Monthly Archive for June, 2008

JUNE 2008 BAD FAITH CASES BAD FAITH CLAIM SURVIVES PRELIMINARY OBJECTIONS DUE TO POSSIBILITY THAT PLAINTIFFS ARE ENTITLED TO RECOVER AS THEY PLEAD PAID PREMIUMS, BUT DENIED BENEFITS (Lackawanna)

The insured filed a bad faith  complaint against Nationwide Insurance Company after the insurer refused to pay plaintiff’s claim under the policy, and allegedly failed or refused to provide adequate insurance coverage, despite accepting and retaining plaintiffs’ premium payments.   Plaintiffs complaint had four counts, including a bad faith claim and breach of fiduciary duty claim against the insurer’s agent.

Nationwide filed preliminary objections in the nature of a demurrer to the bad faith claim.  For a demurrer the court will examine whether on the facts averred, the law says with certainty that no recovery is possible.  If there is not a  possibility of recovery based on the facts  then the demurrer will be granted.

At this stage the complaint addresses only the assertion that Plaintiffs paid premiums to Defendant Nationwide and therefore Plaintiffs were entitled to certain coverage in exchange for these payments.  Under the demurrer standard, it was not clear from the complaint that the plaintiffs were not entitled to recover from Defendant Nationwide for bad faith.  Therefore, the court denied  Defendant Nationwide’s demurrer because it cannot be shown with certainty that the plaintiffs will not be permitted to recover for bad faith.

In addition, the court found that the breach of fiduciary duty claim was synonymous with a claim for the breach of the contractual duty of good faith and fair dealing.  The insurer’s agent sought to have that claim dismissed, but the court refused.  First, the court found there could be a distinction between an insurer and insurer’s agent in a fiduciary duty analysis.  It then found there remained a factual issue as to whether the insurance agent took actions that would have created some duty between it and the insureds.

Date of Decision: June 5, 2007

Decker v. Nationwide Ins. Co., 2007 Pa. Dist. & Cnty. Dec. LEXIS 359, 83 Pa. D. & C.4th 375 (C.C.P. Lackawanna 2007)

J.M.A.

JUNE 2008 BAD FAITH CASES
BAD FAITH CLAIM DISMISSED WHEN ASSERTED AGAINST A NON-INSURANCE COMPANY (Middle District)

The Court addressed the question of who is an insurer subject to Pennsylvania’s bad faith statute.  The Court was confronted with claims stemming from an insurer’s denial of first-party benefits to plaintiff as a third-party beneficiary for injuries stemming from a motor vehicle accident.

Defendant Frontier Adjusters filed a Motion for Summary Judgment as to plaintiff’s complaint including the bad faith claim arguing that it was not an insurer under Pennsylvania law.

The Court stated that to determine who is an insurer for purposes of bad faith requires examining: “(1) the extent to which the company was identified on the policy documents; and (2) the extent to which the company acted as an insurer” with the second factor being the most important.

The Court found that Frontier’s conduct was limited to conducting an investigation as to the alleged existence of an insurance policy.  No evidence was produced demonstrating that Frontier assumed any risks or contractual obligations under the insurance policy at issue or that Frontier was licensed to conduct insurance business in Pennsylvania.  Therefore, since plaintiff was unable to allege that Frontier was an insurer under 42 Pa. Const. Stat. § 8371, plaintiff’s claim was dismissed.

Date of Decision: March 4, 2008

Stephano v. Tri-Arc Financial Services, Inc., No. 3:CV-07-0743, 2008 U.S. Dist. LEXIS 16673 (M.D. Pa. March 4, 2008) (Vanaskie, J.)

J.T.L.

JUNE 2008 BAD FAITH CASES
DENIAL LETTERS DISCOVERABLE WHERE 3RD PARTY VENDOR & DR. REVIEWING FILES MAY NOT BE QUALIFIED; BUT EVALUATION DOCUMENTS NOT DISCOVERABLE (Philadelphia Federal)

The case arose out of the discontinuance of disability benefits that were being paid to the Plaintiff.  Plaintiff had developed severe and violent vertigo and nausea, which was subsequently diagnosed as an unspecified peripheral vestibular dysfunction, a dysfunction of the inner ear, which caused her to cease working at the end of January 1994.  Plaintiff had been receiving disability benefits from her employer that were administered by Defendant, Teachers Insurance and Annuity Association (“TIAA”).

TIAA sold its rights to administer its disability claims to Defendant, Standard Benefits Administrators (“Standard”), and Standard began administering the Plaintiff’s benefits in March of 2003.  Standard subsequently arranged a functional capacity evaluation by a third party vendor and an independent medical examination by a doctor.  Standard also conducted surveillance on Plaintiff.

Following the findings of the functional capacity evaluation, the independent medical examination and the surveillance footage, Standard terminated Plaintiff’s disability benefits in June 2005.  Plaintiff initiated this lawsuit in May 2006.

In June 2006, Standard reinstated her benefits and provided her with back pay for the period of her termination.  Plaintiff continued its action, seeking damages for breach of contract, breach of covenant of fair dealing, and bad faith pursuant to 42 Pa.C.S.A. § 8371.

Before the court was the Plaintiff’s Motion to Compel Production of Documents in three categories:  1) documents relating to TIAA and Standard’s pre- and post-transaction evaluations of the disability claims business block TIAA sold to Standard; 2) documents relating to Standard’s performance evaluations of the units and individuals handling Plaintiff’s claim; and 3) claims denial letters from the doctor and third party vendors who performed Plaintiff’s independent medical examination and functional capacity evaluation on Standard’s behalf.

The Court reviewed the requests to determine if:  1) the information sought was sufficiently relevant to outweigh the burden of its production; and 2) the information sought was applied in the handling of Plaintiff’s insurance claim.

Addressing the transaction evaluations, the Court noted that the Plaintiff argued that such documents are relevant in bad faith litigation because they might contain information indicating TIAA and Standard’s state of mind regarding what they hoped to gain from the purchase and sale of the disability claims, and how they sought to accomplish those goals.

The Court noted that corporate state of mind evidence is sometimes relevant, but, in this case, Plaintiff had failed to produce some hint that Defendants applied the alleged bad faith practices in the handling of her specific case.  Despite Plaintiff’s arguments, the Court found no reason to order the discovery of Defendants’ transaction evaluations.

Addressing the performance evaluations, the Court noted that the Plaintiff argued that such requests are appropriate because evidence of improper pressures to evaluate claims on reasons other than their merits is relevant in bad faith cases.  In this case, it was argued that the Defendants set ceilings on claims payments and tied employee bonuses to their ability to enforce those limits.

The Court disagreed and stated that, despite Plaintiff’s efforts to characterize Defendant’s documents, the Court finds no evidence of a conspiracy for corporate profits.

Addressing the claim denial letters, the Court noted that the Plaintiff argued the use of biased experts, improper use of experts, or the use of inappropriate evaluative criteria, can support a claim for bad faith and punitive damages.

The Court found that Plaintiff had been able to connect some of the bad faith practices alleged to the particular requests at issue.  Evidence showed that the third party vendor and doctor, who were retained to review files and were the basis of denial letters, may not have been qualified to perform reviews.

As a result, the Court ordered the production of all claim denial letters arising from the reviews of the third party vendor and doctor, redacted to exclude information concerning other insurance claimants.

Date of decision:  March 18, 2008

Santer v. Teachers Insurance and Annuity Association, United States District Court for the Eastern District of Pennsylvania, Civil Action No. 06-CV-1863, 2008 U.S. Dist. LEXIS 21767 (E.D. Pa. March 18, 2008) (Golden, J.).

R.E.M.

JUNE 2008 BAD FAITH CASES
MOTION TO REMAND DENIED WHERE BAD FAITH REQUEST FOR PUNITIVES WHEN COMBINED WITH COMPENSATORY DAMAGES COULD STATE SUM THAT WOULD MEET STATUTORY MINIMUM (Middle District)

The e case arose from an automobile accident involving Plaintiff-driver and another driver.  The Plaintiff-driver suffered severe permanent injuries, incurring medical expenses and expecting to incur future medical expenses.  The other driver was insured at the time of the accident, but his insurance did not cover all of the damage Plaintiff-driver allegedly suffered.  Plaintiff and his wife, also a Plaintiff, sought coverage from their insured, the Defendant, based on an underinsured motorist provision in their policy.

Plaintiffs’ attorney made a demand for arbitration to Defendant.  Defendant responded that it did not agree to arbitration and that the policy required mutual consent to arbitration.  Plaintiffs’ counsel proceeded to forward Plaintiff-driver’s medical records and subsequently requested that Defendant take a position as to arbitration or suit would be filed.

Plaintiffs filed a complaint in state court setting forth a breach of contract count and a statutory bad faith count, both alleging failure to investigate and failure to offer reasonable value for the claim.

Defendant filed a notice of removal to federal court, and Plaintiff subsequently filed the motion to remand to state court which was the substance of the Court’s opinion.  The question for the Court was whether the Court had diversity jurisdiction to hear the case.  The Court noted that diversity jurisdiction existed when the amount in controversy exceeds $75,000 and the action is between citizens of different states.  Plaintiff argued that the amount in controversy did not amount to $75,000.

The Court noted that the Plaintiff was seeking compensatory damages and punitive damages.  The Court stated that, where a plaintiff has authority under state law to seek punitive damages and the claim is not frivolous, the claim will generally satisfy the amount in controversy requirement because it cannot be stated with legal certainty that the plaintiff’s claim is below the statutory minimum.

Still, the court noted that the Defendant bore the burden to establish diversity jurisdiction since it was the party asserting said jurisdiction.  The Defendant argued that Plaintiffs were claiming punitive damages under the statutory bad faith count and also claiming the $200,000 policy limit of the policy.

The court agreed with Defendant and denied the Plaintiffs’ motion to remand.

Date of decision:  April 17, 2008

Miller v. Progressive Casualty Insurance Company, United States District Court for the Middle  District of Pennsylvania, No. 3:08cv138, 2008 U.S. Dist. LEXIS 32074 (M.D. Pa. April 17, 2008) (Munley, J.).

R.E.M.