Monthly Archive for December, 2011

DECEMBER 2011 BAD FAITH CASES SUPERIOR COURT AFFIRMS DENIAL OF BAD FAITH BECAUSE CARRIER RIGHTFULLY DELAYED INVESTIGATING CLAIM UNTIL KEY TESTIMONY AVAILABLE (Superior Court)

In Portside Investors, L.P. v. Northern Insurance Company, the Superior Court heard cross appeals from the Court of Common Pleas of Philadelphia County, which awarded the insured $1.2 million dollars following a non-jury trial. The insured argued that the court erred by finding for the carrier on its bad faith claim. The carrier’s cross-appeal challenges the verdict awarded to the insured in a jury trial on the breach of contract claim.

Specifically, the carrier argues that the evidence fails to support various factual findings, that the insured’s valuation expert was unqualified and articulated an improper formula for determining value, and that the court erred by estopping the carrier from asserting the policy’s limitation of suit provision.

The initial suit arose from the collapse of pier 34 on the Delaware River in Philadelphia. After the insured was denied coverage, it sought a bifurcated trial for bad faith, tried by a judge, and breach of contract, tried by a jury. (See this blog). The judge in the bad faith action rejected the insured’s bad faith allegations, but a jury awarded the insured $1.2 million dollars for the carrier’s breach of contract.

The court first examined the insured’s sole claim on appeal, which challenged the summary judgment entered in favor of the carrier on the insured’s bad faith count. The carrier had originally claimed that it could not proceed with the claim without an examination under oath of Michael Asbell, the owner of the pier that had recently been indicted for his pre-collapse knowledge of the pier’s underwater decay. Asbell had chosen to exert his Fifth Amendment rights and did not testify at all during the course of his criminal case.

However, under the insured’s policy, coverage was unavailable for a loss caused by “decay” unless the decay was “hidden decay.” As the criminal indictment gave reason to believe that Pier 34’s collapse resulted from something other than “hidden decay,” the carrier’s decision to insist on a statement from Asbell as to what he knew prior to collapse was not an exercise in statutory bad faith. Therefore, the court denied the insured’s appeal.

Turning to the carrier’s cross-appeal, the court first examined the contention that the carrier is entitled to judgment notwithstanding the verdict regarding the Actual Cash Value (“ACV”) of the damaged portion of Pier 34 because the insured’s expert, an insurance adjuster, neither was qualified to offer an informed opinion on ACV nor actually offered one at trial.

At trial, the expert testified that the replacement value of the pier was $13 million. However, in light of the policy limit of $4.9 million, replacement would be impossible. Therefore, the expert sought to determine the ACV of the lost section of the pier. He listed several factors to consider when making such a calculation, including depreciation, maintenance, and replacement cost value, and gave a thorough explanation to the court. The carrier’s cross-examination at trial consisted of attacks upon the expert’s training and experience. The carrier also introduced testimony to prove that the ACV was really $0.

However this court reasoned that the carrier’s cross-examination and experts never established that the insured’s ACV/depreciation methodology was unreliable, lacked a foundation in fact, or, most important, conflicted with either accepted industry practice or the insurance policy’s specific definition of ACV. The court therefore denied the carrier’s post-trial motion for a judgment notwithstanding the verdict.

Next, the court focused on the carrier’s argument that the two-year statute of limitation period was applicable to the insured’s lawsuit. The policy stated that (1) the insured has complied with all terms of the “Coverage” part; and (2) the action is brought within two years after the date on which direct physical loss or damage occurred. It is undisputed that the December 6, 2002 date on which the insured commenced the breach of contract action was more than two years after the May 18, 2000 collapse in question. The court examined statements made by the carrier that implied that it would consider the insured’s claim without the suit limitation clause. This correspondence was part of the record established at around the time of Ashbell’s criminal trial. The carrier essentially was telling the insured that it would resume action in the civil case after the criminal trial had concluded.

Lastly, the carrier alleged that the trial court erred by awarding pre-judgment interest to the insured. That party contended that the insured caused several delays in moving forward on its claim by: deferring suit until almost 14 months after the carrier refused to pay on the claim without an EUO of Michael Asbell; obtaining a stay of two years and eight months to accommodate criminal proceedings against Michael Asbell; and waiting another 11 months to resume discovery after the stay was lifted. The court agreed with this contention and remanded the issue solely for calculation of pre-judgment interest.

As for the rest of the claims, the court affirmed the judgment of both the non-jury and jury trials.

Date of Decision: November 23, 2011
Portside Investors, L.P. v. Northern Insurance Company, 2011 PA Super 252 (Pa. Super. Ct. Nov. 23, 2011) (Stevens, P.J.)

DECEMBER 2011 BAD FAITH CASES
NO BAD FAITH WHERE MATERIAL BREACHES OF COOPERATION OBLIGATIONS AND REASONABLE TO INVESTIGATE ARSON (Middle District)

The court was faced with a carrier’s motion for summary judgment on an insured’s breach of contract and bad faith claims. The suit arose from a fire that occurred at a property rented by the insured. At the time of the incident, the insured had renter’s insurance with the carrier.

The insured moved into the rental home and shortly thereafter a fire erupted at the property. The fire marshal investigating the matter ruled that the fire was the result of arson. The insured began the claims process by filling out an inventory form, as required by the carrier. The forms indicated a large amount of valuable items, many of them less than two years old.

The carrier was put in contact with the investigating fire marshal, who ruled the fire arson and told the carrier that he did not see very much person property at the residence. He also reported that the insured had previously been involved in arson of another property. The carrier then decided to have the matter further investigated.

The carrier requested that the insured party sign various authorization forms, as required under the policy, requesting phone and financial records. The insured refused. The carrier also hired a salvage company to begin working on the damaged property, but the insured’s landlord denied entrance to their home for several weeks. The carrier subsequently sent the insured a Reservation of Rights letter, citing questions over the cause of the fire and whether the insured misrepresented their claims. The carrier hired an outside party to conduct an Examination under Oath, but the insured again refused to cooperate with the investigation. After the carrier denied coverage, the insured filed suit.

The court first examined the insured’s bad faith claim, finding that the carrier acted reasonably and did not delay or stall the investigation of the insured’s claim. Specifically, several significant “red flags” provided a reasonable basis for investigating the claim, including: the fire being ruled an arson; the claim being on a policy less than six months old; and the history of late payments on the policy.

Moreover, the insured refused to turn over the records they were contractually obligated to provide. Without the requested financial and telephone records, which were critical to determining the insured’s motive and opportunity for setting the fire, the carrier could not complete the investigation. Therefore, the court concluded that summary judgment was appropriate on the bad faith claim.

The court also granted summary judgment on the insured’s breach of contract claim. The insured was contractually bound to provide any documents requested by the carrier. The refusal to do so was a significant departure from the terms of their policy and substantially prejudiced the carrier’s investigation of the claim. Therefore, the court disposed of the matter because the insured’s material breach of the terms of its policy precluded any finding of liability on the part of the carrier.

Date of Decision: November 23, 2011

Verdetto v. State Farm Fire and Casualty Company, NO. 3:10-CV-1917, U.S. District Court for the Middle District of Pennsylvania, 2011 U.S. Dist. LEXIS 135287 (M.D. Pa. Nov. 23, 2011) (Caputo, J.)