Monthly Archive for January, 2013

JANUARY 2013 BAD FAITH CASES: COURT APPLIES NEW YORK LAW AND DENIES BAD FAITH CLAIM BECAUSE SUCH A CLAIM IN NEW YORK IS BASED IN CONTRACT AND THE BURDEN OF PROOF IS VERY HIGH (Philadelphia Federal)

In Fairsea v. Philadelphia Indemnity Insurance Co., the court heard a carrier’s motion to dismiss an insured’s bad faith claim stemming from the carrier’s denial of benefits under a policy insuring damage to the insured’s property. Because the insured property was located in New York and the carrier was located in Philadelphia, the court applied conflict of law rules, reasoning that New York law is applicable. The insured disagreed, arguing that Pennsylvania’s bad faith statute should apply because the location of the carrier’s tortious bad faith conduct was in Philadelphia.

The court applied New York law, reasoning that the location of the insured property was in New York. The court also deferred to New York’s policy rationales for not codifying its bad faith remedy, which is based in contract and requires an extremely high burden of proof. As such, the court granted the carrier’s motion to dismiss.

Date of Decision: December 14, 2012

Fairsea v. Phila. Indem. Ins. Co., NO. 12-0595, 2012 U.S. Dist. LEXIS 177914, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. Dec. 14, 2012) (Tucker, J.)

JANUARY 2013 BAD FAITH CASES: COURT GRANTS MOTION TO DISMISS, BUT ALLOWS BAD FAITH CLAIM AGAINST HEALTH INSURER, PHYSICIANS, AND PEER REVIEW ORGANIZATION TO PROCEED (New Jersey Federal)

In Skelcy v. Unitedhealth Group, Inc., the administrator of a decedent’s estate brought suit against a health insurer, its parent company, several physicians, and a peer review organization for wrongful death, delay of health insurance benefits, and bad faith, alleging that the defendants’ improper deprivation and delay of medical treatment caused the decedent’s death.

The defendants moved to dismiss all claims and the administrator moved to amend its complaint to include an additional count under the New Jersey Health Care Carrier Accountability Act, which the court granted. The court also granted the defendants’ motion with respect to several claims, but did not dismiss the bad faith claim as pleaded by the administrator.

Date of Decision: December 5, 2012

Skelcy v. Unitedhealth Group, Inc., No. 12-01014, 2012 U.S. Dist. LEXIS 172922, U.S. District Court for the District of New Jersey (D.N.J. Dec. 5, 2012) (Thompson, J.)

JANUARY 2013 BAD FAITH CASES: COURT AFFIRMS RES JUDICATA BAR TO ASSERTION OF BAD FAITH BECAUSE CLAIM ACCRUED BEFORE INSUREDS FILED INITIAL UM SUIT (New Jersey Appellate Division)

In Wadeer v. N.J. Mfrs. Ins. Co., the insureds appealed the trial court’s decision to bar their bad faith action as res judicata under the entire controversy doctrine (“ECD”). The claim arose when the carrier refused to provide uninsured motorist (“UM”) coverage to the insureds after an automobile accident. The carrier refused to pay the policy limits, made no settlement offer and rejected two arbitration awards. The carrier also stated that the first arbitration award was so close to the policy limits that it would have nothing to lose by trying the case. Four years later, the case went to trial, yielding a $255,175 verdict for the insureds, molded to the carrier’s $100,000 policy limits. The insureds contested this result, arguing that the court erred by molding the verdict because the carrier had acted in bad faith. The Appellate Division disagreed, rejecting the insureds’ claim.

Subsequently, the insureds filed this bad faith action, alleging that the carrier’s bad faith conduct prior to trial permits them to recover damages. The trial court rejected this claim under the ECD, ruling that the bad faith action should have accompanied the insureds’ UM suit. The Appellate Division agreed, reasoning that the insured’s claim for bad faith did not accrue when the jury returned its UM verdict, but prior to the filing of that action. Records show that the insureds had threatened to file a bad faith claim prior to filing the UM suit, signaling the existence of such a claim at that time.

As such, under the ECD, the insureds were not permitted to pursue an additional action for bad faith because the claim had accrued prior to the UM trial and should have accompanied that action.

Date of Decision: December 13, 2012

Wadeer v. N.J. Mfrs. Ins. Co., NO. A-3206-10T4, 2012 N.J. Super. Unpub. LEXIS 2721, New Jersey Appellate Division (App.Div. Dec. 13, 2012) (Fisher, J. and Nugent, J.)

JANUARY 2013 BAD FAITH CASES: COURT REJECTS MAGISTRATE’S R&R, WHICH DENIED HEARING TO EFFECTUATE SETTLEMENT, BUT DID NOT ADDRESS ASSIGNMENT OF BAD FAITH CLAIM (Middle District)

In Lehman v. Diamond Dev. Co., a magistrate judge denied a motion to effectuate a settlement between an insured corporation and an injured party, who brought suit after sustaining injuries in a slip and fall accident. The parties’ agreement contained: (1) an assignment of the insured corporation’s potential bad faith claim against its carrier for failing to tender indemnity and (2) a $50,000 settlement with a release of all claims against the insured corporation.

The court noted that there is some dispute as to the viability of such an assignment (see this blog), but ruled that the assignment was valid in this instance. Nevertheless, the magistrate recommended that, because counsel for the insured corporation did not disclose his belief that bad faith claims are un-assignable torts, the hearing was unnecessary and found for the injured party on the merits.

The district court rejected the magistrate’s report and recommendation and denied the motion for a hearing to effectuate the parties’ settlement for lack of jurisdiction. However, the court did not address the issue of whether a statutory bad faith claim is assignable under Pennsylvania law.

Date of Report and Recommendation: September 6, 2012
Date of District Court Decision: November 27, 2012

Lehman v. Diamond Dev. Co., No. 4:10-CV-197, 2012 U.S. Dist. LEXIS 171513, U.S. District Court for the Middle District of Pennsylvania (M.D. Pa. Sept. 6, 2012) (Arbuckle III, M.J.),

rejected by, motion denied by, Lehman v. Diamond Dev. Co., No. 4:10-cv-197, 2012 U.S. Dist. LEXIS 167731, U.S. District Court for the Middle District of Pennsylvania (M.D. Pa. Nov. 27, 2012) (Kane, J.)

JANUARY 2013 BAD FAITH CASES: COURT RULES THAT INSURED WAIVED RIGHT TO ARBITRATE BAD FAITH AND COVERAGE ISSUES BECAUSE IT BROUGHT SUIT ON THE SAME POLICY (New Jersey Federal)

The JPMorgan Chase Bank, N.A. v. Republic Mortg. Ins. Co. (see also this blog) case arises from the insured’s coverage, negligence and bad faith actions, initially filed when the carrier rescinded 200 policies covering the insured’s mortgage loans. The court first heard the carrier’s motion to dismiss, which did not address the insured’s bad faith allegations, and dismissed the insured’s negligence claim.

In its second opinion, hyperlinked below, the court examined the carrier’s argument that the insured waived its ability to arbitrate the remaining coverage and bad faith issues when it filed claims arising under the same policy in federal court. Reasoning that the same contractual issues would be present in both arbitration and litigation, the court held that it would be unfair to allow the insured to escape the effect of its waiver by restyling its claim and presenting it for arbitration. As such, the court enjoined the insured from pursuing its arbitration claim.

Date of Decisions: November 30, 2012

JPMorgan Chase Bank, N.A. v. Republic Mortg. Ins. Co., No. 10-6141, 2012 U.S. Dist. LEXIS 170325, 2012 U.S. Dist. LEXIS 170327 (D.N.J. Nov. 30, 2012) (Martini, J.)

JANUARY 2013 BAD FAITH CASES: COURT RULES THAT CONSEQUENTIAL DAMAGES FOR DIMINUTION OF VALUE ARE IMPROPER ABSENT A VIABLE CLAIM FOR BAD FAITH (New Jersey Federal)

In Walsh Secs. Inc. v. Cristo Prop. Manamgement, Ltd. (see also this blog), the insured filed a motion for clarification, seeking a ruling that it may pursue damages against the carrier for diminution of the value of its company, allegedly caused by the carrier’s failure to cover damages incurred by the insured after fraud perpetrated by a third-party lead to the breakdown of a prospective merger involving the insured. The carrier opposed the insured’s motion, arguing that the court’s rejection of the insured’s bad faith count rendered this claim for consequential damages unsupported.

The court agreed with the carrier, ruling that, while the damages sustained by the insured were foreseeable, its bad faith claim was already dismissed. As such, it would be “illogical” to allow the insured to pursue a theory of damages without a supporting claim.

Date of Decision: November 28, 2012

Walsh Secs. Inc. v. Cristo Prop. Manamgement, Ltd., No. 97-3496, 2012 U.S. Dist. LEXIS 172950, U.S. District Court for the District of New Jersey (D.N.J. Nov. 28, 2012) (Debevoise, J.)

JANUARY 2013 BAD FAITH CASES: COURT DENIES INSUREDS’ BAD FAITH CLAIM BECAUSE TITLE INSURANCE POLICY DOES NOT PROVIDE “GOOD” TITLE, BUT PROTECTS AGAINST TITLE DEFECTS (New Jersey Federal)

In Granelli v. Chi. Title Ins. Co., the court granted the carrier’s summary judgment motion seeking to dismiss the insureds’ breach of contract and bad faith claims stemming from the insureds’ purchase of a title insurance policy from the carrier. After the insureds discovered several boundary disputes with adjacent properties, they contacted the carrier, which investigated the claims for a year, sought to resolve the disputes amicably, and subsequently filed a successful quiet title action after a non-legal resolution fell apart.

The insureds nevertheless brought suit for breach of contract and bad faith. The court granted the carrier’s motion on the breach of contract count because the insureds improperly alleged that the carrier failed to provide it with good title. Recognizing that this is not the function of a title insurance carrier, an entity that can only be sued for breach resulting from actions that occur after it issues a policy, the court rejected the claim. The court also rejected the bad faith action because the carrier complied with the terms of the policy in good faith.

Date of Decision: December 6, 2012

Granelli v. Chi. Title Ins. Co., No.: 10-2582, 2012 U.S. Dist. LEXIS 173611, U.S. District Court for the District of New Jersey (D.N.J. Dec. 6, 2012) (Linares, J.)

JANUARY 2013 BAD FAITH CASES: COURT REJECTS BAD FAITH CLAIM BECAUSE INSURED WAS NOT ENTITLED TO COVERAGE UNDER POLICY (Western District)

In K2 Settlement, LLC v. Certain Underwriters at Lloyd’s, the court heard a carrier’s motion for summary judgment filed in response to its insured’s suit for breach of contract and bad faith. The carrier had denied coverage over the insured’s claim for benefits under a Special Mortgage Bankers Bond. The claim was prompted by an employee’s unauthorized use of escrow accounts held by the insured and an affiliated entity the insured owned. The bond covered “direct financial loss” occurring as a result of dishonest acts by any Employee . . . with the manifest intent to obtain and resulted in the receipt of Improper Financial Gain,” but excluded coverage over losses arising out of “the assets or liabilities, acquired by the Assured as a result of consolidation, merger, or purchase of assets.”

The court accepted the insured’s contention that the intent element of the policy was met, but disagreed that the employee had received a financial benefit from her actions. As such, the court found that the insured’s loss was excluded under the policy.

Because the court concluded that the carrier’s summary judgment was appropriate with respect to the breach of contract issue, it also found for the carrier on the insured’s bad faith claim.

Date of Decision: November 30, 2012

K2 Settlement, LLC v. Certain Underwriters at Lloyd’s, No. 11-0191, 2012 U.S. Dist. LEXIS 170832, U.S. District Court for the Western District of Pennsylvania (W.D. Pa. Nov. 30, 2012) (Lancaster, J.)

JANUARY 2013 BAD FAITH CASES: COURT REJECTS BAD FAITH CLAIM IN ABSENCE OF CARRIER’S DUTY TO DEFEND AND INDEMNIFY THE INSURED CLAIMAINT (New Jersey Federal)

In Evanston Ins. Co. v. Crocilla, the carrier brought a declaratory judgment action against its insured, seeking a declaration that it did not have a duty to defend the insured masseuse in an underlying state court suit stemming from sexual assault allegations against the insured in her professional capacity. Following the carrier’s denial of coverage under a policy exclusion, the insured counter-claimed for bad faith and the parties both filed for summary judgment.

The carrier highlighted policy language that excluded coverage for any suit “arising out of or caused in whole or in part by” (1) the actual or alleged physical contact of a sexual nature, (2) assault and/or battery, (3) any dishonest, fraudulent, criminal or malicious act, or (4) violation of any statute or governmental rule or regulation. The insured countered that the carrier must continue to defend her as long as a potentially covered claim exists.

The court found for the carrier, reasoning that the exclusionary language precludes defense and indemnification in relation to the underlying suit. Given the court’s ruling for the carrier on coverage, the insured’s bad faith claim was void.

Date of Decision: December 26, 2012

Evanston Ins. Co. v. Crocilla, No. 12-101, 2012 U.S. Dist. LEXIS 181767, U.S. District Court for the District of New Jersey (D.N.J. Dec. 26, 2012) (Hillman, J.)

JANUARY 2013 BAD FAITH CASES: COURT DENIES INSURED’S THIRD-PARTY COMPLAINT AGAINST CARRIER FOR CONTRIBUTION IN UNDERLYING CONTRACTUAL SUIT (Philadelphia Federal)

In Feingold v. Quinn, the court denied a Rule 14 third-party complaint by an insured, who sought contribution and indemnity from her insurance carrier. The sought-after funds relate to the carrier’s refusal to defend the insured in another suit, necessitating the insured’s hiring of her own attorney, who now seeks payment of his fees. (See these decisions). The insured has also sued the carrier for bad faith and unsuccessfully sought to assign the claim to her former attorney in satisfaction of her delinquent legal fees.

The court rejected the insured third-party complaint against the carrier because contribution claims are not available in contractual suits. Because the underlying claim by the insured’s attorney sounded in contract and not tort, the carrier could not be liable for the insured’s unpaid fees, regardless of the fact that they were incurred after the carrier denied her a defense.

Date of Decision: December 6, 2012

Feingold v. Quinn, NO. 12-3503, 2012 U.S. Dist. LEXIS 173000, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. Dec. 6, 2012) (Bartle, J.)