Monthly Archive for March, 2009

MARCH 2009 BAD FAITH CASES
BAD FAITH CLAIM DISMISSED BECAUSE A SURETY BOND IS NOT AN INSURANCE POLICY UNDER THE STATUTE (Middle District)

In United States ex rel. SimplexGrinnell, LP v. Aegis Insurance Company, the court dismissed a bad faith claim regarding failure to pay a surety bond because a surety bond is not an insurance policy, so it can not be the basis for a claim under the bad faith statute.

In this case, a subcontractor was never paid by the contractor for work completed so it applied for payment to the surety who had issued a bond.  When the surety denied payment, the subcontractor filed suit against the contractor and the surety and added a bad faith claim against the surety.  The court granted the surety’s motion to dismiss the bad faith claim.

The court held that, although the statute does not define “an action arising under an insurance policy,” it is generally understood that suretyship is not insurance.  It cited case law and legal treatises that explain the differences between a surety and an insurer (e.g., the instrument generated is for financial credit instead of indemnity and there is greater commercial sophistication of the parties involved in suretyship).  The court focused on how there is an indirect relationship between a surety and the party owed the money but there is a direct relationship between an insurer and its insured.  It also agreed with a prior court that allowing a bad faith claim against a surety would result in the surety having greater liability than its principal because the bad faith action could be brought against it but not against the principal (the contractor, in this case).

The court disagreed with two cases from the Eastern District of Pennsylvania because it felt they had accepted application of the statute to suretyship without analysis.  It, instead, agreed with other courts that addressed the legislative intent of the bad faith statute and found that the differences between surety bonds and insurance policies did not merit expanding the statute to include surety bonds.

Date of Decision:  January 14, 2009

United States ex rel. SimplexGrinnell, LP v. Aegis Ins. Co., No. 1:08-CV-01728, 2009 U.S. Dist. LEXIS 2381 (M.D. Pa. Jan. 14, 2009)(Rambo, J.)

MARCH 2009 BAD FAITH CASES
SUMMARY JUDGMENT ON BAD FAITH DENIED WITHOUT PREJUDICE AFTER COURT FINDS DUTY TO DEFEND ON SANCTIONS CASE DESPITE POLICY EXCLUSION OF SANCTIONS (Philadelphia Federal)

In Post v. St. Paul Travelers Insurance Company, the court denied the insurer’s motion for summary judgment on all counts, including the bad faith count, after it determined that the insurer had a duty to defend because the sanctions exclusion in the policy did not apply under the circumstances.

The insured attorney had filed for bad faith, among other counts, because his professional liability carrier denied him defense in a sanctions case.  That case had been joined by the insured’s former client who had previously notified him of the intention to file a malpractice case against him.  The insurer asserted it owed him no duty because his policy specifically excluded sanctions.

The court determined that the insurer did owe a duty to defend, based upon several factors.

First, a claim was established once the insurer received written notice of the former client’s intention to file for malpractice.

Second, the duty to defend was established because the malpractice claim was potentially covered under the policy.

Third, the duty to defend extended to the sanctions petition once the former client joined it because the petition then became “involved” in the claim under the policy language, and, as it was based on the same alleged facts as the malpractice, it created the potential for collateral estoppel (a judgment on issues in one legal action is binding on those same issues in any subsequent legal actions).

Fourth, even if it weren’t “involved,” defense of the sanctions petition would have been covered because: “sanctions” was not defined so it must be construed in favor of the insured; sanctions are understood to be brought by opposing counsel; former clients typically file for malpractice, not sanctions; the court must consider the alleged facts instead of the action pled when determining coverage; and the damages the former client was seeking under the sanctions petition were actually malpractice damages, which are covered under the policy.

Once the court established the insurer had a duty, the issue arose of whether the denial of coverage had been done in bad faith.  The court found there to be a genuine issue of material fact so it denied the insurer’s motion for summary judgment on the bad faith claim but without prejudice, allowing it to be raised later.

Conversely, the court also granted two parts of the insured’s partial motion for summary judgment: on breach of the insurance contract and for a declaratory judgment.

Date of Decision:  January 7, 2009

Post v. St. Paul Travelers Ins. Co., No. 06-CV-4587, 2009 U.S. Dist. LEXIS 641, 593 F. Supp. 2d 766 (E.D. Pa. Jan. 7, 2009)(Brody, J.)

The court later upheld its decision in a motion for reconsideration.

 

MARCH 2009 BAD FAITH CASES
EXPERT WITNESS TESTIMONY BARRED BECAUSE NOT RELEVANT TO REMAINING CLAIM FOR BAD FAITH (Philadelphia Federal)

In Aquila v. Nationwide Mutual Insurance Company, the court granted the insurer’s motions to preclude testimony at trial by two of the insured’s expert witnesses because the witnesses did not have any knowledge or experience relevant to the sole remaining issue of bad faith.

The witnesses had provided reports on how the motor vehicle in this case might have been stolen.  The court acknowledged that the witnesses might have the specialized knowledge required of expert witnesses but found their reports lacked the required reliability and relevancy to the bad faith claim, which is the sole remaining claim.

Date of Decision:  January 9, 2009

Aquila v. Nationwide Mut. Ins. Co., CIVIL ACTION No. 07-2696, 2009 U.S. Dist. LEXIS 1746 (E.D. Pa. Jan. 9, 2009)(Strawbridge, M.J.)

This case is addressed in later posts concerning claims handling and the ability to bring a claim.

MARCH 2009 BAD FAITH CASES
NO BAD FAITH WHERE NO DUTY TO DEFEND FOR BREACH OF IMPLIED WARRANTY OF HABITABILITY; SUCH BREACH IS NOT PROPERTY DAMAGE UNDER HOMEOWNER’S POLICY (Third Circuit)

In Prudential Property and Casualty Insurance Company v. Boyle, the court affirmed the lower court’s summary judgment for the insurer, concurring that there was no duty to defend or indemnify the insured in an underlying case for breach of an implied warranty of habitability and, therefore, no bad faith.

This case involves an underlying case against the insured for several claims, including breach of the implied warranty of habitability relating to the poor condition of the house they sold.  The insurer denied a defense under the homeowners’ policy and filed this case for a declaratory judgment on the matter, prompting the insured to file for breach of contract and bad faith.

The court agreed with the lower court’s determination that the underlying case did not trigger coverage under the policy because a claim for breach of the implied warranty of habitability is not for property damage caused by a loss; it is, instead, for an economic loss arising from the contract of sale.  Without coverage, there is no duty to defend or indemnify and, without  such a duty there can be no bad faith.

Date of Decision:  December 31, 2008

Prudential Prop. & Cas. Ins. Co. v. Boyle, CIVIL ACTION No. 07-3930, 2008 U.S. App. LEXIS 26984 (3d Cir. Dec. 31, 2008)(Tashima, J., sitting by designation from 9th Circuit)

MARCH 2009 BAD FAITH CASES
MOTION TO AMEND DENIED ON PRIOR DISMISSED BAD FAITH CLAIM INADVERTANTLY LEFT IN PROPOSED AMENDED COMPLAINT, BUT OTHER COUNTS TO CONTINUE (Middle District)

In Indianapolis Life Insurance Company v. Hentz, the court, in relevant part, agreed that the insured’s proposed amended complaint, as written, would resurrect previously dismissed claims, including one for bad faith.  This would put it in violation of Local Rule 15.1 that requires a complaint to be complete in itself.

Based upon the actual motion to amend, however, it was not the insured’s intent to resurrect these claims.  The court determined that violating this local rule was insufficient reason to deny the motion entirely so it denied the motion to amend only on the previously dismissed claims and their respective allegations that were inadvertently left in the complaint.

Date of Decision:  Jan. 6, 2009

Indianapolis Life Ins. Co. v. Hentz, CIVIL ACTION No. 1:06-CV-2152, 2009 U.S. Dist. LEXIS 618 (M.D. Pa. Jan. 6, 2009)(Kane, C.J.)

MARCH 2009 BAD FAITH CASES
COURT APPLIES REQUIRED OBJECTIVE TEST: NO BAD FAITH IF REASONABLE BASIS EXISTS, EVEN IF NOT BASIS RELIED UPON BY INSURER IN DENYING CLAIM (Philadelphia Federal)

In Robbins v. Metropolitan Life Insurance Company of Connecticut, the court granted the insurer’s motion for judgment on the pleadings on all three counts of breach of contract, violation of the consumer protection law, and statutory bad faith, finding no contractual duty to pay and insufficient facts to support the allegations.  In adjudicating the bad faith claim, the court specified that it must apply an objective test to determine if a reasonable basis for claim denial exists and there is no bad faith when one does exist, even if that is not the actual basis relied upon by the insurer.  The court found its own determination of no contractual duty to be the reasonable basis and granted the judgment.

This case was brought by beneficiaries of three life insurance policies issued for a single decedent.  Two of the policies had a rider that increased the stated amount of the policy annually on the policy’s anniversary date but the insured passed away before that date.  The insurer paid the stated amounts plus interest within four months of the claim, after conducting a contestability review according to the policy terms, but the beneficiaries demanded payment at the increased amounts and for accrued interest.  The insurer initially did not recognize the riders existed and stated it was confused by the acronym used (the policies were issued by another company that the current insurer had purchased), but subsequently denied the additional payments because the insured died before the anniversary dates.  The insurer moved for judgment on the pleadings for all three counts.

The court’s bad faith adjudication referred to part of its breach of contract findings.  In the contract claim, the beneficiaries had asserted that the policy did not terminate until the insurer paid, which occurred after the anniversary date, so they were entitled to the increased amounts from the riders.  Although the court agreed that there was no clear policy language on when the policy terminated, it determined that policy language did refer to the time of death and that the general purpose of life insurance implies that the policy terminates upon the insured’s death.  The annual increases, therefore, had not accrued so the insurer could not have breached on this basis.

In adjudicating the bad faith count, the court stated that there was a reasonable basis for denying the payment of the rider increase because the court had found, under the breach of contract count, that the contract did not require this payment.  The court explained that an objective test must be applied, so bad faith has not occurred when there is a reasonable basis for claim denial even if that is not the basis upon which the insurer relied.  The court considered the four-month delay and the insurer’s alleged lack of knowledge of the riders, but stated that even if they would otherwise amount to evidence of bad faith, they could not here because they related to the rider denial that the court already determined was reasonable.  The beneficiaries had not asserted that any other benefits were denied in bad faith, so the court granted judgment on the pleadings for the bad faith claim.  The consumer protection count was similarly dismissed based on no duty to pay and insufficient facts to support the allegations.

Date of Decision:  December 29, 2008

Robbins v. Metro. Life Ins. Co., CIVIL ACTION No. 08-0191, 2008 U.S. Dist. LEXIS 104902 (E.D. Pa. Dec. 29, 2008) (Baylson, J.)

MARCH 2009 BAD FAITH CASES
MOTION TO STAY DISCOVERY, PENDING RESOLUTION OF MOTION TO DISMISS BAD FAITH COMPLAINT, IS GRANTED BASED ON BALANCING TEST RESULTS (Middle District)

In Babalola v. Donegal Mutual Insurance Company, the court granted the insurer’s motion to stay discovery, pending resolution of its motion to dismiss the bad faith allegations in the insured’s amended complaint.  The court conducted a balancing test.

The insured’s original complaint alleged bad faith for failure to defend under his homeowner’s insurance policy, but the court found that the underlying case for negligence and negligent infliction of emotional distress was not covered under the policy’s bodily injury clause.  The insured amended his complaint, and the insurer moved for its dismissal and to stay discovery pending resolution of that motion.

The court conducted a balancing test, weighing the harm to the insured against the benefits of granting the stay.  It considered the following.  First, no additional discovery was needed on the contract interpretation issues raised in the motion.  Second, the insured did not cite authority for opposing the motion.  Third, the insured’s only alleged harm or prejudice was delay, which the court found could only minimally prejudice the insured at this point and might, instead, streamline the subsequent process.  Fourth, the fact that the court denied a similar motion on the original complaint did not control the disposition of this motion.  The court found the balance weighed in favor of the stay and granted it.

Date of Decision:  December 18, 2008

Babalola v. Donegal Mut. Ins. Co., CIVIL ACTION No. 1:08-CV-621, 2008 U.S. Dist. LEXIS 102517 (M.D. Pa. Dec. 18, 2008)(Kane, C. J.)

MARCH 2009 BAD FAITH CASE
THIRD CIRCUIT APPLIES LODESTAR METHOD TO CALCULATING STATUORY ATTORNEYS FEES; UPHOLDS INTEREST FINDING(Third Circuit)

In a non-precedential Third Circuit Opinion, Jurinko v. The Medical Protective Company, the case involved the assignment of a bad faith claims to the patients of the insured doctor.  The case had gone to trial, and the insureds had obtained an excess verdict against the doctor for medical malpractice, and he assigned his claims against the carrier in lieu of making the excess payment.  On the assigned claims against the insurer, the patients received a jury verdict of $1,658, 345 and punitive damages of $6,250,000.  The trial court upheld the jury award, and then molded the verdict concerning attorney’s fees, costs and interest.

The case’s factual history reveals a story of settlement recommendations by judges, and the doctor’s own defense counsel (appointed by the carrier), that far exceeded anything the carrier was willing to pay toward settlement; and in fact, throughout the course of settlement discussions and recommendations, the carrier’s offer to contribute toward a settlement never rose above $50,000 (on a $200,000 policy), and where the insured’s potential exposure was evaluated by the judges and/or defense counsel at numbers between $750,000 and $2,000,000.  The doctor himself had wanted to settle.

Astonishingly, the carrier’s own adjuster testified that he acted unreasonably and irresponsibly in settlement negotiations” and that he denied the doctor an effective defense by appointing the same lawyer to represent that doctor, and a co-defendant doctor (against whom plaintiffs asserted crossclaims should have been asserted, but could not be because of a conflict).  Counsel denied that the purported conflict had any real effect, as there eventually was separate counsel and he could argue reliance on the other doctor at trial.

The bad faith aspect of the claim is discussed elsewhere on this site

The trial court found that there was at least a partial agreement as to any interest award on the jury verdict, which amounted to less than the prime plus 3% permitted under the Bad Faith Statute; but also apportioned part of the interest at that higher rate to make the insured doctor whole.  The Third Circuit upheld this finding.

The statute also permits the recovery of attorneys’ fees.  The Jurinkos sought $2,372,503.50 in attorneys’ fees — thirty  percent of the verdict, i.e., they wanted application of a contingent fee measure of fees, instead of application of the lodestar method of calculating fees.  The Court rejected that effort.  It looked to Pennsylvania Rule of Civil Procedure 1716 which provides that a court awarding attorneys’ fees must consider (1)  the time and effort the attorneys reasonably expended; (2) the quality of the services rendered; (3) the results achieved and benefits conferred on the class or the public; (4) the magnitude, complexity and uniqueness of the litigation and (5) whether the receipt of a fee was contingent on success.  The Court found the lodestar method more appropriate than a percentage of recovery method, as the statute is a fee shifting statute.  This is consistent with the Pennsylvania intermediate appellate court approach as well.

Date of Decision:  December 24, 2008

Jurinko v. The Medical Protective Company, Nos. 06-3519 & 06-3666, 2008 U.S. App. LEXIS 26263 (3d Cir. December 24, 2008) (Scirica, J.)

MARCH 2009 BAD FAITH CASE
THIRD CIRCUIT REDUCES PUNITIVE DAMAGES AWARD TO 1:1 RATIO(Third Circuit)

In a non-precedential Third Circuit Opinion, Jurinko v. The Medical Protective Company, the case involved the assignment of a bad faith claims to the patients of the insured doctor.  The case had gone to trial, and the insureds had obtained an excess verdict against the doctor for medical malpractice, and he assigned his claims against the carrier in lieu of making the excess payment.  On the assigned claims against the insurer, the patients received a jury verdict of $1,658, 345 and punitive damages of $6,250,000.  The trial court upheld the jury award, and then molded the verdict concerning attorney’s fees, costs and interest.

The case’s factual history reveals a story of settlement recommendations by judges, and the doctor’s own defense counsel (appointed by the carrier), that far exceeded anything the carrier was willing to pay toward settlement; and in fact, throughout the course of settlement discussions and recommendations, the carrier’s offer to contribute toward a settlement never rose above $50,000 (on a $200,000 policy), and where the insured’s potential exposure was evaluated by the judges and/or defense counsel at numbers between $750,000 and $2,000,000.  The doctor himself had wanted to settle.

Astonishingly, the carrier’s own adjuster testified that he acted unreasonably and irresponsibly in settlement negotiations” and that he denied the doctor an effective defense by appointing the same lawyer to represent that doctor, and a co-defendant doctor (against whom plaintiffs asserted crossclaims should have been asserted, but could not be because of a conflict).  Counsel denied that the purported conflict had any real effect, as there eventually was separate counsel and he could argue reliance on the other doctor at trial.

The bad faith aspect of the claim is discussed elsewhere on this site.

On the issue of punitive damages, the court first found that the insurer’s conduct was sufficiently outrageous to support the jury’s conclusion of outrageous conduct warranting punitive damages.  Next, the Court conducted a constitutional analysis of the punitive damage award, following the U.S. Supreme Court’s three guideposts in State Farm v. Campbell of the “(1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential  harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the [factfinder] and the civil penalties authorized or imposed in comparable cases.”

Reprehensibility is measured “by considering whether the harm caused was physical as opposed to economic; the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident.” There was no issue of physical harm or health issues.  There was evidence of the insured doctor’s financial vulnerability, and recidivist behavior solely by reference to repeated bad conduct in the case at hand, which has less force than if the recidivism involves other parties, and only amounted to minimal evidence of reprehensibility.  The conduct was intentional.

In evaluating the punitive damages ratio compared to compensatory damages, the Court measured it as 3.13:1 and not over 6:1, because it included attorneys’ fees and costs into the compensatory damage number.  It looked to the U.S. Supreme Court principles that the ratio should seldom be more than single digits, that an award beyond 4:1 may push the limit and a substantial compensatory damage award reduces the need for a higher punitive damage award, where a matching sum may reach the constitutional limit.  The Court then cited a series of cases with substantial compensatory damage awards where the 1:1 ratio was found most appropriate, and found that the guideposts favored a reduced award.  Finally, the relevant civil penalties under the Unfair Insurance Practices Act also militated against the size of the award.  It reduced the punitives award to a 1:1 ratio.

Date of Decision:  December 24, 2008

Jurinko v. The Medical Protective Company, Nos. 06-3519 & 06-3666, 2008 U.S. App. LEXIS 26263 (3d Cir. December 24, 2008) (Scirica, J.)

MARCH 2009 BAD FAITH CASES
BAD FAITH CASE REMANDED TO COUNTY COURT: AMOUNT SPECIFIED IN COMPLAINT DID NOT MEET AMOUNT IN CONTROVERSY REQUIREMENT (Philadelphia Federal)

In Bowman v. Liberty Mutual Fire Insurance Company, the court remanded the case to the Philadelphia County Court of Common Pleas because the amount in controversy stated in the complaint was not greater than $75,000, as required for diversity jurisdiction.

The insured filed in county court for breach of contract and bad faith in denying and handling his claim.  The insurer removed the case to federal court under diversity jurisdiction and argued that the amount in controversy requirement could be met by a jury awarding the punitive damages being sought in the bad faith claim.  The court disagreed, stating that the insurer offered only conjecture whereas the insured’s complaint specified he was seeking less than $50,000, including the punitive damages.  The amount in controversy requirement was, therefore, not met and the case was remanded.

Date of Decision:  December 19, 2008

Bowman v. Liberty Mut. Fire Ins. Co., CIVIL ACTION No. 08-5428, 2008 U.S. Dist. LEXIS 103264 (E.D. Pa. Dec. 19, 2008)(Pratter, J.)