a day hospital benefits or a best plan which provided $600 per day hospital benefits.

The insured selected and remitted the premium for the basic plan.  Some time thereafter, the insured was involved in a single motor vehicle accident in which he sustained serious injuries.  The insurer initially denied the claim when it reviewed the toxicology report and erroneously calculated the insured’s blood alcohol level.  When the insured’s counsel advised that the insured was not intoxicated and an error must have been made in calculated the insured’s blood alcohol level, the insured re-examined the report and found that an error was made.

The insurer, thereafter, reversed the denial of benefits.  The insurer paid $300 daily benefits, however, it initially denied benefits for the insured’s stay at Healthsouth Harmarville.  The insurer, during its investigation, found that Healthsouth Harmarville did not have surgical treatment and, therefore, was not a “hospital”.

The insurer thereafter reinvestigated and found that although Healthsouth Harmarville did not provide surgical treatment on site, it is an institution that operates facilities for surgical treatment.

Based on this new evidence, the insurer reversed its decision and deemed  Healthsouth Harmarville a hospital.  The insured filed suit contending that the insurer acted in bad faith for, inter alia, initially denying benefits based on intoxication and initially denying benefits for the insured’s stay at Healthsouth Harmarville.

The Court, finding that the insurer’s representative was taught how to read toxicology reports and had a nurse available to consult, concluded that there was a genuine issue of material fact as to whether the insurer was merely negligent or acted in reckless disregard in initially denying benefits based on intoxication.

With regard to the initial denial of benefits for the insured’s stay at Healthsouth Harmarville, the evidence revealed that the insurer initially reviewed the information in the claim file and researched the facility on the internet.  Based on the research, the insurer determined that Healthsouth Harmarville was not a hospital

However, upon reinvestigation, the insurer was told that Healthsouth Harmarville is an institution that operates facilities for surgical treatment.  As such, the insurer determined that Healthsouth Harmarville was a hospital and reversed its decision to deny coverage.  The Court ruled that there was a genuine issue of material fact as to whether the insurer performed an adequate investigation to have a reasonable basis for denying benefits under the policy and if it knew of or recklessly disregarded its lack of a reasonable basis in denying benefits.

Date of Decision: May 17, 2007

George Pittas v. Hartford Life Insurance Company, United States District Court for the Western District of Pennsylvania, No. 06-65, 2007 U.S. Dist. LEXIS 36165 (E.D. Pa. 2007) (Ambrose, J.).