Monthly Archive for July, 2010

JULY 2010 BAD FAITH CASES
NO BAD FAITH WHEN INSURED REPAIRS DAMAGED PROPERTY BEFORE GIVING INSURER AN OPPORUNITY TO INSPECT PROPERTY AND PROPERLY EVALUATE DAMAGES (Philadelphia Federal)

In Berko Investments, LLC v. State National Insurance Company, the insured owned a building that contained apartments and a bar/restaurant, and he had purchased commercial property insurance with the insurer.  One day, a portion of the building’s roof began to leak over the dining room area.  A general contractor was a patron in the bar the evening the leak began, and after examining the roof he observed that it had peeled back.  After making temporary repairs the next day, he told the insured that the roof was damaged by the weather and it likely needed more thorough repairs.  The contractor then contacted a roofer he had used in the past, who provided an estimate covering the cost of replacing the roof. The contractor told the insured that he should file an insurance claim, but the insured waited until after the roof was completely redone to file a claim.

After the insurer received notice of the insured’s claim, a claims adjuster toured the property, which had already been repaired.  The insured alleged that the building’s roof was damaged by wind, which was a covered loss under the insurance policy.  However, the adjuster could not determine whether the roof actually needed to be replaced because the repairs were complete.  He had to recommend that the claim be denied because the insurer’s rights were prejudiced, and the insurer proceeded to deny coverage.  The insured filed suit, asserting that the insurer breached the insurance contract and acted in bad faith.

The court determined that the temporary repairs made by the contractor would have been sufficient to protect the property and simultaneously allow the insurer’s claims adjuster to inspect the roof before it was replaced.  It also held that the insured’s delay in reporting the claim until after fixing the roof himself was a breach of the Duties Provision, and the breach resulted in actual prejudice to the insurer’s rights.  Therefore, the court had no choice but to find in favor of the insurer for both the breach of contract and bad faith claims.

Date of Decision:  July 21, 2010

Berko Invs. v. State Nat’l Ins. Co., Civil Action No. 08-2609, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 73144 (E.D. Pa. July 21, 2010) (DuBois, J.)

JULY 2010 BAD FAITH CASES
NO BAD FAITH WHEN THE INSURER DID NOT LACK REASONABLE BASIS FOR DENYING CLAIM, EVEN IF COURT EVENTUALLY DETERMINES THAT THE BASIS IS INCORRECT (Philadelphia Federal)

In Spector v. Fireman’s Fund Insurance Company, the insureds noticed that the paint on many of the windows in their house was peeling.  They hired a construction consultant to inspect their house, and he concluded that there were problems with the window and door frames, as well as signs of leakage in the master bedroom on the ceiling.  He recommended that the insureds hire an expert to inspect the area between the stucco walls and internal drywalls, and they did that.  The stucco inspector told them that moisture levels in different areas of the house revealed potential problems, but only a deconstruction of the walls would reveal the true condition of the substrate.

The insureds proceeded to hire a plastering company, the owner of which notified them that the house’s roof was incorrectly installed.  The insureds decided to have their roof redone and windows replaced before the stucco was removed for inspection.

Once the stucco was removed, the insureds learned the extent of the water damages, and they gave notice to the insurer by filing a claim.  The insurer sent a claims adjuster to evaluate the property, but upon his arrival, about 90% of the work had already been completed.

The insureds’ homeowner’s insurance policy specifically provided a coverage exclusion for water damage resulting from “continuous or repeated seepage or leakage of water or stream from any source over a period of weeks, months, or years.”  There was an exception to this exclusion, as the insurer would provide coverage if, due to water damage, loss was sudden and accidental and the insured reported the loss no later than 30 days after the date the loss was detected or should have been detected.  The policy also included an exclusion for “faulty, inadequate, or defective…workmanship, repair, construction,” or the materials used therein.

After inspecting the house, the claims adjuster notified the insureds that the insurer was denying their claim, citing the policy’s exclusion for defective construction and the thirty day notice provision for water damage.  The insureds filed a complaint, alleging both breach of contract and bad faith on the part of the insurer.

The court ruled in favor of the insureds on the breach of contract claim, holding that a contract existed and that the insureds complied with the rolling 30 day requirement that accompanied the exception to the water damage exclusion.  Because the insureds did not learn of the damage until less than a month before filing the insurance claim, the insurer incorrectly denied coverage.

However, the court also ruled that the insureds did not establish that the insurer lacked a reasonable basis for denying the claim and knew or recklessly disregarded the reasonable basis.  Therefore, the insurer prevailed on the bad faith claim against it.

Date of Decision:  July 15, 2010

Spector v. Fireman’s Fund Ins. Co., Civil Action No. 09-1311, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 71072 (E.D. Pa. July 15, 2010) (Tucker, J.)

The district court’s decision was upheld on appeal as to damages, and the bad faith decision was not appealed.

JULY 2010 BAD FAITH CASES
NO BAD FAITH WHEN THE INSURER CORRECTLY INTERPRETS A BUSINESS AUTO POLICY TO EXCLUDE AN EMPLOYEE FROM COVERAGE (Philadelphia Federal)

In Kelly v. National Liability & Fire Insurance Company, an employee of the insured company and another person were involved in an auto accident.  The employee was traveling in his personal vehicle in the scope of his employment, and he was insured at the time by an insurance company separate from the defendant insurer in this case.  The woman filed a suit against the employee, and the employee placed the insured employer on notice of the action four months later.  The employer proceeded to notify its insurer, the defendant in the current case.

After a lengthy review of possible coverage under the business auto policy issued to the employer, the insurer determined that no coverage was available for the employee under the policy, and that while coverage would be available for the employer if it were added as a defendant in the pending litigation, the statute of limitations had expired so the employer could no longer be added.  The other person, an injured assignee of the employee as to any claims against the carrier, was eventually awarded $375,000 in a binding ADR proceeding.  The injured assignee commenced the current action against the insurer for breach of contract and bad faith in denying coverage to the employee who owed her money as a result of the accident and award.

The Business Auto Coverage Form provided that the employer, and not its employees, was the only covered entity under the policy.  The court in a prior federal court case had determined that an employee of the insured company who owns his/her own covered automobile is excluded from the definition of an insured with respect to the business auto coverage, and the court here followed that precedent.

Because the employee was not an “insured” under the policy, the insurer owed no duty to provide him coverage in the action against him, and therefore the court granted the insurer’s motion to dismiss the breach of contract claim.  It also granted the motion to dismiss the bad faith claim for the same reason, as it is impossible for an insurer to exhibit bad faith when correctly denying coverage under a policy.

Date of Decision:  July 12, 2010

Kelly v. Nat’l Liab. & Fire Ins. Co., Civil Action No. 09-1641, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 68959 (E.D. Pa. July 12, 2010) (Ludwig, J.).

JULY 2010 BAD FAITH CASES
NO BAD FAITH WHEN THE INSURER PROPERLY INTERPRETS EXCESS LIABILITY POLICY IN DENYING COVERAGE IN EXCESS OF APPLICABLE LIMITS (Philadelphia Federal)

In Yellowbird Bus Company, Inc. v. Lexington Insurance Company, the insured bus company was issued an excess automobile liability insurance policy by the insurer.  While the policy was in effect, an automobile accident occurred between one of the insured’s busses and a truck.  The insured had a primary insurance policy which had a coverage limit of $1 million per accident, and the excess policy covered costs in excess of $1 million and had a coverage limit of $4 million.  A section of the excess policy entitled “Limit Exhaustion” stated that the policy “shall cease to apply after the applicable limits of liability have been exhausted by payments of defense costs and/or judgments and/or settlements.”

The insurer denied the insured coverage beyond the $4 million dollar limit with respect to the accident between the bus and truck.  The insured then filed a complaint that asserted claims against the insurer for breach of contract and bad faith in addition to seeking declaratory judgment that the excess policy had no aggregate or occurrence limit with respect to the insured’s liability and defense costs.

In interpreting of the insurance policy, the court determined that the plain language of the policy’s occurrence limit and aggregate limit provisions clearly conveyed that the insurer was correct in its interpretation of the policy by not awarding any money in excess of $4 million, and therefore it denied the insured’s request for declaratory judgment.  It then noted that generally, when an insurer does not have a duty to indemnify under the insurance policy, a claim for bad faith must be dismissed.  Based on the court’s interpretation that the insurer appropriately followed the insurance policy when denying coverage beyond a certain amount, it granted the insurer’s motion to dismiss both the breach of contract and bad faith claims against it.

Date of Decision:  July 12, 2010

Yellowbird Bus Co. v. Lexington Ins. Co., Civil Action No. 09-5835, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 69554 (E.D. Pa. July 12, 2010) (Robreno, J.)

JULY 2010 BAD FAITH CASES
NO BAD FAITH WHEN THE INSURER MEETS ITS OBLIGATIONS TO REASONABLY INVESTIGATE THE CLAIMS OF THE INSURED (Middle District)

In Ski Shawnee, Inc., v. Commonwealth Insurance Company, a bridge collapsed on a road leading to the insured’s ski resort, and the road was closed to the public for two days.   Approximately 70% of the insured’s patrons typically use the road to access the resort, and they could not access the resort using that road on those days because of the collapsed bridge.  The insurer provided the insured with a policy that included business income loss coverage for loss of income the insured sustains and extra expenses it incurs when “caused by action of civil authority that prohibits access to the covered premises.”

The insured filed a claim with the insurer for lost income, and the insurer hired a claim adjuster to determine the appropriate amount of loss.  After an evaluation and weeks of correspondence between the parties, the adjuster eventually notified the insured that there would be no coverage under the insurance policy for the loss of income resulting from the closure of the bridge.  The insured filed a complaint, bringing causes of action for breach of contract, breach of the Pennsylvania Unfair Insurance Practices Act, and bad faith.

The court determined that while the insured may have lost some income over the two days the bridge was closed, there was no genuine issue of material fact that at least some of Ski Shawnee’s customers were able to access the ski resort via alternate routes on those days.  Therefore, no single customer was actually prohibited from accessing the resort, so the income loss coverage provisions of the insurance policy did not apply.

Because the court had decided that the policy did not include coverage for the loss of profits, it also held that the insurer had a reasonable basis for denying benefits under the policy.  The court accordingly granted summary judgment on both the breach of contract and bad faith claims.

A private party cannot bring claims under Pennsylvania Unfair Insurance Practices Act and Unfair Claim Settlement Practices Act.  As the Court stated, “the UIPA and the UCSP are designed to be implemented and enforced by the Insurance Commissioner of Pennsylvania.  As such, Plaintiff, as a private citizen, cannot maintain a claim against Defendant on these statutory and regulatory sections, and Defendant’s motion will be granted on this count as well.”

Date of Decision:  July 6, 2010

Ski Shawnee, Inc. v. Commonwealth Ins. Co., No. 3:09-CV-02391, United States District Court for the Middle District of Pennsylvania, 2010 U.S. Dist. LEXIS 67092, (M.D. Pa. July 6, 2010) (Caputo, J.).

JULY 2010 BAD FAITH CASES
NO BAD FAITH WHEN THE INSURER MEETS ITS OBLIGATIONS TO REASONABLY INVESTIGATE THE CLAIMS OF THE INSURED (Middle District)

In Luse v. Liberty Mutual Fire Insurance Company, a fire occurred in the insureds’ home.  They had insurance under a condominium policy that had been issued by the insurer.  An employee of the insurer inspected the home three days after the fire, and despite observing significant damage, he concluded that the house was livable.  He also determined that his employer’s policy would only provide secondary coverage for the damage because the insureds had an additional condominium policy which provided primary coverage.

One of the insureds had a history of respiratory issues, and in the two weeks after the fire, his oxygen saturation levels dropped.  The insurer took immediate action to have the insureds relocated, but by that time the individual had already suffered from increased respiratory problems.  However, the insureds had not notified the insurer of the individual’s respiratory or problems or their desire to relocate until the problems exacerbated.

The insureds filed a complaint based on insurance bad faith, asserting that the insurer failed to properly investigate the insureds’ claim once they had information that one of the insured’s suffered from respiratory issues, and that the insurer misinformed the insureds of the extent of their coverage.

The court determined that the insureds failed to show that there were genuine issues of material fact, as the insurer sent a representative to evaluate the damage, and the representative made a conclusion based on his findings.  Also, no one told the representative or his employer about the insured’s respiratory problems or a desire to be relocated until over two weeks after the fire.

Conclusions based on adequate investigations and informing the insureds that the company would be the secondary provider to the condominium policy do not constitute bad faith by any measure of the law.  The insurer was only under a duty to reasonably investigate all of the claims, and the undisputed facts of the case suggested that its obligations were met.  Therefore, the court granted the insurer’s Motion for Summary Judgment.

Date of Decision:  July 7, 2010

Luse v. Liberty Mut. Fire Ins. Co., Civil No. 1:09-CV-1221, United States District Court for the Middle District of Pennsylvania, 2010 U.S. Dist. LEXIS 63225 (M.D. Pa. July 7, 2010) (Rambo, J.).

JULY 2010 BAD FAITH CASES
BAD FAITH ALLEGATION SURVIVES MOTION TO DISMISS WHEN INSURED SUFFICIENTLY ALLEGES AN ABUSE OF PEER REVIEW PROCESS (Middle District)

In Hickey v. Allstate Property and Casualty Insurance Company, the insured was involved in a motor vehicle accident in which he suffered injuries to his back and neck. He was insured by the defendant insurer, and the policy contained first-party medical benefits coverage for $100,000.

The insured received medical care for over two years, and the insurer paid all of the bills promptly. The insurer then informed the insured that it would require an independent medical examination before paying any further bills. The examining physician concluded that the while the insured did still require treatment and therapy, he had “essentially reached his point of maximum medical improvement.” Because of this, the insurer then notified the insured that it would not pay any further medical bills. The insured filed a complaint that contained counts for breach of contract and bad faith.

The Pennsylvania Motor Vehicle Financial Responsibility Law mandates that automobile insurers provide medical benefit coverage “for reasonable and necessary medical treatment and rehabilitative services.” The insured asserted that the insurer “has a practice of attempting to terminate medical treatment by independent medical examination without reasonable cause to do so,” and it complained that the insurer made its decision to deny future coverage independent of any PRO process or determination.

There was a clear dispute over whether the insured’s treatment was reasonable or necessary, and the insurer was thus required to contract with a peer review organization under 75 Pa.C.S. § 1797. The insurer allegedly made its decision independent of the peer review organization process, and the court therefore determined that an abuse of the process was alleged.

Accordingly, the court denied the insurer’s Motion to Dismiss with respect to the allegation of abuse of the peer review organization process.

Date of Decision: June 25, 2010

Hickey v. Allstate Prop. & Cas. Ins. Co., No. 3:10cv00907, United States District Court for the Middle District of Pennsylvania, 2010 U.S. Dist. LEXIS 63225 (M.D. Pa. June 25, 2010) (Munley, J.).

JUNE 2010 BAD FAITH CASES
NO BAD FAITH WHEN THE INSURER USED LEGITIMATE SUPPORTING EVIDENCE TO DENY COVERAGE AND PRIOR PA CASE LAW AGREES WITH THE INSURER’S DECISION (Philadelphia Federal)

In Collins v. Allstate Insurance Co., the insured suffered multiple direct physical losses to his property as a result of wind and rain from a storm.  The insurer covered the house under an insurance policy, which required it to “repair, rebuild or replace all or any part of the damaged, destroyed or stolen property of like kind and quality within a reasonable time.”  The insurer hired adjusters to inspect the property, prepared an estimate of damages, and issued a check to the insured for that amount.  The insured then learned that it would cost thousands more dollars to repair the damages than the amount received.

The insured filed a Complaint that alleged breach of the insurance contract and bad faith.  The central dispute concerned the cost of replacing the roof of the house, which was by far the most expensive repair to make.  The insurer only agreed to pay for the damaged slopes of the property as opposed to replacing the entire roof.  The insured asserted in his bad faith claim that the insurer (1) intentionally treated coverage of the interior of the property differently than the exterior, and (2) placed its own interests above his.

The insurer filed a Motion for Summary Judgment on the bad faith claim, arguing that the insured’s allegations were not supported with facts and the record before the court did not support the allegations.  It submitted evidence that the roof of the insured’s property contained mismatched slates and did not have a uniform appearance before the storm, and it had used that evidence in evaluating the claim and determining that only certain portions of the roof were actually damaged by the storm.

The court ruled that, based on this evidence and a prior Pennsylvania case with a similar situation, the insured had not produced evidence from which a reasonable juror could find by clear and convincing evidence both that: (1) the insurer did not have a reasonable basis when it denied coverage for replacement of the entire roof and only agreed to provide coverage to repair or replace the slates that were actually damaged; and (2) it knew or recklessly disregarded a lack of a reasonable basis in denying the claim.

The minor issues the insured raised were clearly not sufficient to establish either of these factors by clear and convincing evidence and certainly not both.  Therefore, the court granted the insurer’s Motion for Summary Judgment with respect to the bad faith claim.

Date of Decision:  June 17, 2010

Collins v. Allstate Ins. Co., Civil Action No. 2:09-cv-01824-WY, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 60436 (June 17, 2010) (Yohn, Jr., J).

JUNE 2010 BAD FAITH CASES
NO BAD FAITH AS A MATTER OF LAW WHEN THERE ARE GENUINE ISSUES OF MATERIAL FACT (Philadelphia Federal)

In Nurpo Industries Corp. v. Lexington Insurance Company, the dispute centered around insurance payments for demolished buildings belonging to the insured.  The insured alleged that the insurer failed to pay the Actual Cash Value for two demolished buildings, failed to pay the insured an amount due for “Extra Expense II,” and failed to pay the expenses the insured accrued in relation to demolishing and attempting to replace another building.

Both parties filed summary judgment motions.  The insured asserted that the insurance policy and two of its specific endorsements provided that the insurer must cover the losses accrued in demolishing the buildings, and that with respect to the attempt to replace the third building, the insurer acted in bad faith by agreeing to cover the cost of demolishing and reconstructing the building but then failed to make payment.

The insurer, on the other hand, asserted that it did not owe any money because the buildings were demolished only because they were neglected and unsafe rather than because they were subject to fire damage.

Concerning the bad faith claim, it asserted that it withdrew its purported agreement to the reconstruction project and it may not have even agreed to the insured’s plans in the first place.  The court determined that because there were genuine issues of material fact as to interpretations of the passage of events, the insured’s Motion for Summary Judgment with respect for the bad faith claim should be denied.

In a separate opinion, the court denied the insurer’s Motion for Summary Judgment, as the insurer had asserted that the insured failed to bring its claim within the two-year limitations period provided in the contract, but it remained unclear whether the insured could have brought its claim within that period.

Date of Decision:  June 21, 2010

Nupro Indus. Corp. v. Lexington Ins. Co., Civil Action No. 08-4809, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 61693 (June 21, 2010) (Restrepo, U.S.M.J.)

and

Nupro Indus. Corp. v. Lexington Ins. Co., Civil Action No. 08-4809, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 61658 (June 21, 2010) (Restrepo, U.S.M.J.)