Monthly Archive for November, 2007

NOVEMBER 2007 BAD FAITH CASES
NO BAD FAITH WHERE DENIAL REASONABLE BASED ON CLAIMS HANDLING, EVEN THOUGH COVERAGE REMAINED AT ISSUE (Western District)

The insured claimed that some of its property was lost due to storm damage.  A reservation of rights letter was issued promptly after the claim was submitted.  The carrier investigated, via an adjusting firm and an independent roof specialist who concluded that the damage was not caused by the storm, but that rain water had gotten into the building because the roof had deteriorated.

On the issue of coverage, the court concluded that there was potentially coverage under the policy, but that the material facts remained in dispute over whether or not there would be coverage; thus, summary judgment was denied both parties on coverage.

The carrier’s motion on summary judgment on the bad faith claim was granted.  The court cited to the facts that there was a timely reservation or rights letter; that there was an investigation that the carrier claimed was reasonable and formed the basis for a reasonable and good faith denial of coverage – an argument that was unrefuted; and that the denial was promptly communicated.

The court found that based on the affidavits of the adjustor and roofing specialist and correspondence supporting the foregoing, there was a reasonable basis to deny the claim, and certainly no clear and convincing evidence to the contrary.

Date of Decision: November 21, 2007

Easy Sportswear, Inc. v. American Economy Ins. Co., No. 05-1182, 2007 U.S. Dist. LEXIS 86114 (W.D. Pa. November 21, 2007) (Fischer, J.)

L.A.

NOVEMBER 2007 BAD FAITH CASES
COURT REFUSES TO DISMISS ON BASIS OF STATUTE OF LIMITATIONS AT MOTION TO DISMISS STAGE (Western District)

 

The insured sought a declaratory judgment and asserted breach of contract and bad faith claims against two insurers.  The insurers moved to dismiss based on a two year contractual statute of limitations.  The court determined that it could not rule against the insured at the motion to dismiss stage, and distinguished a case arguing that the discovery rule could not apply because it was at the summary judgment stage.

Date of Decision:  November 9, 2007

Nelson v. Vigilant Ins. Co., United States District Court for the Western District of Pennsylvania, No. 07-1406, 2007 U.S. Dist. LEXIS 83394 (Schwab, J.)

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NOVEMBER 2007 BAD FAITH CASES
COURT BIFURCATES DUTY TO DEFEND CASE AND BREACH OF CONTRACT/BAD FAITH CLAIMS (Philadelphia Commerce)

The Philadelphia Commerce Court “bifurcated the case, so that the issue of whether [the carrier] had a duty to defend … in the Underlying Action could be addressed first. Only if such a duty is found to exist will the issues of indemnification and bad faith subsequently need to be addressed.”

Date of Decision:  May 10, 2007

Telecommunications Network Design, Inc. v. Brethren Mutual Ins. Co., 2007 Phila. Ct. Com. Pl. LEXIS 156  (C.C.P. Philadelphia May 10, 2007) (Abramson, J.),

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NOVEMBER 2007 BAD FAITH CASES
BAD FAITH CLAIM DISMISSED WHERE PLAINTIFFS FAILED TO PROVIDE CLEAR AND CONVINCING EVIDENCE THAT INSURER’S FAILURE TO PAY WAS UNREASONABLE (Philadelphia Federal)

The Court granted Defendant’s motion for summary judgment and dismissed Plaintiffs’ bad faith claims.  The court held that the Plaintiffs failed to provide clear and convincing evidence that the Defendant’s failure to pay Plaintiffs’ claim was unreasonable.

Plaintiffs owned and managed a commercial warehouse building, which was insured by Defendant.  The policy excluded loss or damage caused by decay and collapse but an additional coverage provision of the policy extended coverage to collapse if caused by “hidden decay”, a term not defined by the contract.  A wooden truss in the roof of Plaintiffs’ building broke as a result of severe wood rot and decay, and a portion of the roof covering the second floor of the building collapsed.  Defendant denied coverage for the loss claiming that the loss was not caused by hidden decay.

Plaintiffs filed a complaint seeking coverage for the loss and asserting bad faith claims against the Defendant.   Defendant filed a summary judgment action seeking dismissal of Plaintiff’s bad faith claim.  The court granted Defendant’s motion  and held that it was uncertain that the cause of the collapse was unknown decay as required by the policy.

Plaintiffs’ and Defendant’s experts disagreed as to the extent of the damage surrounding the wooden truss prior to the accident and whether that damage would have obvious to the Plaintiffs.  Because there was a question as to whether Plaintiffs had actual or constructive knowledge of the defect, prior to the accident, the court held that a finding of bad  faith was precluded and therefore summary judgment was granted.

Date of Decision:  September 26, 2007

SRP Management Corporation and Nibur Westmoreland, Inc. v. Seneca Insurance Company, United States District Court for the Eastern District of Pennsylvania, Civil Action No. 06-935, 2007 U.S. Dist. LEXIS 71824 (E.D. Pa. September 27, 2007) (Ditter, S.J.),

C.L.C.

NOVEMBER 2007 BAD FAITH CASES
NO BAD FAITH CLAIM CAN BE STATED WHERE NO DUTY TO COVER (Third Circuit)

The Third Circuit upheld the district court’s grant of summary judgment to the carrier on the basis that the claim was not covered under the business pursuits exclusion.  The court stated that the bad faith “claim necessarily fails in the face of a determination that the insurer correctly concluded that there was no potential coverage under the policy.”

Date of Decision:  November 7, 2007

Still v. Great Northern Insurance Company, No. 07-2425, 2007 U.S. App. LEXIS 26024 (3d Cir. November 7, 2007) (Garth, Jordan, Rendell, JJ.)

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NOVEMBER 2007 BAD FAITH CASES
ON REMAIND, TRIAL COURT UPHOLDS ORIGINAL ATTORNEY'S FEE AWARD, AND ADDS FEES FOR PORTIONS OF APPEAL AFFIRMED (Third Circuit)

In Gallatin Fuels, Inc. v. Westchester Fire Ins. Co., the district court heard a motion under Rule 60(b) to reconsider its earlier award of attorneys’ fees, costs and prejudgment interest, in light of the Third Circuit’s decision in Gallatin Fuels, Inc. v. Westchester Fire Ins. Co., that had reversed in part and affirmed in part.

Specifically, the Third Circuit had found there was no breach of contract, but did find bad faith.  The district court upheld its award of attorneys’ fees under the bad faith statute, but reversed its award of prejudgment interest, which had been based on its now reversed decision on compensatory damages for breach of contract.  The court additionally awarded attorney’s fees (though not costs) in connection with the carrier’s appeal of the bad faith and punitive damages awards only.  Plaintiff could not recover fees associated with its own appeal, the reversed contract claim or those incurred in the instant motion.

Date of Decision:  October 31, 2007

Gallatin Fuels, Inc. v. Westchester Fire Ins. Co., United States District Court for the Western District of Pennsylvania, No. 02-2116, 2007 U.S. Dist. LEXIS 80538 (W. D. Pa. October 31, 2007) (Ambrose, C. J.)

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NOVEMBER 2007 BAD FAITH CASES PURPORTED OWNERS STILL HAD NO RIGHT TO BRING CONTRACT OR BAD FAITH ACTION WHEN THERE WERE NOT PARTIES TO THE POLICY (Philadelphia Federal)

Four siblings tried to make breach of contract and bad faith claims against an insurer for a fire loss.  The policy was issued only in their parents’ names, though they claimed the carrier knew that they were owners.  The court found that absent a contractual obligation between these siblings and the carrier, there could be no breach of contract or bad faith claims by them against the insurer.

Date of Decision:  October 10, 2007

Banos v. State Farm Ins. Co., No. 7-2783, 2007 U.S. Dist. LEXIS 75189 (E.D. Pa. October 10, 2007) (Sanchez, J.)

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NOVEMBER 2007 BAD FAITH CASES
BAD FAITH CLAIMS RELATES BACK TO ORIGINAL PRO SE COMPLAINT AND IS NOT TIME BARRED (Middle District)

A policy beneficiary brought claims, alleging that the carrier had never investigated the death of his brother in Ghana.  He filed a pro se complaint, which was dismissed with leave to amend.  He obtained counsel who sued for bad faith and breach of contract.  The carrier sought to dismiss the bad faith claim on statute of limitations grounds, claiming it was raised for the first time in the amended complaint.  The insured took the position the claim should relate back to the original filing under Rule 15.

The court found that notice of the bad faith claim did exist in the original pro se complaint, which should be construed liberally as a pro se complaint, and that the claim now pleaded did state a claim for relief.

Date of Decision:  October 11, 2007

Bonsu v. Jackson National Life Insurance, United States District Court of the Middle District of Pennsylvania, No. 05-2444, 2007 U.S. Dist. LEXIS 79267 (M.D. Pa. October 11, 2007) (Conner, J.)

L.A.

NOVEMBER 2007 BAD FAITH CASES
NO BAD FAITH CLAIM CAN BE STATED WHERE NO DUTY TO COVER (Third Circuit)

In Still v. Great Northern Ins. Co., the Third Circuit upheld the district court’s grant of summary judgment to the carrier on the basis that the claim was not covered under the business pursuits exclusion.  The court stated that the bad faith “claim necessarily fails in the face of a determination that the insurer correctly concluded that there was no potential coverage under the policy.”

Date of Decision:  November 5, 2007

Still v. Great Northern Insurance Company, No. 07-2425, 2007 U.S. App. LEXIS 26024 (3d Cir. November 7, 2007) (per curiam)

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NOVEMBER 2007 BAD FAITH CASES: AWARD OF COSTS TO INSURER AFTER AWARD OF SUMMARY JUDGMENT; NO POST-CLAIMS UNDERWRITING BAD FAITH (Third Circuit)

The Third Circuit affirmed an award of costs against the insured under Federal Rule of Civil Procedure 54(d)(1). The district court had taken the insured’s indigence argument into account in lowering the costs awarded, and did not have to lower them to zero.  Further, there was no legitimate unclean hands argument, but rather a restatement of a substantive claim on which the insured had already lost.

In its earlier decision, the district court had found that the policy was void ab initio because of misrepresentations in applying for the policy, that there could be no breach of contract where there was no contract, and that there could be no bad faith on the novel post-claims underwriting practices.  This was affirmed by the Third Circuit in Northwestern Mut. Life Ins. Co. v. Babayan, 430 F.3d 121 (3d Cir. 2005), which also stated that the idea of post-claims underwriting could not really be distinguished from the permissible and necessary practice of claims investigation.

Date of Decision:  October 30, 2007

Northwestern Mutual Life Insurance Company v. Babayan, No. 06-3109, 2007 U.S. App. LEXIS 25388 (3d Cir. October 30, 2007) (Fisher, J.)

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