Monthly Archive for October, 2012

OCTOBER 2012 BAD FAITH CASES: COURT GRANTS SUMMARY JUDGMENT TO CARRIER ON BAD FAITH CLAIM BECAUSE IT DEFENDED INSUREDS UNDER A RESERVATION OF RIGHTS AND RECOMMENDED THAT THE INSURED HIRE PERSONAL COUNSEL (Philadelphia Federal)

In Clunie-Haskins v. State Farm Fire & Cas. Co., the court heard a carrier’s motion for summary judgment that was filed in response to a breach of contract and bad faith suit filed by an insured’s assignees. This case stemmed from a sexual assault perpetrated by the insureds. In 2000, the two individuals allegedly assaulted an eleven-year old girl at a sporting event. The victim successfully sued the assailants for assault and battery. The carrier initially defended the insureds under a reservation of rights, pursuant to homeowners insurance policies issued to their parents. However, the carrier later ended its defense of the litigation on behalf of the insureds.

The assailants assigned any potential rights against the carrier to the victim and her mother, who sued the carrier for breach of contract and bad faith in late 2011. Thereafter, the carrier removed the case to federal court and filed the instant motion for summary judgment.

The court first examined the assignees breach of contract claim, which alleged that the carrier had a duty to defend and indemnify the insureds under homeowners policies issued to the assailants’ parents. The carrier pointed to a November 2003 order issued by the Philadelphia Court of Common Pleas in the underlying litigation, which held that the carrier had no duty to indemnify the insureds. Although the carrier did defend the insureds, it did so under a reservation of rights. The assignees disagreed, arguing that the complaint alleges breach of contract for acts occurring after November 2003. However, the court sided with the carrier, finding the November 2003 order applicable and that it precluded a suit for breach of contract.

Next, the court turned to the assignees’ bad faith claims. The assignees argued that the carrier’s continued defense, after the November 2003 order, and subsequent withdrawal after the Supreme Court of Pennsylvania prevented the insureds from asserting a particular defense in the assault and battery litigation, amounts to bad faith. The carrier disagreed, arguing that it provided a successful defense for many years, subject to a reservation of rights.

Moreover, the carrier continuously recommended that the assailants hire their own counsel due to the potential for personal liability. The court found for the carrier, ruling that, without a duty to indemnify or defend, the carrier did not act in bad faith by refusing to continue representation.

The court also ruled that the carrier did not act in bad faith during the underlying litigation, recognizing that the carrier repeatedly advised the assailants to procure personal representation. As such, the carrier did not “unilaterally direct” the litigation in bad faith because it reminded the insureds of their rights throughout the entire process.

As such, the court ruled in favor of the carrier, awarding summary judgment and dismissing the suit.

Date of Decision: March 2, 2012

Clunie-Haskins v. State Farm Fire & Cas. Co., 855 F. Supp. 2d 380 (E.D. Pa. 2012)

OCTOBER 2012 BAD FAITH CASES: COURT REFUSES TO DISMISS INSURED’S BAD FAITH CLAIM ON UIM SUIT (Western District)

In Morosky v. Allstate Ins. Co., a carrier moved to dismiss its insured’s breach of contract claim, arguing (1) that the insured’s first claim should be captioned as an underinsured motorist (“UIM”) claim and (2) that the second count was sufficient to establish a cause of action for bad faith.

As to the first allegation, the carrier argued that the insured’s complaint should be captioned as a UIM claim, rather than breach of contract action, because the insured’s complaint clearly asserted a claim for the payment of UIM benefits. The court agreed with this contention.

Second, the carrier argued that the insured’s claim was insufficient to set out a bad faith claim. The court disagreed with this argument, finding that the carrier’s challenges would be better suited for summary judgment following discovery.

Date of Decision: September 28, 2012

Morosky v. Allstate Ins. Co., No. 12-996, 2012 U.S. Dist. LEXIS 140491, U.S. District Court for the Western District of Pennsylvania (W.D. Pa. Sept. 28, 2012) (Bisson, J.)

OCTOBER 2012 BAD FAITH CASES: COURT GRANTS TWENTY-ONE DAYS TO AMEND CARRIER’S NOTICE OF REMOVAL BECAUSE IT FAILED TO ALLEGE INSURED’S DOMICILE (Middle District)

In Grudkowski v. Foremost Ins. Co., the court addressed a putative class action complaint filed by an insured alleging consumer protection and bad faith violations against its insurance carrier. After the insured filed its complaint in Luzerne County, the carrier removed to federal court on the basis of diversity jurisdiction.

However, the carrier failed to properly allege the insured’s domicile, instead alleging that she was a “resident” of Pennsylvania. As such, the court granted the carrier twenty-one days to amend the removal notice.

Date of Decision: September 25, 2012

Grudkowski v. Foremost Ins. Co., No. 3:CV-12-1847, 2012 U.S. Dist. LEXIS 136825, U.S. District Court for the Middle District of Pennsylvania (M.D. Pa. Sept. 25, 2012) (Caputo, J.)

OCTOBER 2012 BAD FAITH CASES: COURT DISMISSES BAD FAITH CLAIM AS BARRED BY THE STATUTE OF LIMITATIONS, BECAUSE DISCOVERY VIOLATIONS DO NOT GIVE RISE TO AN INDEPENDENT ACT OF BAD FAITH (Philadelphia Federal)

In Am. Collision & Auto. Ctr., Inc. v. Windsor-Mt. Joy Mut. Ins. Co., the court heard a carrier’s motion to dismiss a breach of contract and bad faith claim brought by the owner of a damaged boat that sought benefits under its policy.

In 2006, the insured’s father bought a boat through his business, a collision center. The boat was financed by a separate company that provided loans to the insured in exchange for various asserts of the insured’s family business. In late 2006, the boat was damaged in a fire on the pier where it was docked. The insured reported the loss to its carrier, who denied coverage by claiming that the insured did not own the boat. The carrier refused to reverse its decision, even after its investigator found that an unidentified homeless person started the fire.

In 2007, the insured and its financier filed suit in state court in Philadelphia and the carrier removed to federal court. At trial, the carrier changed positions and argued that the insured did not own the boat, although the carrier provided no evidence of fraud. Moreover, the carrier had paid a small claim to the insurer the previous year for damage to the boat’s outdrive. The carrier also produced evidence at trial that it had not provided to its insured and allegedly made several misrepresentations of fact at trial, some of which were at odds with testimony given by the carrier’s own witnesses.

In this action, the insured brought suit for breach of contract and bad faith. The carrier argued that these claims were time-barred and should therefore be dismissed.

First, the court found that the insured’s breach of contract claim was barred by the statute of limitations. The insured argued that the carrier had concealed its litigation strategy until mid-2009, meaning that the insured did not receive notice of the carrier’s breach until that time. The court disagreed, finding that even if the carrier’s fraudulent concealment tolled the limitations period, the breach of contract action would still be untimely under the terms of the policy.

Second, the court addressed the insured’s bad faith claims. The insured contended that it met the two-year statute of limitations because the carrier’s discovery violations were concealed and failed to provide the insured with notice of bad faith. The court reasoned that this was incorrect because bad faith claims must stem solely from the carrier’s original denial of coverage. As such, the carrier’s alleged “discovery violations” do not give rise to an independent bad faith claim sufficient to toll a later statute of limitations.

Therefore, the carrier won on its motion to dismiss the insured’s suit.

Date of Decision: September 27, 2012

Am. Collision & Auto. Ctr., Inc. v. Windsor-Mt. Joy Mut. Ins. Co., 2012 U.S. Dist. LEXIS 139490, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. Sept. 27, 2012) (Gardner, J.)

OCTOBER 2012 BAD FAITH CASES: COURT REJECTS INSURED’S DISCOVERY REQUEST BECAUSE CARRIER’S ACTIONS AMOUNTED TO “PURE DISCOVERY VIOLATION” RATHER THAN A BAD FAITH EFFORT TO OBSTRUCT LITIGATION (Western District)

In Mine Safety Appliances Co. v. North River Ins. Co., a Special Discovery Master heard a discovery dispute that arose from questions regarding “the appropriate trigger of coverage for underlying claims involving coal-worker’s pneumoconiosis” that developed during his employment in the insured’s mine.

In April 2012, a Special Discovery Master undertook an analysis of the insured’s motion to compel interrogatory answers from the carrier. Specifically, the insured asked its carrier to set forth the date when it first learned the identity of a witness retained by the carrier in anticipation of litigation. The carrier objected to the insured’s interrogatories on the grounds that the interrogatories sought information protected from disclosure by Rule 26(b)(4), which holds that the insured is precluded from obtaining discovery on an expert whom the carrier retained for trial litigation purposes.

The insured argued that the requested information is relevant to its bad faith claim against the carrier because, based on information and belief (i.e. the timing of the carrier’s hiring of its expert), the carrier may have first learned the identity of the expert from the insured during a confidential mediation session. During that session, the insured disclosed that it had learned that the expert had written papers supporting its theory of the case. The carrier later hired this expert for its defense of the litigation. Therefore, the insured argued that the carrier “improperly took information learned from its own insured during a confidential mediation session for its own use and for use against its insured.”

The carrier disagreed, arguing that the insured was in breach of the mediation agreement entered into between the parties, which the insured violated by purporting to divulge the content of communications made in connection with settlement negotiations. The carrier therefore argued that the insured’s improper conduct and “unclean hands” should not require it to divulge when it first learned the identity of its expert witness.

The Special Master reasoned that, because the expert had since died, Rule 26 in fact protected information related to his work for the carrier. That rule makes confidential any expert testimony used in preparation for litigation. However, the information sought by the insured did “not involve the insurer-insured relationship, but, rather, clearly involved the parties’ relationship as legal adversaries.” Under the Pennsylvania bad faith statute, such information does not constitute evidence of bad faith.

Therefore, the Special Master held, the information requested in the interrogatories is not relevant to the insured’s bad faith claim.

The district court judge affirmed in pertinent part the decision of the magistrate. In two separate opinions, the judge ruled that, “the record contains more than sufficient information to support the Special Discovery Master’s determination the information requested by the insured did not prove that the carrier “acted frivolously with a dishonest purpose and breached its known duty.” It reasoned that the carrier’s actions amounted to a “pure rule violation” that is “beyond the purview of relevant evidence that can establish bad faith.”

A bad faith violation is “analytically distinct” from a rule violation made in an effort to gain an upper hand in ongoing coverage litigation. In order to produce evidence of bad faith, the court concluded, the carrier’s litigation conduct “must be something more than a violation of the operative rules” governing discovery.

Date of Special Master’s Decision: April 24, 2012

Mine Safety Appliances Co. v. North River Ins. Co., 2:09-cv-00348-DSC, 2012 U.S. Dist. LEXIS 132899, U.S. District Court for the Western District of Pennsylvania (W.D. Pa. Apr. 24, 2012) (Penkower, Special Discovery Master)

Date of District Court Decisions: September 18, 2012

Mine Safety Appliances Co. v. N. River Ins. Co., 2:09cv348, 2012 U.S. Dist. LEXIS 132896, U.S. District Court for the Western District of Pennsylvania (W.D. Pa. Sept. 18, 2012) (Cercone, J.)

Decision 1

Decision 2