Monthly Archive for November, 2008

NOVEMBER 2008 BAD FAITH CASES
NO BAD FAITH WHERE INTERPRETATION OF THE POLICY WAS REASOANBLE (Philadelphia Federal)

A bad faith claim arose after the insurer denied the insured’s claim for coverage as a result of a heating oil spill in the insured’s basement.  The insured had heating oil delivered to a house.  During the delivery to the insured’s above ground storage tank, gallons of oil leaked into the basement.  The insured hired a public adjuster to estimate the cost of the damage.  The insured had a homeowner’s policy with the insurer and made a claim for coverage of the damages.

The insurer hired a company to investigate the oil spill and the company determined that the oil had leaked as a result of the oil tank being overfilled.  As a result, the insurer denied the claim and asserted that the oil spill was excluded under the policy’s pollution exclusion.

The insured filed suit against the insurer for breach of contract and bad faith.  The insurer filed a motion for summary judgment and the insured responded with a cross motion for partial summary judgment.

The court found that the insurer failed to meet its burden to show that heating oil is a pollutant excluded from coverage. Therefore, the pollution exclusion in the policy is inapplicable here.  However the court found that the insurer’s denial of the insured’s claim did not amount to bad faith.

Pennsylvania law does not allow for the finding of bad faith when the insurer’s conduct is in accordance with a reasonable, albeit incorrect, interpretation of the insurance policy. The insurer relied on various case law that acknowledged heating oil as a pollutant in denying the insured’s claim.

Even though the court did not accept the insurer’s interpretation of heating oil as a pollutant, this interpretation was not wholly unreasonable or reckless.  Therefore because there is insufficient evidence that the insurer acted in bad faith in denying the claim, the court granted the insurer’s motion for summary judgment for the insured’s bad faith claim.

Date of Decision: September 30, 2008

Whitmore v. Liberty Mut. Fire Ins. Co., No. 07-5162, 2008 U.S. Dist. LEXIS 76049 (E.D. Pa. Sept. 30, 2008) (Pratter, J.)

J.M.A.

NOVEMBER 2008 BAD FAITH CASES
INSURER HAD NO OBLIGATION TO HIRE EXPERT IN CLAIMS HANDLING PROCESS (Philadelphia Federal)

A bad faith claim arose from the insurer’s denial of the insured’s claim after her home and personal belongings suffered water damage.  The insured had a homeowner’s policy with the insurer.  The policy provided for dwelling protection for “sudden and direct physical loss to the property” except as limited or excluded in the policy. The policy excluded losses to the property for flood, including but not limited to surface water……whether or not driven by wind.”

The policy also covered “sudden and accidental direct physical loss …except as limited or excluded in the policy” to personal property owned or used by the insured.  This personal property coverage included damage caused by windstorm or hail, except for “loss to covered property inside a building structure…..unless the wind or hail first damaged the roof or walls and the wind forces the rain, snow, sleet, sand, or dust through the damaged roof or wall.”

The insured suffered a covered loss to her home and personal property.  She hired a public adjuster to assist her in filing a claim under her policy.  The adjuster sent a letter to the insurer filing a claim and asserting that a windstorm caused the insured’s loss.  The insurer assigned the claim to a representative who went out and inspected the property with the insured’s adjuster.

At the inspection the insured’s adjuster told the representative that water had run off the roof on the spa cover and then splashed through a window that was left partially open.  The adjuster also told him that water had run off the roof settled on top of the spa and then wind blew it or it ran over and hit the ground and went through the window that was left open.  The insurer later denied the claim based on the exclusion in the policy for flood, including, but not limited to, surface water whether or not driven by wind.

The insured filed a complaint against the insurer for breach of contract and bad faith in the Philadelphia Court of Common Pleas.  The insurer removed the case to the United States District Court for the Eastern District of Pennsylvania.  The parties filed cross motions for summary judgment.

The insured claims that the insurer’s representative did not believe the explanation of the loss given by her adjuster yet failed to use an expert to determine the cause of the loss.  She also argued that the insurer’s representative lacked evidence to confirm what he believed caused the damage, and denied coverage based on the policy’s exclusion, although he had no basis for his stated conclusion regarding the definition of surface water.

The court found the insured’s evidence was unsupported and insufficient to show bad faith.  The insurer’s representative investigated the claim by going to the insured’s home and spoke with the adjuster hired by the insured to determine the cause of the loss.  He accepted the representation of the loss given to him by the insured’s adjuster in an effort to find coverage for the insured. The insurer’s representative even discussed his investigation with his supervisor who agreed with him that the facts did not allow for coverage.

It is not bad faith to conduct a thorough investigation into a questionable claim.

Also, the insured provided no evidence that the insurer’s failure to employ an expert to determine the cause of loss rises to the level of bad faith.  At most the insurer erred in not engaging an expert to further examine the damage, but that mistake in judgment falls short of bad faith.

Therefore, since the evidence presented did not meet the clear and convincing standard for bad faith, the court granted the insurer’s motion for summary judgment on the insured’s bad faith claim.

Date of Decision: September 29, 2008

Rock-Epstein v. Allstate Ins. Co., No. 07-2917, 2008 U.S. Dist. LEXIS 76042 (E.D. Pa. Sept. 29, 2008)(Schiller, J.)

J.M.A.

NOVEMBER 2008 BAD FAITH CASES
INSURER’S SUMMARY JUDGMENT GRANTED WHERE INVESTIGATION AND DENIAL OF THE INSURED’S CLAIM FELL SHORT OF BAD FAITH (Philadelphia Federal)

A bad faith claim arose from the insurer’s denial of the insured’s claim after her home and personal belongings suffered water damage.  The insured had a homeowner’s policy with the insurer.  The policy provided for dwelling protection for “sudden and direct physical loss to the property” except as limited or excluded in the policy. The policy excluded losses to the property for flood, including but not limited to surface water……whether or not driven by wind.”

The policy also covered “sudden and accidental direct physical loss …except as limited or excluded in the policy” to personal property owned or used by the insured.  This personal property coverage included damage caused by windstorm or hail, except for “loss to covered property inside a building structure…..unless the wind or hail first damaged the roof or walls and the wind forces the rain, snow, sleet, sand, or dust through the damaged roof or wall.”

The insured suffered a covered loss to her home and personal property.  She hired a public adjuster to assist her in filing a claim under her policy.  The adjuster sent a letter to the insurer filing a claim and asserting that a windstorm caused the insured’s loss.  The insurer assigned the claim to a representative who went out and inspected the property with the insured’s adjuster.

At the inspection the insured’s adjuster told the representative that water had run off the roof on the spa cover and then splashed through a window that was left partially open.  The adjuster also told him that water had run off the roof settled on top of the spa and then wind blew it or it ran over and hit the ground and went through the window that was left open.  The insurer later denied the claim based on the exclusion in the policy for flood, including, but not limited to, surface water whether or not driven by wind.

The insured filed a complaint against the insurer for breach of contract and bad faith in the Philadelphia Court of Common Pleas.  The insurer removed the case to the United States District Court for the Eastern District of Pennsylvania.  The parties filed cross motions for summary judgment.

The insured claims that the insurer’s representative did not believe the explanation of the loss given by her adjuster yet failed to use an expert to determine the cause of the loss.  She also argued that the insurer’s representative lacked evidence to confirm what he believed caused the damage, and denied coverage based on the policy’s exclusion, although he had no basis for his stated conclusion regarding the definition of surface water.

The court found the insured’s evidence was lacking and insufficient to show bad faith.  The insurer’s representative investigated the claim by going to the insured’s home and spoke with the adjuster hired by the insured to determine the cause of the loss.  He accepted the representation of the loss given to him by the insured’s adjuster in an effort to find coverage for the insured. The insurer’s representative even discussed his investigation with his supervisor, who agreed with him that the facts did not allow for coverage.

It is not bad faith to conduct a thorough investigation into a questionable claim.  Further, the insured provided no evidence that the insurer’s failure to employ an expert to determine the cause of loss rises to the level of bad faith.  At most, the insurer erred in not engaging an expert to further examine the damage, but that mistake in judgment falls short of bad faith.

Therefore, since the evidence presented did not meet the clear and convincing standard for bad faith, the court granted the insurer’s motion for summary judgment on the insured’s bad faith claim.

Date of Decision: September 29, 2008

Rock-Epstein v. Allstate Ins. Co., No. 07-2917, 2008 U.S. Dist. LEXIS 76042 (E.D. Pa. Sept. 29, 2008)(Schiller, J.)

J.M.A.

NOVEMBER 2008 BAD FAITH CASES
BAD FAITH CLAIM DISMISSED DUE TO FAILURE TO PROVIDE SUFFICIENT EVIDENCE TO ESTABLISH THE CLAIM (Middle District)

A bad faith claim arose from the insurer’s alleged mishandling of the insured’s claim following a fire that destroyed the insured’s home.  The insured had a policy with the insurer which covered his dwelling, personal property, and additional living expenses.

After the fire, the insured’s daughter reported the fire to the insurer.  The insurer’s representative spoke to the insured and his daughter to gather information about the fire and conducted an inspection.  The insurer’s representative had meetings with the insured and his daughter to review the policy coverage, limits, terms, and conditions.

The insurer’s representative determined estimates for the dwelling, however, the insured did not agree with these estimates.  The insured demanded appraisal, but the insurer objected to the appraiser chosen by the insured because they felt he was not a disinterested independent appraiser.

The insured did not appoint another appraiser and just continued to send letters requesting the policy limit.  The insured did not hire a contractor or builder to commence rebuilding his home.

With regard to the personal property, the day after the fire the insurer’s representative met with the insured and his daughter and provided them with personal property inventory forms.  The insured did not provide a complete inventory list to the insurer within 60 days as the policy required.  The insured did provide a partial inventory list and the insurer did give the insured an advance amount of money while awaiting a complete inventory list from the insured.

With regard to the additional living expenses, the insured told the insurer that he wanted to stay with his daughter in her home.  The insured requested that the insurer provide a certain amount to his daughter each month since he was residing there,  yet the insurer felt this amount was unreasonable and refused to pay that amount.

The insured filed a multiple count complaint against the insurer including bad faith.  The insurer submitted a motion for partial summary judgment on the insured’s bad faith claim. The insurer argued that the insured failed to prove by clear and convincing evidence that the insurer acted in bad faith in the handling of the insured’s claims.

The insured argued that sufficient facts do exist to raise a genuine issue of material fact regarding whether the insurer acted by clear and convincing evidence in bad faith.  The insured pointed to various conduct of the insurer to support his claim including alleged failure to communicate, refusal to answer inquiries, and  denial of amounts requested and payments on personal property.

The court found that most of the alleged conduct attributed to the insurer by the insured either did not occur or blatantly contradicts the record.  The remaining conduct does not suggest bad faith.

The insured failed to establish that the insurer lacked a reasonable basis for denying benefits under the insured’s dwelling, personal property, or additional living expenses.

It is clear from the plain language of the policies, and supported further by the insurer’s investigation of  the claim, tender of payment, and extension of deadlines for payment under the policies even where the insured failed to satisfy those deadlines.  The insurer took immediate steps to resolve the claim. The insurer’s estimates and actions were reasonable and did not amount to bad faith.

The court held that the insured did not establish a bad faith claim against the insurer and granted the insurer’s partial summary judgment motion with regard to the bad faith claim.

Date of Decision: September 22, 2008

Littleton v. State Farm Fire & Cas. Co., U. S. District Court for the Middle District of Pennsyvlania, No. 07-1515, 2008 U.S. Dist. LEXIS 73278 (M.D. Pa. Sept. 22, 2008)(Rambo, J.)

J.M.A.

NOVEMBER 2008 BAD FAITH CASES
CONSEQUENTIAL DAMAGES AND EXPERT FEES NOT RECOVERABLE UNDER BAD FAITH STATUTE (Western District)

A bad faith claim arose from the insurer’s failure to defend and indemnify the insured in connection with a train derailment caused by a faulty railcar axle that the insured had manufactured.  The insured makes wheels and axles for the railway industry. A coal train derailed which caused substantial property damage. The insured subsequently investigated the cause of the derailment, and it concluded that the derailment was caused by the in-service failure of an axle which it improperly manufactured. The insured received a claim against them for damages.

The insured had a commercial general liability policy with the insurer and tendered the claim to the insurer.  The insured provided the insurer with substantial information regarding the derailment, including an internal report provided by an in-house expert.  The insurer informed the insured that it would grant their request with the understanding that the $750,000 Self Insured Retention (SIR) payment to the coal train company was not an admission of liability nor a final resolution of the claim.

Nearly a year after the derailment, the insurer sent the insured a letter acknowledging that the axle was defective, but denying any responsibility for the claim due to insufficient evidence of what role the axle played in the derailment.

After the denial of the claim the insured submitted additional information and asked the carrier to reconsider.  The insurer again denied the claim. After the insurer’s second denial, the insured advised the insurer that it would attempt to resolve the claim directly with the coal train company, reserving the right under the policy to be reimbursed for amounts it paid to resolve the claim. The insurer informed the insured that any payments it made in excess of its SIR would be deemed voluntary payments and not be reimbursed.

The insured filed a three count amended complaint for breach of contract, declaratory judgment, and bad faith.  The insured alleged that the insurer acted in bad faith by unreasonably denying its claim and attempting to leverage for its own benefit the commercial relationship between the insured and the coal train company customer.  The insured sought to recover consequential damages, interest, punitive damages, costs, attorney fees, and expert fees.

The insurer moved to dismiss the bad faith claim.

The insurer argued that there can be no claim for bad faith refusal to settle a third party claim where there is not an excess verdict and the insured settles a claim without the insurer’s consent in violation of the policy.  In the alternative, the insurer moved to dismiss or strike the insured’s demands for consequential damages and expert fees.

The court found that an excess verdict was not a condition precedent to a bad faith claim for failure to settle a third party claim.  There is no Pennsylvania case law or statutory text to support otherwise.  Also a bad faith claim focuses on the acts of the insurer and not the acts of the insured.  Therefore the insured’s allegations stated a viable bad faith claims and the court denied the insurer ’s motion to dismiss.

However the court did grant the insurer’s motion to dismiss or strike the insured’s demands for consequential damages and expert fees because the bad faith statute does not authorize these types of damages and fees to be awarded.  The Pennsylvania bad faith statute authorizes courts which find bad faith to award punitive damages, attorney’s fees, interest, and costs.

Since consequential damages and expert fees are not included, the court granted the insurer’s motion to dismiss or strike the insurer’s claim to recover these fees and damages.

Date of Decision: September 17, 2008

Std. Steel, LLC v. Nautilus Ins. Co., No. 08-195, 2008 U.S. Dist. LEXIS 71487 (W.D. Pa. Sept. 17, 2008) (Mitchell, U.S.M.J.)

J.M.A.

NOVEMBER 2008 BAD FAITH CASES
BAD FAITH CLAIM DISMISSED DUE TO LONG PERIOD OF INACTIVITY (Philadelphia)

A bad faith claim arose from an automobile accident in which plaintiff was a passenger in a car insured by the insurer defendant.   The insured had an auto insurance policy with the insurer.  The plaintiff made first party and Underinsured motorist (UM) claims against the insurer for her losses caused by the accident.  The insurer refused to pay these claims.  The plaintiff then brought suit against the insurer seeking the appointment of a neutral arbitrator and alleging that the insurer handled her insurance claims in bad faith.

The Judge stayed the case pending the outcome of arbitration and litigation of the plaintiff’s underlying claims in a related state court action.  However, the scheduled arbitration failed to occur because plaintiff did not pay the neutral arbitrator’s fee in advance as requested.  The plaintiff took no action subsequently to move her case forward in federal or state court for seven years.  The insurer then filed a motion to dismiss the claims as moot because of the plaintiff’s failure to prosecute any of her claims for over seven years.

The court found that given the long period of inactivity, the motion to dismiss should be granted.  The plaintiff had the burden of diligently pursing her claim if she was still interested in seeking damages. While the plaintiff did not take any positive steps to delay trial, she also did not take any steps to expedite trial.

The plaintiff’s inaction was sufficiently dilatory to dismiss the claims and this lengthy period of delay gave rise to a presumption of prejudice to the insurer.  While the delay by plaintiff may not have amounted to bad faith itself, it appeared willful and there was no other alternative sanction that was appropriate under these circumstances. It would be unusual for a  plaintiff  with a strong case to sit on her hands as long as the plaintiff did.  Therefore the court granted the insurer’s motion to dismiss the plaintiff’s claims.

Date of Decision: September 10, 2008

Herman v. Allstate Ins. Co., Philadelphia Court of Common Pleas, October Term 2007, No. 110, 2008 Phila. Ct. Com. Pl. LEXIS 213 (C.C.P. Philadelphia Sept. 10, 2008) (Keogh,J.)

J.M.A.

NOVEMBER 2008 BAD FAITH CASES
DISMISSAL GRANTED WHERE REINSURER AND THIRD PARTY ADMINISTRATOR NOT “INSURERS” FOR PURPOSES OF BAD FAITH STATUTE (Philadelphia Federal)

The insured filed a breach of contract and bad faith claim against his insurer, a reinsurer, and a third party administrator after his claim for total disability was denied.  The insured had a disability insurance policy issued by the insurer.  The insurer then contracted with another carrier for a 100% indemnity reinsurance agreement for the entirety of the insurer’s losses for its disability insurance policies.

The contract did not assign or delegate to the reinsurer any of the insurer’s obligations to the insured under his disability insurance policy.  The contract also did not expressly entitle the insured to recover directly from the reinsurer.

The insurer and reinsurer then retained a third party administrator for every disability insurance policy issued by the insurer, including the policy issued to the insured.  Like the reinsurer, the third party administrator did not directly assume any of the insurer’s obligations to the insured under his disability insurance policy.

Subsequently the insured was involved in a serious motor vehicle accident and began suffering from tinnitus.  He submitted a claim of total disability under his policy in March 2006.  The insurer failed to render a decision on the insured’s claim until April 4, 2008.  The insurer advised the insured that he was entitled to only residual disability benefits, not total disability benefits under the policy.

The insured alleged breach of contract and bad faith by the insurer, reinsurer, and third party administrator for failing to provide him with total disability benefits.  The insured alleged that defendants conduct in handling his insurance claim constituted a pattern of delay and harassment that entitles him to damages.

The reinsurer and third party administrator filed motions to dismiss the claims.  They alleged that the insured cannot bring breach of contract and bad faith  claims against them because they are not in privity of contract with the insured

For the bad faith claim, the court had to determine whether the reinsurer and third party administrator were “insurers” for purposes of the bad faith statute.  A party acts as an insurer when it issues policies, collects premiums and in exchange assumes certain risks and contractual obligations.  The insured argued that the reinsurer and third party administrator qualify as insurers under the definition provided by Pennsylvania law.

However, the court found that the reinsurer and third party administrator were never the insured’s insurers under the disability insurance policy sold by primary insurer to the insured.  Neither party issued the policy to the insured, collected premiums from the insured, and the parties did not have a contractual relationship with the insured directly.  The insurer did not assign or delegate any of their contractual obligations under its insurance contract with the insured to the reinsurer or the third party administrator.

Therefore the court granted the motion to dismiss the bad faith claims against the reinsurer and the third party administrator.

Date of Decision: September 16, 2008

Brand v. AXA Equitable Life Ins. Co., United States District Court for the Eastern District of Pennsylvania No. 08-2859, 2008 U.S. Dist. LEXIS 69661 (E.D. Pa. Sept. 16, 2008)(Bartle, C.J.),

J.M.A.