Monthly Archive for October, 2009

OCTOBER 2009 BAD FAITH CASES
PARTY DOES NOT STAND IN INSURER’S SHOES TO PROVIDE DEFENSE/INDEMNITY WHERE INSURER WILL NOT DO SO FOR ADDITIONAL INSURED (Philadelphia Federal)

In Detwiler v. Valero Marketing and Supply Company, one party was to make the other an additional insured on a policy.  It did so, but the insurance carrier refused to provide a defense to the additional insured because the insured was not a named party.  The Court observed that the insurer’s alleged bad faith in not providing a defense or coverage did not obligate the insured to step into the insurer’s shoes.

Date of Decision:  October 22, 2009

Detwiler v. Valero Marketing and Supply Company, U.S. District Court, Eastern District of Pennsylvania, CIVIL ACTION NO. 08-3495, 2009 U.S. Dist. LEXIS 98214 (E.D.Pa. Oct. 22, 2009) (Fullam, J.)

OCTOBER 2009 BAD FAITH CASES
PRO SE BAD FAITH CLAIM SURVIVES TWOMBLY/IQBAL STANDARD; CLAIMS CAN BE PURSUED TO DISCOVERY (Western District)

A pro se plaintiff brought breach of contract and bad faith claims.  The Court applied the new plausibility standards on a federal motion to dismiss, looking at whether the facts alleged raise a reasonable expectation that discovery will reveal evidence of the necessary elements, and, if, in view of the facts alleged, it can be reasonably conceived that the plaintiff could, upon a trial, establish a case that would entitle him to relief, the motion to dismiss should not be granted. It also gave a liberal construction in plaintiff’s favor because he was pro se.

The court concluded: “The terms of the contract, their meaning and the circumstances surrounding the claim are best determined after discovery has taken place. At that time, defendant may move for summary judgment, if appropriate. Defendant’s motion to dismiss plaintiff’s complaint will, therefore, be denied without prejudice.”

Date of Decision:  October 21, 2009

Cogley v. Allstate Ins. Co.,  U. S. District Court, Western District of Pennsylvania, No. 09-852, 2009 U.S. Dist. LEXIS 97468 (W.D.Pa. Oct. 21, 2009) (Lancaster, J.)

OCTOBER BAD FAITH CASES
INSURER DID NOT ACT IN BAD FAITH BY DENYING INSURED’S CLAIM FOR INJURY, WHICH DID NOT ARISE OUT OF THE USE OF THE VEHICLE (Middle District)

In McCleester v. State Farm Mutual Automobile Insurance Company, Plaintiff’s windshield was struck with a rock while he was driving.  The rock broke through the windshield and hit Plaintiff’s right arm, resulting in serious and permanent injury.  Plaintiff had an automobile insurance policy with State Farm that provided first party wage loss benefits in accordance with the Pennsylvania Motor Vehicle Financial Responsibility Law.

The terms of Plaintiff’s policy provided that income benefits would be paid “with respect to bodily injury to an insured arising out of the maintenance or use of a motor vehicle.”  The policy did not define “maintenance” or “use.”  Plaintiff made a claim for wage loss benefits, which State Farm denied stating the injury did not arise out of the maintenance or use of a motor vehicle, but instead, was caused by an intervening act committed by a third party.  Plaintiff sued State Farm for bad faith under 42 Pa. C.S.A. §8371.

The focus of the Court’s inquiry was whether the injury arose out of Plaintiff’s use of the vehicle.  The Court held that the vehicle must be more than merely incidental to the injury, and that it must be the instrumentality that caused the injury.  The Court found that Plaintiff’s injuries were not “vehicle-caused, but instead, were the result of the intentional and criminal act of a third-party.” Accordingly, the Court held that State Farm was not required to provide coverage and granted its motion for summary judgment.

Date of Decision: September 30, 2009

McCleester v. State Farm Mutual Automobile Insurance Company, U.S. District Court, Middle District of Pennsylvania, Civil Action No. 3:CV*08-0010, 2009 U.S. Dist. LEXIS 90345 (M.D. Pa. September 30, 2009)(Vanaskie, J.)

OCTOBER 2009 BAD FAITH CASES
BAD FAITH CLAIM PREEMPTED BY ERISA (Middle District)

In Hillard v. Prudential Insurance Company of America, after Prudential terminated Plaintiff’s short-term disability benefits, Plaintiff sued Prudential for enforcement of benefits under the Employee Retirement Income Security Act of 1974 (ERISA) and bad faith pursuant to 42 Pa. C.S.A. §8371. The Court granted Prudential’s motion for summary judgment on Plaintiff’s bad faith claim holding that a claim for bad faith under Pennsylvania state law is preempted by ERISA.

Date of Decision: September 18, 2009

Hillard v. Prudential Insurance Company of America, U.S. District Court, Middle District of Pennsylvania, Civil Action No. 3:08cv905, 2009 U.S. Dist. LEXIS 85753 (M.D. Pa. September 18, 2009)(Munley, J.)

OCTOBER BAD FAITH CASES
INSURER’S ASSIGNMENT OF SUBROGATION CLAIM NOT BAD FAITH (Middle District)

In Alfano v. State Farm Fire and Casualty Company, the insureds had a homeowner’s insurance policy through State Farm.  After their home was destroyed by an explosion, the insureds filed a claim with State Farm and the insurer paid the policy limits of $456,281.90.  The insureds claimed that this amount was insufficient to cover their entire loss, and filed a lawsuit against the utility company asserting it was liable for the destruction of their home.  State Farm had a subrogation claim for the $456,281.90 in the action for the benefits it had paid to the insureds.  State Farm settled the subrogation claim with the utility company for $250,000, or 50% of what it was worth, and assigned the subrogation claim to the utility company.

The insureds filed a lawsuit against State Farm asserting that the assignment of the subrogation claim was done in bad faith. The insureds averred that they had been damaged in the amount of $456,281.90, the amount of the subrogation claim.  The Court found that while it can be presumed that State Farm acted upon a motive of self interest when it assigned its subrogation rights, it did not appear that this assignment breached State Farm’s duty of good faith to the insureds. The Court found no case law that indicated that such an assignment could be interpreted as bad faith or that an insurer must wait until the insured has been made whole to assign subrogation rights to a third party.  Accordingly, the Court held that State Farm’s assignment of the subrogation rights did not amount to bad faith and dismissed the complaint.

Date of Decision: September 17, 2009

Alfano v. State Farm Fire and Casualty Company, U.S. District Court, Middle District of Pennsylvania, Civil Action No. 3:09cv77, 2009 U.S. Dist. LEXIS 57809 (M.D. Pa. September 17, 2009)(Munley, J.)

OCTOBER BAD FAITH CASES
INSURER MAY HAVE ACTED IN BAD FAITH WHEN IT FAILED TO ADVISE INSURED THAT CLAIMS WERE COVERED BY UM PROVISIONS OF POLICY (Philadelphia - Commerce)

In Harhai v. The Travelers Companies, Inc., Plaintiff sued Defendant claiming breach of contract, breach of fiduciary duty of good faith and fair dealing, and for bad faith under 42 Pa. C.S.A. §8371.  Plaintiff was a pedestrian who was struck by an unidentified vehicle in a hit and run accident.  Plaintiff sustained serious injuries resulting in a six-day hospital stay.  Plaintiff was insured by a commercial auto insurance policy issued by The insurer.  The policy provided no-fault Personal Injury Protection (“PIP”) up to $100,000 and Uninsured Motorist (“UM”) benefits in the amount of $350,000.  Plaintiff submitted a claim to the insurer for hospital and medical bills, wage loss and other economic costs stemming from the accident.  The insurer paid Plaintiff the policy’s PIP coverage; however, the PIP benefits did not cover all of Plaintiff’s expenses resulting from the accident.

The policy’s UM benefits would have compensated Plaintiff for the costs that exceeded the PIP coverage.  Despite several conversations concerning non-compensable costs under the PIP coverage, the insurer’ claim representative never advised Plaintiff of the additional UM coverage which would have paid these claims.  The insurer admitted that it had no reasonable basis for denying the additional benefits available under the UM provision of the policy when the PIP coverage had been depleted.

The Court found that the insurer actively deceived Plaintiff by advising him that certain claims were not fully covered under the policy when in fact Plaintiff’s claims were covered under the UM provisions of the policy. The Court held that the carrier’s actions may have been in bad faith and denied its motion for summary judgment as to Plaintiff’s claim of bad faith under §8371.  The Court held that in the first party context, there is no direct claim for a duty of good faith except for the statutory bad faith claim under 42 Pa. C.S.A. §8371.  The Court granted the insurer’ motion for summary judgment as to breach of contract and breach of fiduciary duty.

Date of Decision: July 27, 2009

Harhai v. The Travelers Companies, Inc., July Term 2008, No. 3747, Court of Common Pleas of Philadelphia County (C.C.P. Philadelphia)(Bernstein, J.) (Commerce Case Management Program)

OCTOBER BAD FAITH CASES
BAD FAITH CLAIM IS NOT PREEMPTED BY §1797 OF THE MVFRL IF THERE IS A DISPUTE REGARDING THE CAUSATION OF MEDICAL EXPENSES (Middle District)

In Martino v. Allstate Indemnity Company, Plaintiff was injured in December of 2003, when her vehicle was struck by a Greyhound bus.  Plaintiff was the beneficiary of an automobile policy of insurance issued by Allstate.  Following the accident, Plaintiff submitted a claim for first party medical benefits to Allstate, which began paying for her treatment.  Plaintiff had an anterior cervical discectomy in September of 2005 and continued to receive medical treatment, including treatment for a prescription pain medication dependence.  In August of 2006 and July of 2007, Allstate obtained peer review reports from two different doctors regarding Plaintiff’s continued treatment.  Both doctors concluded that none of Plaintiff’s treatment was reasonable or necessary.  The doctors’ reports were based in part on the lack of documentation for the December 2003 motor vehicle accident and the fact that there was no reason why Plaintiff would still require chiropractic care nearly four years after the accident.

Relying on these reports, Allstate stopped paying for Plaintiff’s treatment.  Plaintiff sued the insurer for bad faith under 42 Pa. C.S.A. §8371, specifically alleging that the peer review organization employed by Allstate provided biased peer review reports to Allstate, and that Allstate acted in bad faith in denying payment for medical treatment and prescriptions that were reasonable and necessary.  Allstate moved to dismiss the claim under Federal Rule of Civil Procedure 12(b)(6).

Allstate argued that a bad faith claim is effectively preempted by §1797 of the Pennsylvania Motor Vehicle Financial Responsibility Law (the “MVFRL”).  Section 1797 of the MVFRL set up a peer review plan by which an insurer could challenge the reasonableness and necessity of an insured’s treatment.  According to §1797(b), insurers were required to contract with a peer review organization (“PRO”) “for the purpose of confirming that such treatment, products, services or accommodations conform to the professional standards of performance and are medically necessary.”  Plaintiff argued that the doctors who performed the peer reviews made causation determinations, namely, that the injuries for which she was receiving treatment were not caused by the December 2003 accident.  Plaintiff argued that a causation determination falls outside the PRO process, and therefore §1797 would not preempt her bad faith claim.

The Court recognized that in certain circumstances §1797 of the MVFRL preempts a bad faith claim under 42 Pa. C.S.A. §8371.  However, the Court held that a bad faith claim is not preempted by §1797 when the allegations do not invoke the remedies and procedures in §1797(b), such as a dispute over whether a motor vehicle accident caused the medical expenses.  In these situations, courts have reconciled the two statutes and found bad faith claims supplement claims under §1797.  The Court found that the peer reports indicated that the doctors did not determine whether Plaintiff’s treatment was “reasonable and necessary,” but considered whether the treatment was for injuries related to her December 2003 accident.  The Court held that the doctors were considering Plaintiff’s care in relation to the injuries sustained as a result of the accident.  Additionally, the Court held that allegations of bias are not within the scope of §1797, and fall within §8371.  Accordingly, the Court denied Allstate’s motion to dismiss Plaintiff’s bad faith claim.

Date of Decision: September 22, 2009

Martino v. Allstate Indemnity Company, U.S. District Court, Middle District of Pennsylvania, Civil Action No. 08-1985, 2009 U.S. Dist. LEXIS 86612 (M.D. Pa. September 22, 2009) (Vanaskie, J.)