Monthly Archive for September, 2008

SEPTEMBER 2008 BAD FAITH CASES
NO BAD FAITH WHERE LAWYERS FAIL TO DISCLOSE PRECONTRACT NEGLIGENCE, COVERAGE EXCLUDED, REASONABLE BASIS TO DENY CLAIM, INVESTIGATION TIMELY (Philadelphia Commerce)

The Philadelphia Commerce Court found that there could be no coverage under a claims made policy where a law firm failed to report a former employee/lawyer’s admitted negligence in failing to timely file a claim for a client, based upon a policy exclusion and for material misrepresentation/omissions to the carrier.  There were also claims that the carrier should be estopped from denying a duty to defend and to cover.

The carrier provided counsel for a limited time, telling the insured/defendant law firm to find a replacement lawyer.  This claim was likewise rejected, as there was no conduct alleged on the insurer’s part which could have created such an estoppel in favor of the lawyers.

There was also a bad faith claim based on an alleged delay in completing the insurance investigation, failing to timely communicate results of the investigation, failing to instruct the defendant law firm to withdraw, and denying coverage one year after suit began, with discovery expiring and a trial looming.

The court found there was a reasonable basis to deny benefits under the policy, over which there was no dispute by plaintiff.  The insurer kept the insured lawyers fully advised at all times as to reserving rights and potentially denying coverage.  A six month delay between a reservation of rights letter and actual denial of coverage, during which time there was investigation and the decision to deny, was not bad faith.

In a final footnote, the court cited myriad cases holding that where there was an absence of any duty to defend or indemnify there can not be bad faith in any event.  The court also remarked on the fact that a defense was provided.

Date of Decision:  July 18, 2008

Cordisco, Bradway & Simmons v. Gulf Ins. Group, February Term 2007, No. 111 (C.C.P. Philadelphia  July 18, 2008) (Bernstein, J.)

L.A.

SEPTEMBER 2008 BAD FAITH CASES
REMAND DENIED WHERE REASONABLE TO FIND INSURED’S CLAIMS COULD SATISFY AMOUNT IN CONTROVERSY REQUIREMENT BY ASSUMING 4 TO 1 PUNITIVES RATIO (Philadelphia Federal)

The insured’s bad faith claim was based on his disability insurer’s alleged improper reduction of his benefits after he received  a lump sum worker’s compensation settlement.  The insured initiated a putative class action suit in the Court of Common Pleas of Philadelphia and alleged breach of contract and bad faith. The insured sought compensatory damages of $14,000 as well as punitive damages and attorneys fees under the bad faith statute for himself.

The insurer then successfully removed the action to the United States District Court for the Eastern District of Pennsylvania. The insured then filed a motion for reconsideration of the court’s denial of his motion to remand.

As this was a non-CAFA class action, the court looked to the jurisdictional amount of the plaintiff’s individual claim.  In this case, no specific sum was pleaded as to the total amount of the claim.  Where a specific amount of total damages is not put in the complaint, the case must be remanded only if it appears to a legal certainty that the plaintiff cannot recover the jurisdictional amount.

The amount in controversy requirement will be satisfied if the claims total more  than $75,000.  The court found that a four to one ratio of punitive damages could meet constitutional muster, which would yield $14,000 in compensatory damages, plus $56,000 in punitives, for a total of $70,000.  The court then concluded that an award of at least $5,001 in counsel fees based on the insured’s claims seemed more than reasonable at this stage.  Thus, the jurisdictional threshold was met, and the case stayed removed.

Date of Decision: July 18, 2008

Harvey v. United States Life Ins. Co., Civil Action No. 08-2175, 2008 U.S. Dist. LEXIS 55574 (E.D. Pa. July 18, 2008) (Harvey Bartle III, J.)

J.M.A.

SEPTEMBER 2008 BAD FAITH CASES
BAD FAITH CLAIM TIME BARRED BY STATUTE OF LIMITATIONS BECAUSE CLAIM WAS NOT FILED BY THE REAL PARTY IN INTEREST UNTIL STATUTE HAD EXPIRED (THIRD CIRCUIT)

In Gardner v. State Farm Fire and Casualty Company, the appellant filed a six count claim, including statutory bad faith,  against the insurer arising out of the insurer’s refusal to defend or indemnify its insured, in connection with negligence claims. The insured owned a property which he lived in for a period of time.  When the insured decided to move out,  he rented the property to the appellant.  The initial term of the lease was 6 months, however, the appellant lived at the property for a longer period of time until the insured evicted her for failure to pay rent.

While the appellant was still living at the property her mother slipped and fell on the sidewalk outside the property and was injured. The insured had a homeowner’s policy with the insurer.  The appellant notified the insurer of the incident.  The insurer conducted an investigation and denied coverage because of the policy’s Rental Exclusion which did not offer coverage for bodily injury when the property is held for rental and is no longer occupied by the insured.

Appellant then filed a negligence claim against the insured on behalf of her mother’s estate.  The insurer again denied coverage and would not provide the insured with a defense.  The court entered judgment against the insured.  The appellant then filed a praecipe for Writ of Summons in the Court of Common Pleas of Alleghany County on April 8, 2005  even though the insured had not assigned his rights against the insurer to appellant.  It was not until June 22, 2005 that the insured assigned his rights against the insurer to the appellant.  The insurer had the action removed to federal court. Subsequently appellant’s counsel filed a motion to substitute appellant as the real party in interest.

The District Court granted this motion.  Appellant’s complaint alleged that the insurer breached its contractual and statutory duties to the insured by refusing to defend him, failing to indemnify him for the judgment against him, and failing to evaluate the case in good faith.  Both parities filed motions for summary judgment. The District Court granted the insurer’s motion and entered judgment in its favor. The District Court concluded that the statute of limitations began to run on the date that the insurer sent a letter to the insured denying coverage on April 4, 2003 and therefore found the bad faith claim to be time barred under the two year statute of limitations.  Appellant appealed to the United States Court of Appeals for the Third Circuit.

The appellant argued that the District court erred in concluding that the action was not commenced for statute of limitations purposes until the execution of the assignment.  The appellant specifically argued that Federal Rule 15(c) should have applied.  However the court found that Rule 15(c)(1) is not applicable here because it applies only to amendments to the party against whom a claim is asserted.  Here appellant named the real party in interest in commencing suit by filing it in the insured’s name, yet she had no authorization to do so.  Therefore it was the appellant who commenced the suit and she was not yet a real party in interest because the insured had not yet assigned his rights to her.

Therefore the Third Circuit found that the April 2005 filing of the writ of summons did not toll the statute of limitations and the statute continued to run until the insured assigned his rights to the appellant in June of 2005.  However by that time the statute of limitations had expired and the bad faith claim was time barred.  Therefore the Third Circuit affirmed the District Court’s order granting summary judgment in favor of the insurer and denying summary judgment to appellant.

Date of Decision: July 22, 2008

Gardner v. State Farm Fire & Cas. Co., No. 07-3051, 2008 U.S. App. LEXIS 15560 (3d Cir. Pa. July 22,2008)(Padova,  J., sitting by designation) J.M.A.

SEPTEMBER 2008 BAD FAITH CASES
EFFORT BY INSURED CONVICTED OF INSURANCE FRAUD TO BRING BAD FAITH CLAIM REBUFFED BY COURT (Western District)

The carrier rejected coverage for a breach of contract so severe, that the insured was convicted of insurance fraud for his claim.  Yet, he brought breach of contract and bad faith claims against the insurer.  The court’s response says it all:  “Tuschak has not discharged this burden. State Farm  had a reasonable basis for denying Tuschak’s claim. Tuschak engaged in, indeed was convicted of, insurance fraud. He lied to State Farm  about the very cause of the claim he submitted. His lies during the processing of the claim provided a contractual basis upon which State Farm  could reasonably deny coverage. As previously stated, a reasonable basis for State Farm’s defeats a claim for bad faith.”

Date of Decision:  July 14, 2008

Tuschak v. State Farm Mut. Auto. Ins. Co., No. 07-589, 2008 U.S. Dist. LEXIS 55020 (W.D.Pa. July 14, 2008) (Ambrose, J.)

L.A.

 

SEPTEMBER 2008 BAD FAITH CLAIMS
BAD FAITH CLAIMS PREEMPTED BY ERISA (Philadelphia Federal)

The court held that state law claims, including bad faith claims, were preempted by ERISA.  

Date of Decision:  July 21, 2008

Brown v. Independence Blue Cross, No. 08-1355, 2008 U.S. Dist. LEXIS 55294 (E.D. Pa. July 21, 2008) (Shapiro, J.)