Monthly Archive for July, 2012

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JULY 2012 BAD FAITH CASES: COURT DISMISSES BAD FAITH ACTION WITH PREJUDICE AFTER INSUREDS FAILED TO JOIN NECESSARY PARTY (Philadelphia Federal)

In Cummings v. Allstate Ins. Co., the court heard a carrier’s motion to dismiss an action for breach of contract and bad faith alleged by its insured. The case stemmed from an injury that the decedent-insured sustained after the carrier denied benefits for a damaged floor, which was later repaired by the insureds’ nephew. After the decedent slipped on the damaged floor, she had surgery to correct her injuries, but died from cardiac arrest at the hospital.

The carrier’s first motion to dismiss was filed pursuant to Federal Rule 12(b)(7), alleging that the insureds failed to join their nephew as a defendant. The court heard the motion and deemed the nephew to be an indispensable party, ordering the insureds to join him as a defendant to the lawsuit. (See this blog).

However, the insureds’ nephew was merely added to the caption in the insureds’ amended complaint, not as a party within the substance of the pleading.

The carrier thereafter filed another motion to dismiss, alleging that the insureds’ failure to join a necessary party pursuant to court order warranted dismissal with prejudice. Ultimately, the court dismissed the case with prejudice and granted the carrier’s motion.

Before granting the carrier’s motion to dismiss with prejudice as a sanction for failure to adhere to the Court’s first Order to join the nephew under Federal Rules 12(b)7 and 19, the Court reviewed the 6 Poulis factors set out by the Third Circuit in weighing whether to do so. The last factor looks at the “meritoriousness of the claim.”

While the court stated that while it was too early to rule on the actual merits of the breach of contract and bad faith claims, it nevertheless reasoned that the carrier’s claim for the denial of coverage appeared to have merit, and because of the noncompliance with the court’s order to join a necessary party, under that 6 factor test, the case was dismissed with prejudice.

Date of Decision: June 19, 2012

Cummings v. Allstate Ins. Co., No. 11-02691, 2012 U.S. Dist. LEXIS 84673, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. June 19, 2012) (Kelly, J.)

JULY 2012 BAD FAITH CASES: COURT DISMISSES BAD FAITH COUNTERCLAIM AFTER GRANTING SUMMARY JUDGMENT TO CARRIER ON COVERAGE ISSUES (Philadelphia Federal)

In Markel Insurance Company v. Young, the court heard cross-motions for summary judgment stemming from an underlying negligence claim against the insured day care facility. The underlying suit arose when an employee of the insured was injured at work. When the insured filed a claim for indemnification and defense, the carrier refused and filed its instant motion for declaratory relief, to which the insured filed a cross-motion. The crux of the claim related to coverage issues arising under the insured’s policy with the carrier. As such the court severed and stayed the insured’s bad faith claims until the cross-motions were adjudicated.

Three primary issues arose with respect to the insured’s general commercial liability policy: (1) whether the insured is covered in her individual capacity under the policy; (2) whether the injuries sustained by the plaintiff in the underlying suit arose out of the operations of the insured’s day care business; and (3) whether the employer liability exclusion clause in the policy precluded coverage of the underlying negligence action.

First, the court ruled that the insured was covered in her individual capacity. It reasoned that the insured was a named insured with respect to the conduct of the insured day care.

Second, the court ruled that a causal connection existed between the operation of the business and the underlying plaintiff’s injury, which was caused when a faulty floorboard broke beneath her.

Third, the court held that summary judgment should be granted to the carrier because the insured’s policy did not contain express coverage for employees of the named insured. Therefore, coverage was excluded under the policy, rendering the insured unable to seek a defense in the underlying tort litigation.

Given the conclusion of these motions, the court vacated the stay of the insured’s bad faith claims and dismissed the bad faith claims.

Date of Decision: June 12, 2012

Markel Insurance Company v. Young, No. 11-1472, 2012 U.S. Dist. LEXIS 81800, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. June 12, 2012) (Shapiro, J.)

JULY 2012 BAD FAITH CASES: COURT DENIES LEAVE TO AMEND PLEADINGS BECAUSE ATTORNEY THAT ALLEGEDLY ACTED IN BAD FAITH WAS NOT AN “INSURER” (Philadelphia Federal)

In Zenith Ins. Co. v. Wells Fargo Ins. Servs. of Pa., Inc., the court heard a motion by the insured party, co-defendant Glasbern, Inc., for leave to file an amended answer and counterclaim against its workers’ compensation policy carrier, the original claimant. This motion arose within a suit filed by the carrier against the named defendant, a bank and insurance broker, for its alleged negligence and indemnification for benefits paid to the moving co-defendant under the insurance policy issued by the carrier.

The insured co-defendant originally filed an answer and bad faith counterclaim against the carrier in September 2011. However, during discovery in March 2012, an attorney that works with the carrier’s attorney allegedly made several derogatory comments directed towards the insured. The insured claimed that this was an effort by the carrier to intimidate and deprive its insured of “zealous representation” and sought to amend its pleadings to include these factual allegations in support of its bad faith counterclaim.

The court disagreed, citing Rule 15(c) for the proposition that leave to amend pleadings will only be granted “when justice so requires” unless “undue prejudice would occur.” In the instant case, discovery was to close two weeks after the insured filed its motion for leave to amend. Because amending the insured’s complaint would cause a delay in discovery and require the depositions of several individuals, the court found that granting the motion would cause the carrier “delay and expense.”

Moreover, the court reasoned that, even if the carrier would not be unduly prejudiced, the insured’s motion was futile. Under Pennsylvania’s bad faith statute, bad faith is only actionable if conducted by an “insurer.” However, the attorney that allegedly made derogatory comments did not represent the carrier, but merely worked for the firm that represented the carrier. Moreover, there was no evidence to suggest that the carrier authorized or directed the attorney to make such comments. The court therefore denied the insureds’ motion for leave to amend.

Date of Decision: June 7, 2012

Zenith Ins. Co. v. Wells Fargo Ins. Servs. of Pa., Inc., No. 10-5433, 2012 U.S. Dist. LEXIS 79183, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. June 7, 2012) (Bartle, J.)

JULY 2012 BAD FAITH CASES: COURT RULES THAT CARRIER’S ALLEGED MISREPRESENTATION OF POLICY LIMITS WARRANTS DENIAL OF ITS MOTION TO DISMISS (Middle District)

In Stricker v. State Farm Mut. Auto. Ins. Co., a carrier filed a motion to dismiss its insured’s claim for the alleged bad faith denial of insurance benefits. The case arose from an accident involving a car in which the insured was a passenger. After sustaining injuries as a result of the accident, the insured filed a claim for $100,000 which represented the limits of her underinsured motorist policy. The insured received a letter three months later from the carrier stating that she was only entitled to $50,000, a figure they claimed as the limit.

After hiring an attorney, the insured informed the carrier that she was told she would be able to “stack” her benefits in the amount of $150,000. The carrier then tendered an additional $50,000 under the insured’s policy. After the carrier declined to offer a third payment of $50,000, the insured filed suit for bad faith.
Specifically, the insured argued that pursuant to her policies, one providing $100,000 in primary underinsured motorist coverage and another providing $50,000 in excess underinsured motorist coverage, she was entitled to a combined total of $150,000. The insured argued that the carrier’s actions in sending her a letter, before she had obtained counsel, that she was only entitled to $50,000 in coverage pursuant to her policy, combined with the carrier’s position after she retained counsel that she was only entitled to $100,000, constituted bad faith.

The carrier argued that the insured misunderstood her policy and that a provision in the contract stating that “[w]e may choose one or more policies from which to make payment” was dispositive of the outcome.
The court held that the carrier’s motion should be denied and that the case should proceed. It reasoned that the insured pleaded that the carrier told her that the initial $50,000 offer constituted her “policy limits.” Moreover, another provision in the insured’s policy states that, “[i]f underinsured motor vehicle coverage for bodily injury is available to an insured from more than one policy provided by us or any other insurer, any coverage applicable . . . under this policy shall apply on an excess basis if the insured sustains bodily injury while occupying a vehicle other than your car.”

As such, the court stated, it is not clear that the carrier’s position is reasonable as to the insured’s excess underinsured motorist policy, denying the carrier’s motion.

Date of Decision: June 13, 2012

Stricker v. State Farm Mut. Auto. Ins. Co., No. 1:12-cv-565, 2012 U.S. Dist. LEXIS 81850, U.S. District Court for the Eastern District of Pennsylvania (M.D. Pa. June 13, 2012) (Kane, J.)

JULY 2012 BAD FAITH CASES: COURT GRANTS SUMMARY JUDGMENT TO CARRIER WHERE DELAY WAS ATTRIBUTABLE TO INSURED’S ATTORNEY AND NOT CARRIER (Philadelphia Federal)

In Chemij v. Allstate Insurance Company, the court heard competing motions for summary judgment arising from allegations of bad faith in the handling of the insured’s underinsured motorist claim (“UIM”). The insured’s claim began when she was injured by a school bus operated by a local school district. After several attempts to return to work, the insured took a permanent leave of absence, sued the school district and filed a UIM claim.

The insured raised two primary issues that allegedly amounted to bad faith conduct by her carrier. She claimed that (1) the carrier acted in bad faith in its evaluation of her claim and in (2) the arbitration of the UIM claim. The court disagreed, granting the carrier’s motion it its entirety.

First, the insured contended that the carrier failed to investigate her claim promptly and thoroughly. However, most of the delay that occurred actually was caused by the insured’s own counsel. It took until 2009 for her attorney to send the carrier additional documents that it requested in 2007. Moreover, it took considerable time to schedule the insured’s statement under oath because of a lack of cooperation. Further, the carrier made an initial offer three months after first receiving the insured’s medical records and used several methods to evaluate the worth of the claim.

Second, the insured claimed that the carrier acted in bad faith during the arbitration of the UIM claim. Specifically, the insured claimed that the carrier should have sent a copy of the full policy upon request rather than just a copy of the declarations page. The court found that the carrier did not deliberately refuse to send a copy of the policy when originally asked and expedited the request when it was renewed by the insured’s attorney years later.

Therefore, the court rejected the insured’s claims and granted summary judgment to the carrier, holding that the insured did not meet her burden of proof.

Date of Decision: June 11, 2012

Chemij v. Allstate Ins. Co., No. 11-4106, 2012 U.S. Dist. LEXIS 80688, U.S. District Court for the District of Pennsylvania (E.D. Pa. June 11, 2012) (Schiller, J.)

JULY 2012 BAD FAITH CASES: COURT GRANTS INSURED LEAVE TO AMEND CONCLUSORY ALLEGATIONS CONTAINED IN BAD FAITH COMPLAINT (Middle District)

In Cacciavillano v. Nationwide Ins. Co. of Am., the insured brought bad faith and breach of contract claims against its carrier after the insurer denied coverage for the insured’s allegedly stolen motorcycle. The carrier moved to dismiss the complaint as conclusory because the insured did not provide any support for its claim of bad faith. The court reasoned that the insured met the first element of a bad faith claim by claiming that the carrier had not reimbursed the insured for the alleged theft.

However, the insured failed to allege the second element, that the carrier knowingly or recklessly denied the disbursement of benefits under the policy. As such, the court rejected the insured’s claim and ruled that the complaint should be dismissed.

However, the court permitted the insured leave to amend its complaint. The court did not order additional briefing, but directed the insured to amend its allegations in accordance with Rule 56 governing summary judgment.

Date of Decision: June 12, 2012

Cacciavillano v. Nationwide Ins. Co. of Am., No. 3:12-cv-530, 2012 U.S. Dist. LEXIS 81857, U.S. District Court for the Middle District of Pennsylvania (M.D. Pa. June 12, 2012) (Caputo, J.)