Monthly Archive for April, 2012

APRIL 2012 BAD FAITH CASES: COURT STRIKES INSURED’S BAD FAITH LIABILITY EXPERT REPORT AS UNTIMELY, BUT DENIES SUMMARY JUDGMENT ON BAD FAITH WHERE MATERIAL ISSUE ON WHETHER CLAIMS UNDERVALUED (Western District)

In Craker v. State Farm Mutual Auto Insurance Company, the court heard the carrier’s motion for summary judgment on the insureds’ bad faith claims. The original suit arose from a 2007 car accident in which the insureds were injured. After the carrier refused to pay an additional $200,000 in underinsured motorist coverage (“UIM”), offering at most $113,700.00, the insureds filed suit alleging breach of contract and bad faith.

The carrier argued that the insureds’ bad faith claims were meritless because the dispute merely arose over difference of opinion on the value of the claim. However, the court disagreed, finding that one of the insured parties was fired from his position as a laborer because of the injuries he sustained, preventing him from earning a similar salary elsewhere without a college degree.

Yet, the carrier valued the insured’s lost wages as a total lack of employment for two years, followed by a return to the same type of employment he had before the accident. The court ruled that there was no reasonable basis for this evaluation indicating a decision that may amount to bad faith to a reasonable jury. The court also ruled that the other insured party injured in the accident was unreasonably denied benefits because the carrier refused to adjust the award after she received hip surgery. As such, the court denied the carrier’s motion for summary judgment.

However, the court did grant the carrier’s motion to strike the report and testimony of the insureds’ bad faith expert. At a Post-Discovery Status Conference, the insureds did not indicate that they needed any further experts to move forward with this case. However, they claim that they did not realize the need for such an expert until after the carrier filed for summary judgment. The court disagreed and refused to permit the expert testimony.

Date of Decision: April 4, 2012

Craker v. State Farm Mut. Auto. Ins. Co., No. 11-0225, 2012 U.S. Dist. LEXIS 48029, U.S. District Court for the Western District of Pennsylvania (W.D. Pa. Apr. 4, 2012) (Lancaster, J.)

This case has been previously addressed in this Blog in January 2012, October 2011, and May 2011.

APRIL 2012 BAD FAITH CASES: COURT DENIES INSURED’S MOTION FOR RECONSIDERATION, WHICH REPEATED ARGUMENTS FROM THE PARTIES’ MOTION OPPOSING SUMMARY JUDGMENT (Middle District)

The insured parties’ filed a motion for reconsideration of the court’s granting of the carrier’s motion for summary judgment. The action arose out of a coverage dispute between the insureds and their carrier after a fire at the insureds’ rental property.

In 2008, the insureds rented a home and purchased renter’s insurance from the carrier. In early 2009, the insureds moved from the rental home. Before the move was complete however, the insureds’ first rental home caught fire.

The cause of the fire was determined to be arson. After the fire, the insureds contacted the carrier to recover for damage to personal property left at the rental home during their move in 2009.

After discovering the cause of the fire, the carrier became aware of several “red flags” relating to the insureds’ claim. As a result, the carrier determined that further investigation of the claim was necessary. The insureds refused to cooperate with the investigation, prompting the carrier to deny coverage for personal property destroyed in the fire. The insureds filed suit and the carrier moved for summary judgment, which the court granted.

Turning to the insureds’ motion for reconsideration, the court recognized that the parties merely relied upon the same unavailing arguments that they had asserted during the summary judgment phase. The court reiterated that the existence of “red flags” may form the basis for an insurer’s investigation and that the insureds had a contractual obligation to comply with the insurer’s requests. This failure to cooperate, the court reasoned, was more than a technical departure from the terms of the policy, severely prejudicing the carrier’s interests. As such, it was not erroneous for the court to have granted summary judgment to the carrier.

Date of Decision: March 6, 2012

Verdetto v. State Farm Fire and Casualty Co., NO. 3:10-CV-1917, U.S. District Court for the Middle District of Pennsylvania, 2012 U.S. Dist. LEXIS 29593 (M.D. Pa. Mar. 6, 2012) (Caputo, J.)

APRIL 2012 BAD FAITH CASES: COURT GRANTS CARRIER’S MOTION FOR SUMMARY JUDGMENT BECAUSE ISSUE PRECLUSION BLOCKED ASSIGNEES’ UNDERLYING BREACH OF CONTRACT CLAIM AND THERE WAS NO BREACH OF COMMON LAW DUTY OF GOOD FAITH AND FAIR DEALING (Philadelphia Federal)

The court granted the carrier’s motion for summary judgment stemming from a breach of contract, breach of duty of good faith and fair dealing and fraud claims assigned by the putative insureds to the underlying plaintiff.

The original suit arose from a sexual assault that occurred in 2000. The carrier represented two brothers in a civil action brought in the Court of Common Pleas of Philadelphia. The brothers claimed insured status under their parents’ homeowners’ policy. The carrier defended them under a reservation of rights.

In 2003, the carrier was awarded a declaratory judgment by default in Federal District Court, which stated that the insurer did not have to defend or indemnify the brothers, under the policy at issue. However, the carrier did continue to defend the brothers in the civil action against them, while denying any duty to indemnify. After a trial in 2005, the insureds were found not liable by the jury.

The case was appealed and reversed by the Pennsylvania Supreme Court on the issue of affirmative defenses, and remanded to the trial court. At that point, in 2008, the carrier refused to provide a defense, and the carrier refused a $100,000 settlement demand from the underlying plaintiff, whose demand letter characterized a refusal of the demand to constitute bad faith. The carrier relied on the declaratory judgment in refusing to defend or settle, the matter went to arbitration and plaintiff was awarded $2,000,000. The brothers assigned their claims against the carrier to settle the matter with the plaintiff.

First, the assignees claimed that the carrier breached its contract to defend and indemnify the insureds in the sexual assault litigation. However, the District Court’s prior judgment precluded the assertion of this breach of contract claim because that decision adjudicated the precise question of the carrier’s contractual duties.

Second, the court turned to the assignees’ common law bad faith claims, which contained three specific allegations. The court ruled that, absent a contractual duty to the defendants in the sexual assault litigation, the carrier could not be liable for a bad faith failure to defend the insureds. The court also ruled that the carrier did not act in bad faith by controlling the underlying litigation.

The carrier advised its insureds to obtain independent counsel, but the parties did not oblige, leaving the carrier to conduct the litigation on their behalf, which it chose to do. The court also refused to find that the carrier acted in bad faith pursuant to the assignees’ estoppel theory. Essentially, the carrier was not prevented from claiming that damages fell outside of the insureds’ policy because it submitted three reservation of rights letters to the insureds after choosing to act in their defense.

Third, the court rejected the assignees’ claim that the carrier acted fraudulently. The sole evidence of fraud was a self-serving affidavit that failed to establish anything other than a conclusory allegation of fraudulent conduct. As such, the court also denied this claim.

Date of Decision: March 2, 2012

Grant v. State Farm Fire & Casualty Company, No. 11-6283, U.S. District Court for the Eastern District of Pennsylvania, 2012 U.S. Dist. LEXIS 28695 (E.D. Pa. Mar. 2, 2012) (Schiller, J.)