Yearly Archive for 2018

MVFRL PRE-EMPTED INSURED’S BAD FAITH CLAIMS FOR BENEFITS, BUT INSURED ALLOWED TO AMEND IF SHE COULD PLEAD ABUSE OF PRO PROCESS (Middle District)

The magistrate judge recommended dismissing the alleged section 8371 bad faith claims, but further recommended allowing the insured to amend her claim to plead abuse of the PRO process.

All of the bad faith claims actually pleaded involved denial of first party medical benefits under an auto policy. The MVFRL preempted these claims, and the section 8371 bad faith action was dismissed. The court observed, however, that challenges “to the PRO process itself or to the insurer’s abuse of the PRO process” are not preempted, and can constitute independent section 8371 bad faith.

Though not in the complaint, the brief opposing dismissal included allegations that might push the insurer’s conduct beyond the MVFRL’s parameters, and into the abuse of process realm. Thus, the magistrate judge recommended allowing leave to amend the section 8371 action instead of dismissal with prejudice, and the district judge adopted this recommendation.

Date of Decision: November 19, 2018 (Report and Recommendation), December 13, 2018 (Order Adopting Report and Recommendation)

Barnard v. Liberty Mut. Ins. Corp., U.S. District Court Middle District of Pennsylvania Civil No. 3:18-CV-01218, 2018 U.S. Dist. LEXIS 197852 (M.D. Pa. Nov. 19, 2018) (Carlson, M.J.) (Report and Recommendation), adopted by District Court (Mariani, J.)

DECEMBER 2018 BAD FAITH CASES: FAILURE TO DESCRIBE ACTUAL BAD FAITH TACTICS, DATES CONNECTED TO DELAYS, DEFICIENCIES IN CLAIM HANDLING, OR DISHONEST INVESTIGATION UNDERMINE BAD FAITH CLAIMS (Philadelphia Federal)

This UIM bad faith case involved the insurer’s refusal to pay based on whether a college-aged child was a “resident relative” under her parents’ policy.

In addressing a motion to dismiss the bad faith claim, the court observed that “the party bringing the bad faith claim must describe who, what, where, when, and how the alleged bad faith conduct occurred.” Insurers do not act in bad faith simply by investigating claims to protect their interest during litigation, absent evidence of some dishonest purpose. In this case, the pleadings were conclusory and did not provide this detail.

The bad faith claim was “unsupported by any facts that explain how the alleged bad faith conduct occurred. Indeed, there are no specific facts showing how Plaintiff lacked a reasonable basis in its interpretation, administration, investigation, or delay of UIM benefits….” The allegations that the insurer “unreasonably investigated” the claim were unsupported by facts indicating how the insurer’s claim handling procedures were deficient. Claims about delays failed to set forth the dates of any actions that could show delays were unreasonable. Further, arguments over “obstructive tactics” used to force an “inadequate settlement” lacked specifics in identifying those tactics and did not set out a plausible claim.

The court did give leave to file an amended pleading.

Date of Decision: December 7, 2018

Amica Mutual Insurance Co. v. Das, U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-1613, 2018 U.S. Dist. LEXIS 206787, 2018 WL 6435332 (E.D. Pa. Dec. 7, 2018) (Jones, J.)

DECEMBER 2018 BAD FAITH CASES: REJECTING POLICY LIMITS DEMAND, STANDING ALONE, IS NOT EVIDENCE OF BAD FAITH ABSENT UNREASONABLE AND INTENTIONAL UNDERVALUATION (Middle District)

This case has been affirmed on appeal. The Third Circuit’s opinion can be found here.

In this UIM bad faith case, the insured asserted that (1) the insurer failed to provide a reasonable basis for its valuation of plaintiff’s claim, and (2) the insurer refused to negotiate in good faith. The court recited a detailed history of: medical examinations, medical history and treatment (or absence thereof); the parties’ negotiations – during which plaintiff never lowered its policy limits demand; and the details of a high/low arbitration that ultimately resulted in the insurer paying less than policy limits, but more than its valuation.

The court granted summary judgment to the insurer. The record demonstrated the insurer came forward “with sufficient evidence to establish an absence of any genuine dispute of material fact as to its conduct in pre-arbitration dealings” with the insured. The court found that in valuing the claim, the insurer relied upon expert reports and the absence of documentation from the insured showing any surgical history for which damages might be due.

As to claim handling, investigation, and valuation, the court observed that the essence of a bad faith claim is the unreasonable and intentional/reckless denial of a benefit. While the insurer’s settlement offers were lower than the policy limit demand and the ultimate arbitration award, this cannot create bad faith per se. Rather, a low but reasonable valuation is not bad faith. The court found the insurer’s valuations reasonable based on its investigation, and the sum it was willing to pay in setting the high/low arbitration parameters.

It was also significant to the court that the insured never lowered her policy limits settlement demand. Again, an insurer is not required to automatically submit to a policy limits demand or subject itself to bad faith liability. An insurer has a duty to investigate the claim fairly and objectively in coming to a valuation, and standing alone, a refusal to pay policy limits is not evidence of bad faith or unreasonable valuation. An insurer may even “aggressively investigate and protect its interests in the normal course of litigation” absent doing so in bad faith.

Finally, in finding an absence of bad faith, the court observed that the claim handler did in fact change her valuation over time.

Date of Decision: December 6, 2018

Rau v. Allstate Fire & Casualty Insurance Co., U.S. District Court Middle District of Pennsylvania No. 3:16-CV-0359, 2018 U.S. Dist. LEXIS 206343 (M.D. Pa. Dec. 6, 2018) (Mariani, J.)

Thanks to Dan Cummins of the excellent Tort Talk Blog for bringing this case to our attention.

DECEMBER 2018 BAD FAITH CASES: THREE MIDDLE DISTRICT OPINIONS FIND CONCLUSORY ALLEGATIONS CANNOT MAKE OUT A BAD FAITH CASE (Middle District)

Three recent Middle District opinions, decided between December 10-12, 2018, found the insureds’ bad faith pleadings constituted conclusory allegations that had to be dismissed under federal pleading standards. The plaintiffs, however, were all allowed to file amended complaints. Two of the opinions are by Judge Caputo, and one by Judge Rambo. All are UIM cases.

In Clarke v. Liberty Mutual Insurance Company, Judge Caputo found the following allegations bare bones and conclusory, absent alleging any further factual support for such conclusions:

  1. Denying coverage under the underinsured motorist provisions of the policy when Defendants knew or disregarded the fact that Defendant lacked a reasonable basis for denying such a claim;

  2. Failing to promptly provide the full UIM benefit for which Plaintiffs had paid and contracted when Plaintiff had provided Defendants evidence that demonstrated clearly that her injuries were caused by an underinsured motorist and her damages exceeded the value of the UIM coverage on the policy;

  3. Failing to make an offer when the Defendants knew that Plaintiff had suffered severe injuries caused by an underinsured driver and Plaintiff had made a valid claim for UIM benefits;

  4. Arbitrarily refusing to provide coverage available under the policy;

  5. Failing to conduct an adequate and objective investigation into the extent of Plaintiff’s injuries and failing to make an offer to settle the case; [and]

  6. Failing to conduct a reasonable evaluation of the value of the case.

Judge Caputo referenced his earlier Meyers decision in finding these types of allegations inadequate, and also cited the propositions that: (1) an insured’s subjective belief about a claim’s value that differs from the insurer’s valuation is not enough to state a claim without actual facts objectively supporting that belief; (2) the failure to make a settlement offer after receiving documents is not bad faith without “additional factual support such as the complexity of the claim and the time passed between the date Plaintiffs supplied the necessary information and the date the complaint was filed”; and (3) the failure to accede to a policy limits demands alone is not bad faith.

Two days later, Judge Caputo decided Moran v. United Services Automobile Association. He found the following allegations, without any supporting factual allegations, to be inadequate conclusory pleadings under the Federal Rules:

  1. failed to promptly and reasonably respond to Plaintiff’s counsel’s demands for prompt payment of Plaintiff’s underinsured [sic] benefits;

  2. unreasonably and vexatiously delayed consent to settle for claim under claim [sic] against the tortfeasor;

  3. failed to properly investigate Plaintiff’s claim;

  4. failed to name an arbitrator as requested by Plaintiff’s counsel and required under the terms of the policy;

  5. failed to exercise the utmost good faith and discharge of its statutory and contractual duties to the Plaintiff;

  6. failed to attempt in good faith to effectuate a prompt, fair and equitable settlement of Plaintiff’s underinsured [sic] benefits claim;

  7. failed to adopt and implement reasonable standards for the prompt investigation and payment of underinsured [sic] benefits claim arising out of Plaintiff’s automobile insurance contract; [and]

  8. failed to act promptly and [sic] timely fashion responding to Plaintiff’s counsel.

Finally, in Winslow v. Progressive Specialty Insurance Company, relying on similar case law as the above two cases, Judge Rambo found the following allegations conclusory, and dismissed the bad faith claim with leave to amend:

  1. Failed to promptly and reasonably respond to Plaintiff’s demands for prompt payment of Plaintiff’s insurance claims after Defendant had been provided with loss documentation that clearly established that immediate payment of such insurance benefits was justifiable and warranted;

  2. Unreasonably and vexatiously delayed payment of insurance benefits to the Plaintiff when it was clear that immediate payment of the insurance policy benefits was justified and warranted;

  3. Failed to make a reasonable settlement offer or payment to the Plaintiff, thereby compelling Plaintiff to institute the instant action and incur additional costs to recover those benefits rightly due to him;

  4. Failed and/or refused to pay the full amount of Plaintiff’s insurance policy benefits and damages without a reasonable foundation to do so;

  5. Forced Plaintiff to unnecessarily incur significant debt by failing to promptly pay insurance policy benefits that were rightly to him;

  6. Failed to adopt and implement reasonable standards for the prompt investigation and payment of insurance policy benefits arising out of Plaintiff’s insurance contract;

  7. Failed to pay Plaintiff’s insurance policy benefits and claims within a reasonable time after supporting loss documentation had been provided to defendant;

  8. Failed to attempt in good faith to effectuate a prompt, fair, and equitable settlement of Plaintiff’s insurance policy benefits and claims even though there was no issue as to Defendant’s liability for the insurance policy benefits;

  9. Failed to exercise the utmost good faith and discharge of its statutory and contractual duties to Plaintiff; and

  10. Engaged in unfair claims settlement and insurance practices in violation of common law and Defendant’s statutory obligations.

Judge Rambo also looked to her recent decision in Rickell when measuring the adequacy of these allegations.

Date of Decision: December 10, 2018

Clarke v. Liberty Mut. Ins. Co., U.S. District Court Middle District of Pennsylvania NO. 3:18-CV-1925, 2018 U.S. Dist. LEXIS 207646 (M.D. Pa. Dec. 10, 2018) (Caputo, J.)

Date of Decision: December 12, 2018

Moran v. United Servs. Auto. Association USAA, U.S. District Court Middle District of Pennsylvania NO. 3:18-CV-2085, 2018 U.S. Dist. LEXIS 209315 (M.D. Pa. Dec. 12, 2018) (Caputo, J.)

Date of Decision: December 12, 2018

Winslow v. Progressive Specialty Ins. Co., U.S. District Court Middle District of Pennsylvania CIVIL ACTION NO. 3:18-CV-1094, 2018 U.S. Dist. LEXIS 209057 (M.D. Pa. Dec. 12, 2018) (Rambo, J.)

DECEMBER 2018 BAD FAITH CASES: NO BAD FAITH WHERE CARRIER’S SETTLEMENT OFFERS ARE BASED ON THIRD PARTY EVALUATION, AND ANY DELAYS WERE CREATED BY INSURED (New Jersey Appellate Division)

This first party bad faith case centered on damage to plaintiff’s automobile. The insured claimed the carrier knowingly failed to tender the true value of plaintiff’s property damage. The lower court granted the insurer summary judgment on bad faith, and the insured appealed.

The appellate court found no bad faith. The insurer “made multiple offers to settle the claim that were all based upon third-party evaluations” of a vehicle with 269,000 miles on it. Moreover, it was the insured who “initially delayed the processing of the claim by insisting he would obtain an amended police report showing he was not at fault in the accident,” but “after the passage of several weeks, he relented.” Further, after finally supplying requested information to the insurer, the third party evaluator did substantially increase the settlement offer.

Under these circumstances, “no reasonable factfinder could conclude that defendant acted with knowledge or reckless disregard of the lack of a reasonable basis for denying the claim or with reckless . . . indifference to facts or to proofs submitted by the insured.”

Date of Decision: December 3, 2018

Ferro v. Travelers Insurance Co., Superior Court of New Jersey DOCKET NO. A-5174-16T3, 2018 N.J. Super. Unpub. LEXIS 2642, 2018 WL 6272940 (New Jersey Appellate Division Dec. 3, 2018)

DECEMBER 2018 BAD FAITH CASES: INSURED ADEQUATELY ALLEGES BAD FAITH BASED UPON HIS SUPPLYING A FULL RANGE OF INFORMATION SUPPORTING HIS INJURIES, DAMAGES AND CAUSATION (Western District)

The court found the insured adequately pleaded a statutory bad faith claim in this UIM case, based on claim handling.

The insured allegedly suffered serious injuries and underwent a wide range of medical treatments. He also claimed over $1 Million in lost wages and benefits.

Plaintiff allegedly proferred a policy confirmation, and provided the insurer with medical records, a police report and an economic report, in support of his policy limits demand. The complaint alleged that the insured had “voluntarily provided and otherwise fully complied with all requests by [the insurer] for medical records, a sworn statement by Plaintiff, an independent medical evaluation, and other information.” Significantly, all information provided supported both the extent of the insured’s injuries and damages, and that the other driver caused the accident.

The insured alleged the carrier did not respond for three months, and subsequently “abruptly denied the claim”.

The court found these pleadings sufficient “to find both that Defendant lacked a reasonable basis for its denying Plaintiff’s claim for UIM benefits under the Policy, and that Defendant knew or recklessly disregarded its lack of a reasonable basis in denying the claim.”
Date of Decision: December 3, 2018

Baldridge v. Geico Insurance Co., U.S. District Court Western District of Pennsylvania No 18cv1407, 2018 U.S. Dist. LEXIS 204117, 2018 WL 6305589 (W.D. Pa. Dec. 3, 2018) (Schwab, J.)

DECEMBER 2018 BAD FAITH CASES: COURT REFUSES TO JOIN UNDERLYING STATE COURT NEGLIGENCE WITH FEDERAL ACTION FOR BREACH OF POLICY AND BAD FAITH (Western District)

The insured-plaintiff attempted to join her underlying state court negligence action with her UIM bad faith and breach of contract federal action against her insurer. Both the tort defendant in the state case and the plaintiff were insured by the same carrier.

The court rejected this effort, observing that the two actions were distinct. There was no basis to join the underlying state action with the federal bad faith action simply because of the fortuity that that the same insurer was also defending another insured from a tort claim.

Date of Decision: November 30, 2018

Pastin v. Allstate Ins. Co., U.S. District Court Western District of Pennsylvania Civil No. 17-1503, 2018 U.S. Dist. LEXIS 203076 (W.D. Pa. Nov. 30, 2018) (Horan, J.)

DECEMBER 2018 BAD FAITH CASES: JUDGE BAYLSON DENIES MOTION TO SEVER AND STAY BAD FAITH CLAIM IN UIM CASE, CITING AND DISTINGUISHING HIS AND OTHER PRIOR PRECEDENTS (Philadelphia Federal)

The insurer moved to sever and stay the plaintiffs’ UIM bad faith claim. In ruling against the insurer, Judge Baylson reviewed four cases he has previously decided on this issue, Zinno (2016), Corley (2016), Reeves (2017), and Jones-Silverman (2017).

First, the Court observed generally that bifurcation is not routine, and a court must balance the parties’ convenience, avoiding prejudice, and promoting expeditious resolution. The four factors to consider on a Federal Rule 42 motion to sever claims include: “(1) [W]hether the claims sought to be tried separately are significantly different from one another, (2) whether the claims require different evidentiary proof, (3) whether the non-moving party will be prejudiced by severance, and (4) whether the moving party will be prejudiced by proceeding to one trial.”

Of Judge Baylson’s four prior cases, only one severed and stayed the bad faith claim. In that case, discovery was essentially complete on the contract claim, but at least a year from completion on bad faith. Thus, focusing on the expediency factor, it made sense to hold the trial on the contract issue instead of waiting a year or more to complete discovery on bad faith. In the other three cases, however, there was no similar expediency issue as neither claim was ready for trial. Further, the evidence needed on both claims overlapped.

Applying these precedents and principles, the court denied the motion to sever and stay the bad faith claim in this case.

COURT REFUSES TO SEVER BAD FAITH CLAIM

First, severance would not promote economy or an expeditious result. The case was not complex. Rather it was a personal injury auto accident case, and not a commercial or property damage case.

Second, the court rejected the argument that a judge must decide the bad faith claim, while a jury would decide the contract claim. While true in Pennsylvania state court, this did not apply in the present federal action.

Third, the court rejected the notion that the claims should be severed because resolving the contract claim would moot the bad faith claim, and thus be a more expeditious course. The court followed the line of reasoning that the potential for such a result did not outweigh the inefficiencies of having two discovery periods, two dispositive motion schedules, and two trials.

The court also cited cases finding that success on the insurer’s contract claims might not resolve the bad faith claims, e.g., if there is a delay in paying benefits or there is some form of bad faith that goes beyond a refusal to provide coverage. [As set forth previously in this blog, there is an argument over whether a bad faith claim can in fact proceed if the insurer has no duty to defend or indemnify the insured, and thus has not denied the insured any benefits under the policy.]

Fourth, the court found no prejudice in denying the motion. The insurer’s chief concern was that facts concerning bad faith would prejudice the jury on the contract claim. Judge Baylson observed, however, that even though the jury would be required to address two different legal issues in deciding on bad faith and contract issues, there would be an overlap in the facts presented going to both breach of contract and bad faith and to present the same facts twice would waste resources.

COURT CAN ADDRESS RISK OF JURY CONFUSION DOWN THE ROAD

The court would not presume in advance that the jury would become confused in deciding the contract and bad faith issues, or would fail to disregard certain irrelevant evidence from the bad faith case in deciding the contract claim. If, however, the “concern were deemed valid as trial approaches, there are adequate procedures available in federal court to address it, such as bifurcated trials and jury verdicts.”

COURT REFUSES TO STAY DISCOVERY

The court did not agree that the potential for discovery disputes in bad faith litigation was a sufficient basis to stay bad faith discovery. Rather, in opposing a stay and bifurcation, the plaintiff accepts the risk that delay over discovery disputes may arise.

Date of Decision: November 28, 2018

Goldstein v. American States Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-3163, 2018 U.S. Dist. LEXIS 201100 (E.D. Pa. Nov. 28, 2018) (Baylson, J.)

DECEMBER 2018 BAD FAITH CASES: BAD FAITH CLAIMS STATED BASED ON UNREASONABLE INTERPRETATION OF POLICY EXCLUSIONS, AND PURSUIT OF DECLARATORY JUDGMENT PROCESS BEFORE ULTIMATELY SETTLING (Western District)

The underlying suit involved negligence claims concerning a sexual assault by the insured’s father against others. The insurer defended under a reservation of rights, and brought a federal declaratory judgment action against the insured. The insured brought a declaratory judgment action in state court, and successfully had the federal claim dismissed on procedural grounds.

The insurer counterclaimed for declaratory judgment in state court, and filed a motion for judgment on the pleadings, which was denied. The insurer appealed to the Superior Court of Pennsylvania, and the appeal was quashed as interlocutory. The underlying action subsequently settled, and the declaratory judgment action was dismissed as moot.

The insured sued for common law contractual bad faith and statutory bad faith, and the insurer’s motion for judgment on the pleadings was denied.

The insured argued the reservation of rights letters were “manipulative”, that the insurer delayed settling the underlying action to improve its negotiating position, and that the insured suffered emotional distress and the expenses of having to bring and defend the declaratory judgment actions. The insured alleged the coverage positions were reckless or unwarranted, the appeal was unwarranted, and claim handling concerning coverage was unreasonable, inadequate, and was in conflict with the insured’s interests.

CONTRACTUAL BAD FAITH

The court first addressed the contractual bad faith claims. It observed that issuing reservation of rights letters is accepted practice, and that courts encourage the use of declaratory judgment actions.

However, bad faith allegations may be sufficient, even if policy limits are ultimately paid, where delaying resolution prejudiced the insured, and the insured pleads the insurer: (i) failed to conduct a complete and thorough factual or legal investigation; (ii) refused to enter good faith settlement negotiations; (iii) conducted “surface” settlement negotiations with no intent to settle; (iv) rejected settlement demands without counterproposals; or (v) pursued declaratory judgment actions with no reasonable basis, for an unreasonable time period.

In this case, the insured’s complaint put the investigation’s thoroughness at issue. Likewise, the exclusions the insurer relied upon, and propriety of settling the underlying case only after two years of actively pursuing the declaratory judgment action, were “unsettled questions of fact” on the bad faith claim. The court concluded: “Viewing the evidence in the light most favorable to [plaintiff], a reasonable jury could find that [the insurer’s] actions, in the aggregate, constituted a bad faith breach of its contractual duties … and could lead that jury to return a verdict in [plaintiff’s] favor.”

STATUTORY BAD FAITH

The court observed that statutory bad faith is not measured by whether an insurer ultimately fulfills its obligations. If payment is due and ultimately made, bad faith during the claim handling process in delaying that payment may be actionable. This is similar to a contractual bad faith claim where the court looks at the manner in which an insurer discharges its duties to the insured when payment is due, but that payment is delayed.

As the court was obliged to take the pleadings in the light most favorable to the insured in deciding a judgment on the pleadings, the complaint was sufficient. On the facts pleaded, a reasonable jury could conclude the alleged failures in investigation and claims handling were motivated by self-interest, despite the insurer’s ultimately settling the underlying case.

Date of Decision: November 27, 2018

Higginbotham v. Liberty Ins. Corp., U.S. District Court Western District of Pennsylvania Civil Action No. 18-747, 2018 U.S. Dist. LEXIS 199836, 2018 WL 6179024 (W.D. Pa. Nov. 27, 2018) (Mitchell, M.J.)

DECEMBER 2018 BAD FAITH CASES: NO BAD FAITH WHERE NO COVERAGE DUE, CLAIMS HANDLING WAS REASONABLE, AND BAD FAITH DISCOVERY WAS NOT PURSUED (Middle District)

The insurer denied disability benefits because the source of plaintiff’s amputation was diabetes, rather than injury. The insured brought breach of contract and bad faith claims. The court allowed the contract claim to proceed, but granted summary judgment on the bad faith claim.

The court found the insurer “clearly had a reasonable basis” to deny the claim. The insurer had investigated the claim, and this investigation clearly showed that diabetes contributed to the amputation, which provides a reasonable basis to refuse paying the claim. The court did address the argument that bad faith could go beyond the proper denial of a benefit, if there was an inadequate or biased investigation. In this matter, however, the record showed no such inadequacy or bias during the investigation.

It was also significant to the court that the insured never deposed any of the insured’s employees, never requested a copy of the insurer’s claims handling guidelines or standards, and did not seek any admissions concerning how the claim was handled. In short, the insured did not pursue any evidence to establish a bad faith claim.

Date of Decision: November 27, 2018

Long v. Transamerica Life Ins. Co., U.S. District Court Middle District of Pennsylvania CIVIL NO.: 4:16-CV-00139, 2018 U.S. Dist. LEXIS 200451, 2018 WL 6178944 (M.D. Pa. Nov. 27, 2018) (Schwab, M.J.)