Monthly Archive for May, 2013

MAY 2013 BAD FAITH CASES: COURT GRANTS INSURED’S PRELIMINARY OBJECTIONS, DENIES BAD FAITH CLAIM AND RULES THAT NEGLIGENT SUPERVISION DOES NOT TRIGGER COVERAGE (Philadelphia Commerce Court)

In Calfayan Constr. Assocs. v. Erie Ins. Exch., the insured, a general contractor, filed suit for bad faith and breach of contract, seeking a declaration that the carrier owed a duty to defend the insured in an underlying negligent construction lawsuit.

The carrier filed preliminary objections, arguing that the cause of action in the underlying lawsuit was not a covered “occurrence” under the policy, which covered property damage and harmful conditions. The insured argued that the underlying lawsuit did not just allege poor workmanship, but negligent construction, which should be covered.

The court rejected this argument, finding that negligent construction is not covered as property damage. As such, no suit for bad faith could exist and dismissal was proper.

Date of Decision: March 27, 2013

Calfayan Constr. Assocs. v. Erie Ins. Exch., Jan. Term, 2013, No. 00256, 2013 Phila. Ct. Com. Pl. LEXIS 59, Philadelphia Court of Common Pleas (Pa. C.P. 2013) (Snite, Jr., J.)

MAY 2013 BAD FAITH CASES: COURT AFFIRMS SUMMARY JUDGMENT BECAUSE INSURED FILED SUIT AFTER THE ONE-YEAR SUIT LIMITATION PERIOD EXPIRED (New Jersey Appellate Division)

In Zaun v. Franklin Mut. Ins. Co., the court heard an insured’s appeal from the trial court’s summary judgment to a homeowner’s insurance carrier. The suit arose after the carrier denied coverage over water damage to the insured’s home. The carrier denied coverage because the premises had been vacant for more than 60-days, triggering an exclusion in the policy. The insured sought review with the carrier’s internal appeals panel, but coverage was again denied. After filing suit for bad faith and breach of contract, the carrier filed for summary judgment, which the court granted on the basis of a one-year suit limitation clause in the insurance contract.

On appeal, the insured argued that the carrier waived the one-year suit limitation clause because it permitted the insured to file for an internal appeal after the permitted 30-day request period. The court rejected this argument, reasoning that the carrier made an accommodation for the insured with the internal review, something that does not waive the one-year suit limitation clause. As such, summary judgment was affirmed and the insured’s bad faith suit was terminated.

Date of Decision: March 19, 2013

Zaun v. Franklin Mut. Ins. Co., No. A-5193-11T2, 2013 N.J. Super. Unpub. LEXIS 608, New Jersey Superior Court Appellate Division (App.Div. Mar. 19, 2013) (Fisher, J., Alvarez, J.)

MAY 2013 BAD FAITH CASES: COURT DENIES INTERVENOR’S MOTION TO PLACE BAD FAITH SETTLEMENT IN ESCROW (Philadelphia County Common Pleas)

In Weist v. Pierce, the claimant, a police officer, was injured in an auto accident in the course of her employment. She settled with the negligent party for $625,000, a figure that took into consideration a bad faith claim against negligent parties’ insurance carrier. The officer’s employer filed an intervening motion to stay the distribution of the settlement proceeds, claiming that the entire settlement should be placed in escrow until it determined its subrogation interest under the Workers’ Compensation Act, 77 Pa. Stat. Ann. § 671.

The intervening employer appealed the trial court’s denial of the stay and the court wrote this opinion support of its decision. The court held that it was right to deny the employer’s motion and ordered the priority distribution of $358,000.000 to the officer’s attorney in accordance with the attorney fee agreement between her and counsel. The court placed the balance of the settlement proceeds in escrow, including a portion of the settlement paid in consideration of the officer’s agreement not to pursue a subsequent bad faith claim against the negligent parties’ carrier.

Date of Decision: March 22, 2013

Weist v. Pierce, August Term, 2010, No. 04851, 2013 Phila. Ct. Com. Pl. LEXIS 71, Philadelphia Court of Common Pleas (C.C.P. Phila. 2013) (Quiñones Alejandro, J.)

MAY 2013 BAD FAITH CASES: COURT RULES THAT BAD FAITH CLAIM CANNOT BE PREMISED ON CARRIER’S FILING FOR DECLARATORY JUDGMENT (Philadelphia Federal)

In First Liberty Ins. Corp. v. Walker, the carrier filed a declaratory judgment action to determine its obligation to defend its insured in an underlying state court property damage action. The underlying action was commenced by the insured’s neighbor as the result of intentional property damage and as a means to concede an easement on the insured’s property.

As both of these occurrences would not be covered under the insured’s homeowner policy, the carrier assumed defense under a reservation of rights and then filed this action. The insured thereafter filed a counterclaim for bad faith, which the carrier moved to dismiss.

The court granted the carrier’s motion to dismiss, reasoning that the insured did not properly allege how the carrier violated the policy or describe how the carrier’s defense was inadequate. Moreover, the court ruled that the insured’s bad faith claim could not be premised upon the carrier’s declaratory judgment action alone. Lastly, the court granted the insured leave to amend.

Date of Decision: March 7, 2013

First Liberty Ins. Corp. v. Walker, No. 12-6823, 2013 U.S. Dist. LEXIS 32018, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. Mar. 7, 2013) (Yohn, J.)

MAY 2013 BAD FAITH CASES: COURT GRANTS CARRIER’S SUMMARY JUDGMENT MOTION BECAUSE INSURED FAILED TO ALLEGE A CLAIM FOR BAD FAITH (Philadelphia Federal)

In Quinn v. Liberty Mut. Group, the carrier filed for summary judgment on a claim for bad faith brought by the representative of an insured decedent’s estate (see this post). The decedent sustained serious injuries as the result of a car accident with an uninsured motorist. The carrier refused to pay an arbitration award and the representative filed suit for bad faith.

The carrier claimed that it acted with the reasonable belief that New Jersey law applied, which would permit them to properly reject the arbitration award and demand a trial.

The court granted the carrier’s motion, reasoning that it did not need to decide whether Pennsylvania or New Jersey law applied because the claimant’s allegations were insufficient to sustain a finding of bad faith.

Date of Decision: March 7, 2013

Quinn v. Liberty Mut. Group, No. 11-5364, 2013 U.S. Dist. LEXIS 31194, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. Mar. 7, 2013) (Bartle, J.)

MAY 2013 BAD FAITH CASES: COURT RULES THAT CARRIER HAS NO DUTY TO NOTIFY INSURED OF PROVISION IN POLICY FOR REIMBURSEMENT OF LOST WAGES AND TRAVEL EXPENSES (Superior Court)

In Albert v. Erie Ins. Exch., an insured appealed a decision of the trial court that granted the carrier’s motion to dismiss the insured’s claims. Specifically, the insured claimed that the carrier’s failure to reimburse her for lost wages and travel expenses, which the insured incurred when she attended a deposition in connection to a civil action against her, constituted a breach of contract and bad faith.

This action began when the insured was involved in an automobile accident and a lawsuit was filed against her. The insured’s carrier tendered a defense and requested that the insured appear for a deposition. After the carrier refused to reimburse the insured for lost wages and travel expenses, she filed suit. The trial court dismissed the suit.

On appeal, the appellate court ruled that the trial court properly dismissed the insured’s breach of contract and bad faith suit. It reasoned that the insured never alleged that she made a claim to the carrier for reimbursement of her expenses. Moreover, the court reasoned that the carrier could not be held liable for breach of contract because, under the policy, the insured was required to give notice of the need for reimbursement. The court also refused to find that the carrier had an implied duty to inform insureds of the ability to seek reimbursement.

As such, the appellate court affirmed the trial court’s holding and ruled that the lower court was correct to dismiss the suit, as there was no breach of contract or bad faith.

The dissenting opinion agreed that a finding of no bad faith was appropriate, but would have found that the insured was not required to notify its carrier of the need for reimbursement.

Date of Decision: March 20, 2013

Albert v. Erie Ins. Exch., 65 A.3d 923 (Pa. Super. Ct. 2013) (Lazarus, J.)

MAY 2013 BAD FAITH CASES: COURT LARGELY PRECLUDES EXPERT TESTIMONY; GRANTS SUMMARY JUDGMENT TO CARRIER BECAUSE DELAY IN PAYMENT WAS NOT IN BAD FAITH AND CARRIER’S INITIAL FAILURE TO PROPERLY ISSUE TAX REMITTANCE CHECK WAS MERE NEGLIGENCE; DIFFERENCE IN VALUATIONS AND TERMS FOR DETERMINING COST NOT BAD FAITH (Philadelphia Federal)

In Mirarchi v. Seneca Specialty Ins. Co., the court heard cross motions for summary judgment from a carrier and its insured, stemming from the insured’s suit for breach of contract and bad faith. The insured alleged that the carrier unreasonably delayed the payment of insurance proceeds after a fire damaged his commercial property.

First, the carrier argued that the insured’s expert should not be permitted because he sought to testify to ultimate issues in the case. The expert was an attorney with experience litigating insurance cases and had no professional insurance experience as an adjustor, appraiser, umpire or other direct industry involvement. The court agreed, finding that large portions of the insured’s expert report should not be admissible.

Second, the carrier argued that it did not act in bad faith by delaying its payments or tendering partial payments. The court agreed, finding that a carrier may delay payment until an entire investigation is complete. The court also refused to find that the carrier’s adjuster and construction appraiser conspired to set damages estimates at a low level. Moreover, the court agreed with the carrier that it was reasonable to maintain its estimate even after an independent appraisal submitted a difference figure.

Third, the court agreed with the carrier than an insurer is permitted to modify its standard fire insurance policies to allow recovery of only replacement cost minus depreciation in partial loss situations, as it did in this situation.

Fourth, the court held that the carrier could not be held liable for issuing a tax remittance check to the improper parties, resulting in the need for a second check issued to the City. The court agreed that the carrier negligently issued a check to multiple parties instead of just to the City, explaining its reissuance of a new check when the error was discovered.

Lastly, the court concluded that the carrier did not breach its insurance contract.

Date of Decision: March 22, 2013

Mirarchi v. Seneca Specialty Ins. Co., 2013 U.S. Dist. LEXIS 40513, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. Mar. 22, 2013) (Pratter, J.)
Prior related entry here.

MAY 2013 BAD FAITH CASES: COURT OVERTURNS TRIAL COURT’S GRANT OF SUMMARY JUDGMENT BECAUSE INNOCENT SPOUSE WAS VICTIM OF ABUSE, REMANDS FOR DETERMINATION OF BAD FAITH (Superior Court)

In Lynn v. Nationwide Ins. Co., the court heard an insured’s appeal from the trial court’s summary judgment in favor of the carrier, ruling that the insured’s policy had been cancelled. The case arose after the insured’s estranged wife, a co-insured, attempted to cancel an insurance policy on their home. The wife later attempted to burn the home down with her and her children inside. The children escaped and the plan was foiled, but home and its contents were damaged. The wife later pleaded guilty to several criminal charges.

After the incident, the husband reported the damage to the carrier, but was denied because his estranged wife had allegedly cancelled the policy. The insured filed suit against the carrier, alleging breach of contract and bad faith. The carrier filed a motion for summary judgment, alleging that the policy was cancelled, the damage was excluded under an intentional acts provision and that the insured concealed an inventory of items in the home. The trial court granted the motion and the insured appealed.

On appeal, the court ruled the trial court had improperly interpreted a Pennsylvania statute which prohibits the denial of claims by an innocent co-insured where the loss was caused by the intentional acts of another insured. The legislature passed this statute to protect the victims of abuse from the denial of coverage based upon intentional acts exclusions contained within an insurance policy. The court also ruled that the estranged wife’s attempts to cancel the policy were invalid. Lastly, the court found a material issue of fact with respect to the insured’s alleged concealment of certain facts.

As such, the court remanded the case for a determination of the remaining issues, including the carrier’s alleged bad faith denial of coverage.

Date of Decision: May 1, 2013

Lynn v. Nationwide Ins. Co., 2013 PA Super 101 (Pa. Super. Ct. 2013) (Donohue, J.)

MAY 2013 BAD FAITH CASES: COURT RULES THIRD-PARTY DEFENDANT IS REQUIRED TO INDEMNIFY DEFENDANT AND PAY LEGAL FEES, DESPITE INDEMNITOR’S FAILURE TO PURCHASE INSURANCE AND THE ABSENCE OF BAD FAITH (New Jersey Appellate Division)

In Choinski v. Dendrite Int’l, the appellate court reviewed the validity of an indemnification clause entered into by the defendant and third-party in a personal injury action. A jury found that the defendant was not negligent in the underlying suit and the court ordered the third-party defendant to reimburse the primary defendant for (1) a $20,000 settlement paid for the personal injury complaint and (2) $25,500 of legal fees.

The defendant then brought a claim to enforce the third-party defendant’s obligation to provide general liability insurance for the underlying personal injury action. The trial court granted summary judgment in favor of the primary defendant and the third-party defendant appealed. The appellate court remanded for a determination of whether the third-party defendant was in breach of contract for failing to obtain the required liability insurance. The trial court granted the primary defendant’s motion and the third-party defendant indemnitor brought the instant appeal.

The appellate court upheld the trial court’s ruling, finding that the indemnification clause was valid. The court also ruled that the primary defendant is entitled to the full protection provided by coverage, as it would have been if the indemnitor had purchased the required coverage. The court noted that a showing of bad faith is not needed to require the payment of attorney fees.

Date of Decision: April 25, 2013

Choinski v. Dendrite Int’l, NO. A-0780-11T1, 2013 N.J. Super. Unpub. LEXIS 952, New Jersey Appellate Division (App.Div. Apr. 25, 2013) (Alvarez, J., St. John, J.)

MAY 2013 BAD FAITH CASES: COURT REFUSES TO HOLD THAT CARRIER ACTED UNDER COLOR OF STATE LAW; DISAGREES WITH PLAINTIFF THAT CARRIER ACTED IN BAD FAITH

In Andrekovich v. PennPrime Liab. Trust, the plaintiff was a police officer whose employment was terminated after a prisoner in his custody died. The officer filed suit against the borough for which he worked, the borough’s liability insurance carrier and two attorneys appointed by the carrier, alleging deprivations of liberty and property under §1983. Specifically, the plaintiff claimed that defendants, including the carrier, engaged in a “joint action” to file false charges and terminate his employment without the proper procedural safeguards.

The plaintiff alleged further that the carrier and the Borough refused to reinstate him or award him back pay. Furthermore, he alleged that the carrier caused the Borough to pursue frivolous appeals to the Court of Common Pleas and the Commonwealth Court. According to the plaintiff, these acts were coordinated to reach a settlement in the wrongful death action filed against the Borough by the deceased prisoner’s estate.

The court determined that the plaintiff’s civil rights were violated. However, the court ruled that the carrier was not acting under the color of state law, rendering it an improper defendant in the plaintiff’s civil rights suit. As such, the carrier could not be held liable for bad faith conduct in its litigation of the underlying wrongful death action and subsequent termination of the plaintiff.

Date of Decision: March 5, 2013

Andrekovich v. PennPrime Liab. Trust, 2:12cv195, 2013 U.S. Dist. LEXIS 29781, U.S. District Court for the Western District of Pennsylvania (W.D. Pa. Mar. 5, 2013) (Cercone, J.)