Monthly Archive for February, 2018

FEBRUARY 2018 BAD FAITH CASES: ISSUES OF FACT REMAINED ON ALLEGED FAILURE TO INVESTIGATE EXCEPTION TO POLICY EXCLUSION (Middle District)

Wife and husband are insureds under a homeowner’s insurance policy issued to them by the insurer. A fire destroyed the home, and wife later pleaded guilty to intentionally starting the fire. The insurer denied coverage under the policy’s intentional loss exclusion. However, husband, as co-insured, argued an exception to the intentional loss provision should apply.

The exception states “the intentional loss exclusion ‘will not apply to deny payment to the “insured” who did not cooperate in or contribute to the creation of the loss if the loss [is otherwise covered] and [a]rises out of abuse to the innocent “insured” by another “insured”.’” When the insurer refused to accept coverage under this abuse exception, the husband filed suit for bad faith and breach of contract.

The insurer moved for summary judgment.

On the bad faith claim, the insured argued the insurer “fail[ed] to investigate, consider and/or alert [him] to the abuse exception to the exclusion for an intentional act by a spouse and instead attempt[ed] to lead [him] to believe that the denial had no exception, all of which was deceptive.”

The Court held that a jury could find that the insurer failed to investigate the exception to the intentional loss exclusion. Thus, the Court found material issues of fact remained, and denied summary judgment. The Court also denied summary judgment on the contract claim, holding that a question of material fact exists as to whether wife “set fire to the house in an attempt to intimidate or control . . .” husband, which would trigger the exception.

Date of Decision: February 22, 2018

Sterner v. Liberty Ins. Corp., No. 16-2453, 2018 U.S. Dist. LEXIS 28138 (M.D. Pa. Feb. 22, 2018) (Munley, J.)

POST-KOKEN SEVERANCE AND STAY DENIED, BUT BAD FAITH CLAIM BIFURCATED FOR TRIAL (Lackawanna County)

In keeping with its leading place in reporting post-Koken UIM bad faith law, the excellent Tort Talk Blog has summarized Judge Nealon’s opinion out of Lackawanna Common Pleas denying a motion to sever and stay bad faith claims, but ruling that the bad faith claim would be bifurcated for trial.  The opinion gives a thoroughgoing analysis of these issues.

As always, thanks to Dan Cummins for his good work in keeping all of us up to date on these issues.

FEBRUARY 2018 BAD FAITH CASES: REINSURER IS NOT AN INSURER UNDER SECTION 8371 (Western District)

The insured filed suit for bad faith and breach of contract against its insurer, and later filed an amended complaint alleging bad faith and breach of contract against the reinsurer, among other claims. The reinsurer moved to dismiss both claims.

The reinsurer argued that it is not an “insurer” for purposes of Pennsylvania’s bad faith statute. The Court stated, “Pennsylvania law requires the Court to consider two factors when determining whether a party is an ‘insurer’ for the purposes of the bad faith statute: “(1) the extent to which the company was identified as the insurer on the policy documents; and (2) the extent to which the company acted as insurer.’” Regarding the first factor, the Court found that the reinsurer is not listed anywhere on the policy documents, and therefore the reinsurer is not a party to the policy between the insured and the insurer.

In evaluating the second factor, the Court stated that, “a party acts as an insurer when it ‘issues policies, collects premiums and in exchange assumes certain risks and contractual obligations.’” The Court held that the reinsurer was not the insured’s “insurer” for purposes of the bad faith statute because it did not issue the policy to the insured, it did not collect premiums from the insured, it did not make payments to the insured, and it assumed no risks or contractual obligations to the insured.

As such, the Court granted the reinsurer’s motion to dismiss the bad faith claim because it was not an “insurer” for purposes of the bad faith statute. The Court further dismissed the breach of contract claim against the reinsurer because no contractual privity existed between the reinsurer and the insured.

Date of Decision: February 8, 2018

Three Rivers Hydroponics, LLC v. Florists’ Mut. Ins. Co., No. 15-809, 2018 U.S. Dist. LEXIS 20699 (W.D. Pa. Feb. 8, 2018) (Hornak, J.)

 

FEBRUARY 2018 BAD FAITH CASES: COURT REVERSES ITS DECISION TO BIFURCATE BAD FAITH DISCOVERY BECAUSE OF LENGTH OF DISCOVERY PROCESS; ALLOWS BAD FAITH QUESTIONS AT 30(b)(6) DEPOSITION; AND QUASHES SUBPOENA ON INSURED’S LAWYER IN UNDERLYING ACTION (New Jersey Federal)

This case involves a discovery dispute regarding coverage litigation between the parties, and the court’s reversing its decision to bifurcate bad faith discovery.

The insurer was seeking a declaration there was no obligation to defend or indemnify in connection with two antitrust lawsuits the insured settled for $100,000,000. The insured brought claims for bad faith, alleging the insurer failed to conduct a reasonable investigation of the underlying actions and the claim for coverage. The insurer argued the insured breached various policy conditions, specifically when it failed to notify the insurer of the underlying action until ten years after the settlement, with the insured arguing no appreciable prejudice from the late notice.

The Court previously bifurcated the bad faith discovery in the interests of judicial economy.

The insurer sought a protective order prohibiting the insured from inquiring into certain topics related to the bad faith claim during a Rule 30(b)(6) deposition of the insurer’s corporate representative. On the other hand, the insured moved to quash the insurer’s subpoena upon its attorney in the underlying action.

First, the Court vacated its earlier order bifurcating the bad faith discovery, reasoning that years later discovery does not appear to be nearing the finish line. The Court explained that further bifurcation would just lead to two protracted discovery battles. As such, the Court denied the insurer’s motion for a protective order.

Regarding the insured’s motion to quash, the Court found that the insurer “failed to establish that [the insured] placed . . . privileged information sought at issue in this matter or that such information is material to the issues before th[e] Court . . . .” and consequently granted the insured’s motion to quash the subpoena.

Date of Decision: January 30, 2018

National Union Fire Insurance Co. of Pittsburgh, P.A. v. Becton, No. 14-4318, 2018 U.S. Dist. LEXIS 14558 (D.N.J. Jan. 30, 2018) (Clark, III, MJ.)

 

FEBRUARY 2018 BAD FAITH CASES: NO BAD FAITH WHERE NO ACTIVE INSURANCE CONTRACT EXISTED BETWEEN THE PARTIES (Middle District)

The decedent-insured took out a life insurance policy and paid premiums on it for roughly six years, before cancelling the policy just ten months before her death. The decedent-insured’s husband, as executor of the estate, then submitted a claim under the policy. The insurer denied the claim, citing the decedent-insured’s cancellation as its justification. The husband sued for breach of contract and bad faith, and the insurer moved for summary judgment.

The husband argued benefits were owed because the decedent-insured meant to cancel her auto insurance policy with the insurer and not the life insurance policy. After listening to an audio recording of a telephone call, the Court was unconvinced, and ruled “no contract existed between the parties at the time of the decedent’s death.” Because no contract exited between the parties, the insurer had a reasonable basis for denying the claim, and the Court granted summary judgment in favor of the insurer on both the bad faith and breach of contract claims.

Date of Decision: January 29, 2018

Williams v. Hartford Life & Accident Ins. Co., No. 17-234, 2018 U.S. Dist. LEXIS 13693 (M.D. Pa. Jan. 29, 2018) (Munley, J.)

FEBRUARY 2018 BAD FAITH CASES: EXAMPLE OF ADEQUATELY PLEADING UIM BAD FAITH CASE (Philadelphia Federal)

This is another UIM bad faith case. The court found the following allegations were sufficient to defeat a motion to dismiss the bad faith claim.

First, the court found the following allegations were adequate to meet the standard that the insurer lacked a reasonable basis to deny benefits:

  1. Defendant did not request a written statement from plaintiff;

  2. Defendant never requested a statement under oath;

  3. Defendant never requested a medical examination;

  4. Defendant did not request authorizations from plaintiff to secure any medical records;

  5. Defendant did not have a medical expert review plaintiff’s MRI;

  6. Defendant did not have Plaintiff’s medical records reviewed or evaluated;

  7. Defendant did not put its aforementioned offer in writing

  8. Defendant made no reference to any record or diagnostic firm review in making its offer;

  9. Defendant offered no explanation of its offer

  10. Defendant did not request current records of plaintiff’s treatment even though he was actively treating at the time of the oral offer; and

  11. Defendant assigned an inexperienced and/or inadequately experienced adjuster to plaintiff’s claim.

Second, the insured adequately pleaded knowing or reckless disregard of the alleged lack of a reasonable basis to deny coverage. Plaintiff alleged that the insurer’s “denial of full coverage for Plaintiff’s claim is unsupported by factual evidence; Defendant did not have Plaintiff’s medical records reviewed or evaluated; it made no request for current records of Plaintiff’s treatment; it did not reference any record or diagnostic firm review in making its offer; and it did not offer any explanation of its offer.”

Date of Decision: January 30, 2018

Irving v. State Farm Mut. Auto. Ins. Co., CIVIL ACTION NO. 17-1124, 2018 U.S. Dist. LEXIS 14163 (E.D. Pa. Jan. 30, 2018) (Slomsky, J.)

FEBRUARY 2018 BAD FAITH CASES: NO BAD FAITH CLAIM WHERE DENIAL OF COVERAGE PREDICATED ON ENFORCEABLE POLICY (POLLUTION) EXCLUSION (Philadelphia Federal)

The insureds had an oil tank leak in their basement. They spent $50,000 on repairs and remediation, but the homeowner’s insurer denied the claim under the pollution exclusion. The insureds brought breach of contract and bad faith claims, and the insurer moved for summary judgment.

The insureds argued the policy was ambiguous as to whether oil constitutes a pollutant for purposes of triggering the pollution exclusion. The Court disagreed, finding “considerable relevant evidence” that the oil should be considered a pollutant. This evidence included the insureds having to contact an environmental service firm for remediation, the removal of 13.8 tons of concrete and soil from the home, removal of sill boards and studs, and the presence of benzene compounds (where several other courts explicitly ruled such chemicals as pollutants).

The insureds also argued they should be covered under the policy’s “ensuing loss” provision. The Court disagreed, and held that that provision “provides coverage only to ‘ensuing loss from a covered peril.’” Thus, because the damages from the oil spill were excluded per a policy exclusion, the insurer’s denial of the claim was not frivolous or unfounded. The insured’s bad faith claim therefore failed, and the Court granted summary judgment to the insurer.

Date of Decision: January 19, 2018

Barg v. Encompass Home & Auto Ins. Co., No. 16-6049, 2018 U.S. Dist. LEXIS 8951 (E.D. Pa. Jan. 19, 2018) (Heffley, MJ.)