Monthly Archive for May, 2010

May 2010 BAD FAITH CASES
NO POSSIBILITY OF BAD FAITH WITH DECISIONS OCCURRING AFTER AN INSURER’S OBLIGATIONS UNDER A POLICY HAVE ENDED (Middle District)

In Morrison v. Wells Fargo Bank, N.A., the plaintiff Morrison shared a first and last name with another resident of the same town, James Eugene Morrison.  James Eugene Morrison signed a mortgage for his house, which was assigned to Wells Fargo.  Wells Fargo eventually filed a mortgage foreclosure action against James Eugene Morrison, but it incorrectly attached the plaintiff’s property to the action.  The plaintiff eventually subdivided his land, but he was unable to sell one of the lots at full value and could not borrow money against his land due to “the cloud upon the title to the land” created by the incorrect assignment of plaintiff’s property to James Eugene Morrison’s mortgage.

Plaintiff sued Wells Fargo, which subsequently filed a third party complaint against Stewart Title Guaranty Company.  An agent of Stewart Title had served as the settlement agent for the transaction where James Eugene Morrison entered into the mortgage, and the agent had incorrectly identified plaintiff’s property as belonging to James Eugene Morrison.  Stewart Title had then issued a Loan Title Insurance policy, affording title insurance to Wells Fargo against liability.

Stewart Title at first appointed counsel to defend Wells Fargo with regard to the original complaint by plaintiff, but eventually it notified Wells Fargo that it would no longer continue to defend Wells Fargo because its liability was cut off once the mortgage was fully satisfied.  One of the counts in Wells Fargo’s third-party complaint against Stewart Title alleged bad faith when Stewart Title refused to continue to defend Wells Fargo.

In addressing the bad faith claim, the court used its prior conclusion that Stewart Title’s obligations under the policy had indeed terminated once the mortgage was paid in full to hold that there was no possibility of bad faith on the part of Stewart Title.  It was impossible to act in bad faith if the company had no contractual obligation to Wells Fargo at the time.

Date of Decision: May 10, 2010

Morrison v. Wells Fargo Bank, N.A., Civil Action No. 1:09-CV-0324, 711 F. Supp. 2d 369, United States District Court for the Middle District of Pennsylvania, 2010 U.S. Dist. LEXIS 45312, (M.D. Pa. May 10, 2010) (Smyser, J.).

May 2010 BAD FAITH CASES
NO BAD FAITH WHEN INSURERS REASONABLY BELIEVE THEY ARE VALIDLY DENYING A CLAIM BASED ON A POLICY EXCLUSION (Philadelphia Federal)

In Kao v. Markel Insurance Company, the insureds owned adjacent multi-unit properties in South Philadelphia.  The properties contained commercial units on the first floor and a total of six residential apartments on the second third floors.  The insureds purchased an insurance policy with the insurers.  The policy contained a “Government Acts Exclusion” that relieved the insurers of obligations to pay for “loss or damage caused directly or indirectly by . . . seizure or destruction of property by Order of Governmental Authority.”

One day, police forcibly entered the insureds’ property with a search warrant, as they had reason to believe one of the tenants was selling drugs from his apartment.  The searches caused damage to the doors of all six residential apartments and one of the first floor offices.  After the insureds made a claim, the insurance adjuster told the insurers that the police search was the reason for the damages.  The insurers then denied coverage under the Government Acts Exclusion before obtaining a copy of the warrant or police report.

While the breach of contract claim survived summary judgment, the bad faith claim did not.  The court noted that there is a high standard for showing bad faith, and the insurers’ interpretation of the exclusion was “not devoid of a reasonable basis.”  At worst, the insurers were negligent in failing to wait to receive a copy of the warrant and/or police report before denying coverage, but there was no knowledgeable lack of a reasonable basis for denying the insureds’ claim.  Therefore, the court granted summary judgment to the insurers with respect to the bad faith claim.

Date of Decision: April 12, 2010

Kao v. Markel Ins. Co., Civil Action No. 09-CV-3249, United States District Court for the Eastern District of Pennsylvania, 708 F. Supp. 2d 472, 2010 U.S. Dist. LEXIS 40400 (E.D. Pa. Apr. 12, 2010) (Brody, J.).

May 2010 BAD FAITH CASES
BAD FAITH CLAIM SURVIVES MOTION TO DISMISS, SETTLEMENT OFFER BY THE INSURER ALLEGED TO BE SIGNIFICANTLY LOWER THAN ACCEPTABLE (Philadelphia Federal)

In Taylor v. Government Employees Insurance Company, the insured was driving when a man in another vehicle struck her vehicle, causing her multiple injuries (some of which may be permanent).  The driver of the vehicle who hit the insured carried an insurance policy that limited bodily injury liability protection to $50,000, which was far less than the amount for the injuries suffered by the insured.  The insured demanded $100,000 from the defendant, her insurer, under her own insurance policy that provided $100,000 in underinsured motorist coverage.  The insurer had not paid the insured, as it had only offered $15,000 as a settlement.  The insured sued for breach of the insurance policy and bad faith, and the insurer filed a Motion to Dismiss both claims.

With respect to the bad faith claim, the court determined that the complaint alleged that the insured’s injuries were numerous and severe and that the insurer failed to act or acted unreasonably.  Therefore, a jury could reasonably infer that the insurer did not have a reasonable basis for offering only $15,000 out of the $100,000 of insurance coverage, and therefore the court denied the insurer’s Motion to Dismiss the bad faith claim.

Date of Decision: April 29, 2010

Taylor v. Gov’t Employees Ins. Co., Civil Action No. 10-914, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 39708, (E.D. Pa. Apr. 29, 2010) (Padova, J.).

May 2010 BAD FAITH CASES
A BAD FAITH CLAIM CAN ONLY BE BROUGHT AGAINST AN INSURER, NOT AN INSURANCE ADJUSTER (Western District)

In Allegrino v. Conway E & S, Inc., the insured was the primary stockholder and president of Liberty, a company that owned a rental apartment building.  Liberty was a policyholder of two insurance policies that provided coverage for commercial, building and personal property for the building.  Between late 2007 and 2009, the insured asserted that he incurred significant losses due to vandalism, windstorms, and the demolition of the property adjacent to the apartment building.

The insured promptly filed claims against the policies with the various insurers, but he claimed that the insurers had not adjusted these claims.  He filed a suit containing 11 claims against 11 defendants.  One of the claims pled a cause of action for bad faith under 42 Pa. C.S. § 8371, asserting that defendants had no reasonable basis for delaying payments on his claims.

One of the defendants, an investigative claim service, filed a Motion to Dismiss the claims against it, and the court addressed this motion.  In addressing the bad faith claim, the judge noted that a claim for bad faith under 42 Pa. C.S. § 8371 can only be brought against an insurer, not an insurance adjuster.  In determining who is an insurer, courts have focused on (1) the extent to which the company was identified as the insurer on the policy documents, and (2) the extent to which the company acted as an insurer.

After evaluating these factors, the court held that the insured had not set out an actionable claim that the defendant had issued the insurance policies, assumed any risks or contractual obligations under the policies, or was licensed to conduct insurance business in Pennsylvania.  Therefore, the insured’s bad faith claim against the adjuster defendant was dismissed.

Date of Decision: April 26, 2010

Allegrino v. Conway E & S, Inc., United States District Court for the Western District of Pennsylvania No. 9-1507, 2010 U.S. Dist. LEXIS 43859 (W.D. Pa. Apr. 26, 2010) (Fischer, J.).

May 2010 BAD FAITH CASES
BAD FAITH SUBSUMED BY BREACH OF CONTRACT CLAIM (Philadelphia Federal)

In Fingles v. Continental Casualty Company, the insured had signed a long-term care insurance policy with the insurer in 1996.  On September 10, 2003, the insured suffered brain damage while undergoing triple bypass surgery.  After receiving treatment at a rehabilitation facility, the insured required in-home care.  Once the insurer denied the insured’s request for payment for a nursing assistant because the assistant was not affiliated with a licensed home care agency, the insured moved to an assisted living facility on July 15, 2004.

The insured unsuccessfully submitted two more claims to the insurer.  He was first denied in late 2004 because some necessary forms were missing.  His next application, sent in May 2005, was denied in December 2005 because the insurer claimed that the insured’s coverage had been terminated almost two years earlier due to a missed premium payment.  The insurer had given no notice of the termination of coverage to that point, but it said that the insured could reinstate the policy if he paid the past-due amount.

The insured passed away on January 7, 2006, and the plaintiff submitted the past-due amount ten days later.  The insurer only issued a partial payment on the claim, and plaintiff sued to recover the remaining amount.

One of the counts of the lawsuit alleged a common law insurance bad faith infraction separate from the breach of contract count.  The court dismissed this count, ruling that the count alleging a breach of contract includes any bad faith insurance claim.  The judge did not rule at this time whether there was in fact bad faith on the part of the insurer; he simply merged the two claims into one breach of contract claim that includes a bad faith allegation within it.

Date of Decision: April 28, 2010

Fingles v. Cont’l Cas. Co., Civil Action No. 08-05943, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 41643 (E.D. Pa Apr. 28, 2010) (O’Neill, Jr., J.).

May 2010 BAD FAITH CASES
NO BAD FAITH BECAUSE INSURER PROVIDED COVERAGE CONSISTENT WITH THE INSURANCE POLICY (Philadelphia Federal)

In Whitmoyer Ford, Inc. vs. Republic Franklin Insurance Company, the court considered summary judgment motions by each party in a dispute concerning the insurer’s fulfillment of its coverage obligations.  The insureds purchased a commercial insurance policy to cover their automobile lots.  The policy took effect on March 19, 2009, and the inventory was recorded for the purpose of determining the amount of coverage on March 7, 2009.  The lots suffered damages in a hail storm on March 29, 2009, and by that date the inventory had increased in value by over $250,000 since March 7.  The insureds sued because the insurer declined to pay over $50,000 of the reported losses after applying a “co-insurance” penalty provision from the policy.

The insureds had the option of choosing between two premium bases for its coverage.  They could choose a “reporting” premium basis, where it would have to submit quarterly or monthly reports to the insurer that detailed the value of the covered automobiles and the insurer would then calculate premiums pro rata based on these reports.  The other option was a “non-reporting” premium basis, where the premiums do not change based on the inventory, but a stated limit of insurance was applied to its policy.

The insureds chose the non-reporting premium basis, and the contract stated that under this option, “if, when ‘loss’ occurs, the total value of your covered ‘autos’ exceeds the Limit of Insurance shown in the Declarations, we will pay only a percentage of what we would be otherwise obligated to pay. We will determine this percentage by dividing the limit by the total values you actually had when ‘loss’ occurred.”

The court held that the insurer clearly followed the terms of the policy, and if the insureds wanted to increase their level of coverage, they should have selected the reporting premium basis and thus agreed to pay premiums that were calculated pro rata.  Because the insurer did not display a frivolous or unfounded refusal to pay proceeds of the policy and did not exhibit a dishonest purpose, there was no possibility of bad faith, and the court granted summary judgment for the insurer.

Date of Decision: April 1, 2010

Whitmoyer Ford, Inc. v. Republic Franklin Ins. Co., Civil Action No. 09-CV-034752010, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 32607 (E.D. Pa Apr. 1, 2010) (Golden, J.).

May 2010 BAD FAITH CASES
NO BAD FAITH WHEN COVERAGE DENIED EVEN IF THERE WAS AN ALLEGED FAILURE TO SEARCH FOR PRECEDENT ON LEGAL BASIS OF DENIAL (Philadelphia Federal)

In Colella v. State Farm Fire & Casualty Company, the insureds sued their insurance company for (1) breach of contract and (2) bad faith.  They suffered a physical loss to their house, as a drain line underneath one of the rooms had leaked and caused water damage to the walls and carpet in the basement.  The insurer covered the house under an all-risk insurance policy, and upon the insureds reporting their initial claim, the insurer’s representative retained a plumber to inspect the damage.  The plumber discovered that the leak was somewhere in the pipe below the concrete slab underneath the house.

Language in the insurance policy excluded from coverage certain losses resulting from water damage from water below the surface or ground.  Therefore, the insurer denied the insureds coverage, and the insureds sued.

The Court found for the carrier on the breach of contract claim, holding that the claim was subject to the policy exclusion as it did not matter under the policy whether the water at issue was natural ground water or from some other source.

As to the bad faith claim, even though coverage was excluded, the Court still performed a bad faith analysis.  The insureds claimed that in failing to pay for the loss, the carrier misrepresented the language and intent of the water damage exclusion, and deviated from industry standards, among other things.  The insureds argued that the carrier ignored established case law and apparently failed to conduct an adequate search for legal precedent.

Under Terletsky v. Prudential Property and Casualty Insurance Co., in order to recover for a bad faith claim, a plaintiff must show: (1) that the defendant did not have a reasonable basis for denying benefits under the policy; and (2) that the defendant knew or recklessly disregarded its lack of reasonable basis in denying the claim.  The District Court granted the insurer’s summary judgment motion because the insureds failed to show any evidence of bad faith.

There was no case law directly on point covering the facts at issue that supported the insureds’ position, and the putative failure to conduct a legal search for precedent before denying the claim was at most negligent, which does give rise to a bad faith claim.  There was no frivolous or unfounded refusal to provide coverage, and therefore there was no bad faith in this case.

Date of Decision: March 30, 2010

Colella v. State Farm Fire & Cas. Co., Civil Action No. 09-cv-2221, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 31895  (E.D. Pa Mar. 2010) (Joyner, J.).

May 2010 BAD FAITH CASES
A DENIAL OF A MOTION TO SEVER OR STAY IN A BAD FAITH CASE IS NOT IMMEDIATELY APPEALABLE (Allegheny County)

In Vernon v. Erie Insurance Exchange, the insureds were injured in an automobile accident on June 23, 2007, when they were passengers in a vehicle that was struck by another automobile.  On May 29, 2008, they filed a civil lawsuit, alleging (1) a breach of contract for failure to pay benefits under their Underinsured Motorist Policy (“UIM”) coverage, (2) bad faith for failure to make a reasonable effort to settle the case, and (3) loss of consortium.

After pleadings were closed, the case was scheduled for trial on September 15, 2009. On May 29, 2009, the parties appeared before court on the insureds’ Motion to Compel and the insurer’s Motion to Bifurcate the breach of contract and bad faith claims. On June 1, 2009, Judge Strassburger denied the insureds’ Motion to Compel without prejudice and denied the insurer’s Motion to Bifurcate, ruling that “the bad faith claim will be tried immediately upon the UIM case being sent to the jury, or on the scheduled trial date if the UIM case is settled, unless Plaintiffs within 20 days of this Order file a Motion to Bifurcate.”

On July 1, 2009, the insurer filed a Notice of Appeal to the Superior Court from Judge Strassburger’s June 1, 2009 order denying its Motion to Bifurcate.  As required by Pennsylvania’s appellate rules, Judge Strassburger issued an opinion explaining her decision.

In addressing the appeal, Judge Strassburger compared this case to Gunn v. Automobile Insurance Company of Hartford, where the Superior Court held that the trial court’s denial of the defendant’s motion to Sever and Stay a Statutory Bad Faith claim did not qualify as an appealable collateral order, and recommended that the Superior Court should quash that appeal.

The Superior Court’s decision in Gunn is summarized elsewhere on this Blog.
Because the underlying motions in Gunn and Vernon were the same, Judge Strassburger opined that the appeal was not from a collateral order, was interlocutory and should be quashed.

Date of Decision: August 3, 2009

Vernon v. Erie Ins. Exc., GD 08-10406, Common Pleas Court of Allegheny County, Pennsylvania, 2009 Pa. Dist. & Cnty. Dec. LEXIS 220 (Pa.. Aug. 3, 2009) (Strassburger, J.).

MAY 2010 BAD FAITH CASES
NO BAD FAITH WHERE INSURER DENIED UIM BENEFITS PURSUANT TO A “REGULAR USE” EXCLUSION (Middle District)

In Costello v. Government Employees Insurance Company, the court considered the insurer’s motion for judgment on the pleadings with respect to the insured’s underinsured motorist insurance (“UIM”) coverage and bad faith action.  The insured had a private automobile insurance policy with the insurance carrier, which included UIM coverage of $100,000.00.  On February 22, 2007, the insured was seriously injured in a car accident while driving a vehicle owned by the Commonwealth of Pennsylvania within the scope and course of his employment with the Commonwealth.

On October 22, 2007, the insured notified the insurer of his accident.  The insurer processed the insured’s first party benefit claim and began paying medical and wage loss benefits arising out of the accident.  On October 17, 2007, the insured’s counsel notified the insurer of an underinsured motorist claim and requested a copy of the insurance policy.  On November 12, 2007, the insurer provided the requested materials and raised the possibility of a “regular use” exclusion that could defeat the insured’s UIM claim.  Beginning in December 2007, the insured’s counsel repeatedly requested the insurer to provide the policy language that established the regular use exclusion.  Finally, on March 6, 2008, the insurer directed the insured’s counsel to the policy language containing the exclusion.  The policy contained an exclusion from UIM coverage “[w]hen using a motor vehicle furnished for the regular use of you, your spouse, or a relative who resides in your household, which is not insured under this policy.”

Between March 2008 and September 2008, the insured provided various information requested by the insurer, including a report regarding the insured’s use of the Commonwealth vehicle, information concerning the accident, and his medical records.  In July 2008, the insured’s UIM claim handlers began reviewing the insured’s claim for UIM benefits.  On April 20, 2009, the insurer advised the insured that it was declining any UIM payment pursuant to the regular use exclusion.  The insured subsequently filed suit asserting claims for bad faith and breach of contract.

The insurer sought judgment on the pleadings on the basis of its regular use exclusion.  The insured argued that that he did not regularly use the Commonwealth vehicle and only used the vehicle for “official business purposes.”  The court found that the insured regularly and habitually used the Commonwealth vehicle, and therefore, the regular use exception clearly applied to the situation.

The court dismissed the insured’s bad faith claim holding that the insurer had a reasonable basis for denying the claim, namely, the regular use exclusion.  The court found that that the insurer performed a reasonable investigation into whether the regular use exception applied and took substantial steps to determine the insured’s use of the Commonwealth vehicle.

Date of Decision: March 25, 2010

Costello v. Gov’t Employees Ins. Co., Civil Action No. 3:CV-09-1246, United States District Court for the Middle District of Pennsylvania, 2010 U.S. Dist. LEXIS 28511 (M.D. Pa Mar. 2010) (Vanaskie, J.).

MAY 2010 BAD FAITH CASES
SUMMARY JUDGMENT GRANTED WHERE ACCIDENT IS CLEARLY WITHIN POLICY EXCLUSION AND NO REASONABLE EXPECTATION OF COVERAGE EXISTED (Philadelphia Federal)

In Haines v. State Auto Property and Casualty Insurance Company, the insureds were sued for negligence after a friend of the insureds hit and injured a neighbor with a golf cart.  The accident occurred in an alley behind the neighbor’s garage.  The insureds filed a claim with their homeowner’s insurance carrier seeking defense and indemnification in the underlying action.  The insurer determined that coverage did not exist and notified the insureds.

The insureds sought a declaratory judgment that the insurer owed a duty to defend and to indemnify them in the underlying negligence case.  The insureds also asserted a claim for bad faith.  The insurer sought a declaratory judgment that no coverage existed and that it did not owe either a duty to defend or duty to indemnify the insureds in the underlying action.  The district court considered cross-motions for summary judgment.

The insureds argued that both the 2003 and 2002 versions of their homeowner’s policy provided coverage for the accident.  In the alternative, they argued that under the reasonable expectations doctrine, they were entitled to invoke the 2002 policy to find coverage even though the 2003 policy was in effect at the time of the accident.

Both policies included an exclusion for motor vehicle liability with an exception to the exclusion if a “motorized land conveyance” is “used solely to service an insured’s residence” or “designed for recreational use off public roads,” owned by the insured, and on an “insured location.”  The two policies differ in that the 2002 version had a broader definition of the term “insured location” and contained a specific exception to the motor vehicle liability exclusion for a “golf cart when used to play golf on a golf course.”

Plaintiffs argued that the insurer was obligated to defend them because the underlying complaint did not indicate that the golf cart was not used “solely to service” the residence, or that the accident took place off of “an insured location.”  The court found that the insurer’s investigation, which included interviews of the insured’s family members, provided the necessary information to deny coverage.

The court stated:  “Plaintiffs’ assertion that an insurer is prohibited from investigating whether coverage exists runs counter to authority recognizing that the duty to defend does not last indefinitely, or regardless of the facts elucidated as the case progresses.” The court held that the duty to defend only lasts “until such time as the claim is confined to a recovery that the policy does not cover.”

Further, the court stated that because the accident described in the underlying complaint clearly fell within the policy’s exclusion for motor vehicle liability, the insureds had the burden to produce evidence that an exception to the policy’s exclusion applied.

The court concluded that the accident was not covered by the 2003 policy because the golf cart was used for recreational purposes and the accident occurred off of the insured location.  The court rejected the insureds’ argument that they had a reasonable expectation of coverage based on the terms of the 2002 policy.

The court found that the insureds could not have developed a reasonable expectation of coverage for the following reasons: (1) because the insureds did not qualify for the clear exception provided for golf carts, they could not develop a reasonable expectation of coverage from the less specific exception for a “motorized land conveyance”; and (2) there were no misrepresentations by the insurer and the coverage provided by the 2003 policy was not significantly diminished.

The court held that in the absence of a duty to defend, the insured’s claim for bad faith must be dismissed.  The court granted summary judgment in favor of the insurer.

Date of Decision: March 25, 2010

Haines v. State Auto Prop. and Cas. Ins. Co., Civil Action No. 08-CV-5715, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 28437 (E.D. Pa. Mar. 24, 2010) (Golden, J.)