Monthly Archive for February, 2013

FEBRUARY 2013 BAD FAITH CASES: MAGISTRATE RECOMMENDS DENIAL OF PLAN BENEFICIARY’S BAD FAITH CLAIM AS PREEMPTED BY FEDERAL ERISA STATUTE (Middle District)

In Terry v. Northrop Grumman Health Plan, the beneficiary of a life insurance plan, provided to her husband by his former employer, brought an action for bad faith against the plan administrator. The administrator moved to dismiss and the magistrate judge recommended granting the motion, reasoning that the federal ERISA statute preempts state-law bad faith claims. The magistrate’s R&R was later adopted by the district court.

Date of Decision: December 3, 2012

Terry v. Northrop Grumman Health Plan, NO. 1:12-CV-263, 2012 U.S. Dist. LEXIS 184112, U.S. District Court for the Middle District of Pennsylvania (M.D. Pa. Dec. 3, 2012) (Methvin, M.J.)

FEBRUARY 2013 BAD FAITH CASES: COURT DISMISSES CARRIER’S APPEAL BECAUSE ALLEGATIONS OF INSURED’S REVERSE BAD FAITH WERE MOOT IN LIGHT OF UNDERLYING SETTLEMENT (New Jersey Appellate Division)

In Rosen v. Earle, a third-party was injured in an automobile accident. She sued the negligent driver and the driver’s insurance carrier for damages sustained in the accident. The claimant also sought a declaratory judgment that the carrier was obligated to cover her injuries under the policy. The carrier responded by asserting that the insured made material misrepresentations that voided coverage under the policy. The trial court ruled that the carrier was obligated to indemnify the insured for the judgment against it. The carrier re-filed its motion in the severed declaratory judgment action. Eventually, the underlying liability and declaratory judgment actions were settled.

On appeal, the carrier argued that the trial court should not have ordered it to indemnify the insured because the insured’s fraudulent conduct voided the policy. The carrier acknowledged that is was not seeking relief for the parties, but nevertheless urged the court to issue an opinion that prevents the recurrence of insurance fraud. The appellate panel dismissed the appeal as moot because the underlying actions were settled and the issue was not one of substantial importance to warrant a decision.

Date of Decision: January 17, 2013

Rosen v. Earle, NO. A-2518-11T1, 2013 N.J. Super. Unpub. LEXIS 114, New Jersey Appellate Division (App.Div. Jan. 17, 2013) (Axelrad, J., Haas, J.)

FEBRUARY 2013 BAD FAITH CASES: COURT AFFIRMS GRANT OF SUMMARY JUDGMENT TO UMBRELLA INSURER BECAUSE UNDERLYING POLICY WAS NOT EXHAUSTED AND PROFESSIONAL SERVICES EXCLUSION JUSTIFIED DENIAL (Philadelphia Commerce Court)

In Lexington Ins. Co. v. Charter Oak Fire Ins. Co., the court issues an opinion explaining its prior grant of summary judgment to an umbrella insurer, ruling that the carrier’s duty to defend and indemnify were not triggered because underlying policies were not exhausted and the policy excluded coverage over injuries arising from professional services. (See also this blog).

The suit arose from a contract between the Philadelphia Water Department (PWD) and the insured, which was providing engineering services for a construction project. The contract contained an indemnification provision that required the insured to defend and indemnify PWD against all liabilities. The insured purchased a general liability policy and a professional service liability policy through the plaintiff-carrier in this case. The general liability policy excluded coverage for injuries arising out the insured’s professional services.

The defendant-carrier in this action insured a joint venture that was later formed to complete PWD’s engineering project. That policy excluded coverage for bodily injury arising out of professional engineering services. The joint venture’s subcontractors also obtained a policy that was to be primary over the aforementioned policy purchased by the joint venture.

The joint venture also purchased an umbrella policy that excluded coverage for damage arising from its professional services. After the claimant in the underlying personal injury action was fatally injured in an area where one of the subcontractors was working, his estate filed suit. The subcontractors and PWD were defended and indemnified by the defendant-carrier in this action. This underlying tort action eventually settled. The plaintiff-carrier filed suit, alleging that the defendant-carrier was obligated to provide coverage, but the court granted summary judgment in the defendant-carrier’s favor.

On appeal, the engineers that entered into the main contract with PWD and later formed the joint venture, sought coverage from the plaintiff-carrier in this action.
The court granted summary judgment in the defendant-carrier’s favor because, as an umbrella insurer, its duty to defend and indemnify had not been triggered by the exhaustion of underlying insurance.

The court recommended affirmation of summary judgment in favor of the defendant-carrier. As it did in its opinion granting the defendant-carrier’s motion, the court reasoned that, under the contract, all “underlying” and “other” insurance must be exhausted before triggering umbrella coverage.

Moreover, the defendant-carrier did not act in bad faith because the applicable policy excluded injuries arising from professional services.

As such, the denial of coverage was justified and the grant of summary judgment was deemed proper on appeal.

Date of Decision: January 3, 2013

Lexington Ins. Co. v. Charter Oak Fire Ins. Co., January Term 2010, No. 2142, 2013 Phila. Ct. Com. Pl. LEXIS 12, Common Pleas Court of Philadelphia County (C.C.P. Phila. 2013) (McInerney, J.)

FEBRUARY 2013 BAD FAITH CASES: COURT GRANTS CARRIER’S SUMMARY JUDGMENT MOTION ON INSURED’S STATUTORY BAD FAITH CLAIM, BUT NOT ON COMMON LAW BAD FAITH CLAIM (Western District)

In Katta v. GEICO, the court heard a carrier’s motion for summary judgment that was filed in opposition to its insured’s claim for common law and statutory bad faith. The case arose out of a motor vehicle accident during which an uninsured driver caused an accident with the insured’s automobile. The insured filed a claim for uninsured motorist (UM) coverage with the carrier, but the parties could not agree upon a valuation of the claim. The insured filed suit and the carrier filed the instant motion.

First, the carrier argued that Pennsylvania does not recognize a cause of action for common law bad faith. The court denied the carrier’s motion on this count, reasoning that Pennsylvania does recognize a claim for common law bad faith in contract.

Second, the carrier claimed that the facts do not support a claim for statutory bad faith. The court granted the carrier’s motion on this count, holding that the insured could not establish that the carrier unreasonably disregarded its claim for lost wages. Moreover, uncertainties existed with respect to the insured’s injuries, putting the carrier under no obligation to pay the UM claim.

As such, the court granted the carrier’s motion in part, dismissing the insured’s statutory bad faith claim, but allowing its claim for common law bad faith to proceed.

Date of Decision: January 24, 2013

Katta v. Geico Ins. Co., No. 2:11-cv-729, 2013 U.S. Dist. LEXIS 9762, U.S. District Court for the Western District of Pennsylvania (W.D. Pa. Jan. 24, 2013) (Flowers Conti, J.)

FEBRUARY 2013 BAD FAITH CASES: APPELLATE COURT AFFIRMS SUMMARY JUDGMENT TO CARRIER BECAUSE INSUREDS FAILED TO COMPLY WITH CARRIER’S INVESTIGATION EFFORTS (Third Circuit)

In Verdetto v. State Farm Fire & Cas. Co., the insureds appealed the district court’s grant of summary judgment to its rental insurance carrier (see this blog) and the district court’s later denial of the insureds’ motion for reconsideration (see this blog).

The court affirmed the district court’s ruling on the insureds’ bad faith and breach of contract claims. It reasoned that the carrier engaged in a thorough investigation of the fire that destroyed the insureds’ rental home and concluded that the fire was caused by arson. Moreover, the insureds were uncooperative throughout the investigation.

Yet, the insureds argued that the issue of whether they materially breached their insurance contract was an issue for the jury. The court noted that, while this is generally true, the carrier had proven that no fact existed for a jury to decide, warranting summary judgment. As such, the court affirmed the district court’s rulings and dismissed the case.

Date of Decision: January 17, 2013

Verdetto v. State Farm Fire & Cas. Co., No. 11-4567, 2013 U.S. App. LEXIS 1372, U.S. Court of Appeals for the Third Circuit (3d Cir. Pa. Jan. 17, 2013) (Greenaway, C.J., Greenberg, C.J., Cowen, C.J.)

FEBRUARY 2013 BAD FAITH CASES: COURT APPLIES TIME ON THE RISK METHOD OF ALLOCATION, AFFIRMS SUMMARY JUDGMENT TO CARRIER (Philadelphia Commerce Court)

In Anheuser-Busch, Inc. v. Ins. Co. of N. Am., an insured corporation being sued by a former employee for exposure to asbestos sought coverage under an excess liability policy. The Commerce Court granted summary judgment to the carrier and the insured corporation appealed. (See also this blog). The Commerce Court opined on several issues presented for the appeal, including choice of forum, allocation, and the insured’s claims for breach of contract and bad faith.

First, the Court had to determine whether to apply New York or Pennsylvania law. A conflict of law existed because New York applies the time on the risk method of allocation, whereas Pennsylvania does not. Since the place of negotiation was in New York, the court affirmed New York as the applicable law.

As such, under the time on the risk method of allocation, the carrier did not have a duty to indemnify the insured corporation in the underlying asbestos suit and was not in breach of its contract since the insured’s excess coverage was never reached. When damages are allocated over a 30-year period, the insured’s losses could not trigger excess of its liability coverage within a policy that was effective from 1981-82. When allocating the $1,000,000 judgment over 30-years, the excess layer above the insured’s $100,000 self-insured retention was not reached.

With respect to the insured’s bad faith claim, the court found no bad faith because the carrier did not breach its contract, and thus it would be impossible to prove that the carrier lacked a reasonable basis to deny coverage. As such, the court recommended that its decision be affirmed.

Date of Decision: January 3, 2013

Anheuser-Busch, Inc. v. Ins. Co. of N. Am., No. 315, 2013 Phila. Ct. Com. Pl. LEXIS 13, Philadelphia County Court of Common Pleas (Pa. C.P. 2013) (McInerney, J.)

FEBRUARY 2013 BAD FAITH CASES: COURT DECLINES TO HOLD THAT ALLEGED “POST-CLAIM UNDERWRITING” IS EVIDENCE OF BAD FAITH, DENIES CARRIER’S SUMMARY JUDGMENT MOTION ON BASIS OF POTENTIAL ESTOPPEL IN UNDERWRITING PROCESS (Lackawanna County Common Pleas)

In AJT Props. v. Lexington Ins. Co., a commercial property owner purchased building and property insurance, which, based on surveys, indicated that the property was not in a special flood hazard area (“SFHA”). Several years later, the property suffered flood damage. The insured filed a claim under its policy and the carrier tendered coverage for building and personal property losses, totaling $1,000,000. However, the carrier denied coverage for the flood loss based on a post-claim survey establishing that the property was in an excluded SFHA area.

The insured property owner filed suit, alleging breach of contract and bad faith. The carrier responded by filing a motion for summary judgment.

First, the court rejected an opportunity to predict whether the carrier’s alleged post-claim underwriting was tantamount to bad faith conduct because the insured property had been the subject of an underwriting investigation more than two months before the flood.

Second, the court ruled that the insured was not entitled to a finding that its policy was ambiguous with respect to flood coverage.

However, the court recognized that the carrier might be estopped from denying coverage based on a pre-flood investigation concluding that the insured property was not in an SFHA area. The court was unable to conclusively determine this issue because of disputed factual issues. As such, summary judgment was not appropriate and the carrier’s motion was denied.

Date of Decision: July 26, 2012

AJT Props. v. Lexington Ins. Co., NO. 08-CV-4252, 2012 Pa. Dist. & Cnty. Dec. LEXIS 308, Lackawanna County Court of Common Pleas (Pa. County Ct. 2012) (Nealon, J.)

FEBRUARY 2013 BAD FAITH CASES: FEDERAL COURT DENIES REMOVAL OF BAD FAITH ACTION BECAUSE STATE COURT WRIT WITH ATTACHED LETTER IS INSUFFICIENT FOR JURISDICTION (Middle District)

In Reed v. Allstate Ins. Co., the court addressed a carrier’s notice of removal filed in response to an insured’s state court writ of summons. The district court rejected the carrier’s notice of removal because the insured had not yet filed an initial pleading to establish an Article III case or controversy.

The court reasoned that the insured’s letter to its insurance carrier identifying the nature of her claim was insufficient to establish jurisdiction over this action. The only indication of an action against the carrier was the insured’s Praecipe of Summons accompanied by a letter from the insured’s counsel.

Date of Decision: December 27, 2012

Reed v. Allstate Ins. Co., NO. 3:CV-12-2515, 2012 U.S. Dist. LEXIS 182074, U.S. District Court for the Middle District of Pennsylvania (M.D. Pa. Dec. 27, 2012) (Caputo, J.)

FEBRUARY 2013 BAD FAITH CASES: COURT DENIES INSURED’S CLAIM BECAUSE FACTUAL BACKGROUND AND INVESTIGATION WERE NOT ENOUGH TO SUPPORT ALLEGATIONS OF BAD FAITH (Philadelphia Federal)

In Davis v. State Farm Ins., the court heard a carrier’s motion for summary judgment that was filed in response to an insured’s claims for breach of contract and bad faith. The insured filed a claim for theft under her car insurance policy, but the carrier denied coverage after an investigation revealed that the insured’s car entered a towing facility two days prior to her reporting it stolen. Because the carrier’s investigators engaged in a thorough, month-long probe into the theft, the court found no evidence of bad faith and granted the carrier’s summary judgment motion. Yet, the court denied the carrier’s motion for summary judgment on the insured’s breach of contract count, citing factual discrepancies.

Date of Decision: December 13, 2012

Davis v. State Farm Ins., NO. 11-cv-3401, 2012 U.S. Dist. LEXIS 177225, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. Dec. 13, 2012) (Joyner, J.)

FEBRUARY 2013 BAD FAITH CASES: COURT SEVERS UIM AND BAD FAITH CLAIMS, BUT REFUSES TO GRANT STAY OF BAD FAITH ACTION UNTIL UIM CLAIM WAS RESOLVED (Monroe County Court of Common Pleas)

In Orsulak v. Windish, an insurance carrier moved to sever an insured’s underinsured motorist (“UIM”) claims from the accompanying breach of contract and bad faith claims. The court granted the motion for severance, splitting the UIM claim from the insured’s allegations of bad faith and breach of contract.

The court granted the carrier’s request to sever the insured’s UIM claim from its bad faith action because evidence used in the bad faith claim would likely confuse and prejudice a jury in the UIM case. However, the court denied the carrier’s motion to stay all bad faith proceedings until the UIM claim was resolved, reasoning that the potential mootness of the bad faith claim did not warrant a blanket stay on that aspect of the insured’s suit.

Date of Decision: January 14, 2013

Orsulak v. Windish, No. 55-CIVIL-2011, Monroe County Court of Common Pleas (Monroe Cty. Jan. 14, 2013) (Williamson, J.)