Monthly Archive for May, 2018

MAY 2018 BAD FAITH CASES: OPINION REVERSING $21 MILLION BAD FAITH JUDGMENT WITHDRAWN, RECONSIDERATION GRANTED, BUT ORIGINAL OPINION ON BAD FAITH RE-AFFIRMED A FEW DAYS LATER (Pennsylvania Superior Court)

On May 31, 2018, the Superior Court’s April 9, 2018, 2-1 decision reversing the trial court’s $21 Million award in Berg v. Nationwide was withdrawn, after the Court granted reconsideration. Just a few days later, on June 5, 2018, the Court issued another 2-1 decision along the same lines as the first decision, with the majority again vacating and directing entry of judgment for the insurer, and former Justice Stevens dissenting.

The May 31st Order had stated:

IT IS HEREBY ORDERED:

THAT upon consideration of the application for reargument filed April 30, 2018, in this appeal, the Court hereby grants panel reconsideration;

THAT the decisions of this Court filed April 9, 2018, are hereby withdrawn; and

THAT the parties need not file any additional briefs.

This Order is entered without prejudice for the parties to file or refile an application for reconsideration or reargument following the filing of this Court’s reconsidered decision.

Our thanks to Daniel E. Cummins of the excellent Tort Talk Blog for bringing this Order to our attention.

 

MAY 2018 BAD FAITH CASES: (1) DENIAL OF BENEFITS (2) INADEQUATE INVESTIGATION AND (3) UNREASONABLE DELAY AS POTENTIAL BASES FOR STATUTORY BAD FAITH (Philadelphia Federal)

This post includes two opinions from consecutive days issued by the same judge in the Eastern District. In these two opinions, the court sets forth various standards for pursuing potential statutory bad faith claims, including (1) benefit denial; or (2) unreasonable investigations; or (3) delays in either (a) the claim handling process or (b) paying benefits due. As noted before on this blog, there is an issue whether statutory bad faith can exist for poor investigation or claim handling practices where no benefit was due.

CASE 1

In the first case, the insurer denied disability benefits. The insured sued for breach of contract and bad faith. The bad faith claim was based on two theories: (1) unreasonable denial of benefits and (2) improper claim handling during the investigation. The court denied the motion to dismiss the coverage based bad faith claim for denying benefits, but granted the motion to dismiss the bad faith claim based on an inadequate investigation.

DENIAL OF BENEFIT BAD FAITH

The court’s bad faith analysis began with basic statements of statutory bad faith law:

  1. “To establish bad faith under 42 Pa.C.S. § 8371, a plaintiff must demonstrate that the insurer (1) lacked a reasonable basis for denying benefits and (2) knew or recklessly disregarded its lack of a reasonable basis.”

  2. “In the insurance context, bad faith denotes a ‘frivolous or unfounded’ refusal to pay policy proceeds, which imports a dishonest purpose and a breach of a known duty, such as good faith and fair dealing.”

  3. “To defeat a claim of bad faith an insurer need not show that the insurer was correct; rather, an insurer must demonstrate that it had a reasonable basis for its decision to deny benefits.”

  4. “A reasonable basis is all that is required to defeat a claim of bad faith.”

  5. “On the other hand, ‘an unreasonable interpretation of the policy provisions as well as a blatant misrepresentation of the facts or policy provisions will support a bad faith claim.’”

INADEQUATE INVESTIGATION BAD FAITH

These principles, however, were not the sole means to define bad faith. The court cited case law for potential bad faith conduct that went beyond these basic parameters, beginning with the proposition that “[s]ection 8371 also encompasses a broad range of other conduct including inadequate investigations.”

Concerning “inadequate investigation” bad faith, the court stated the following:

  1. “Courts have held that an insurer must ‘properly investigate claims prior to refusing to pay the proceeds of the policy to its insured.’”

  2. “Bad faith may occur ‘when an insurance company makes an inadequate investigation or fails to perform adequate legal research concerning a coverage issue.’”

  3. An insurer, however, need not demonstrate that its investigation resulted in the correct conclusion or that its investigation was perfect; rather it must simply show that its investigation was ‘sufficiently thorough to justify its decision to deny the claim.’”

The insured’s amended complaint based her bad faith claims on two distinct theories: “(1) a denial of benefits predicated either on an unreasonable interpretation of the terms and conditions of the Policy or on imposition of requirements that do not exist in the Policy; and (2) a failure to conduct a reasonable or adequate investigation into the nature and extent of either Plaintiff’s physical condition or Plaintiff’s occupation.”

The court refused to dismiss under the first theory, finding that factual issues remained on the coverage questions. However, it did dismiss the bad faith claim under the second theory. Although the plaintiff had added some allegations to support her inadequate investigation claim, “[t]hese additional allegations fail to successfully move Plaintiff’s bad faith claim from the realm of mere possibility to that of plausibility.”

Exhibits to the amended complaint showed, among other things, that the insurer had considered the insured’s medical information as well as statements regarding her occupational duties. Further, the insured failed to report her disability for years, with this delay and its consequences solely her responsibility. As the court summed up its dismissal: “Although Defendant’s investigation may not have been perfect, the allegations of the Amended Complaint do not raise a plausible inference that it was so deficient as to rise to the level of bad faith.”

Date of Decision: May 22, 2018

Wiessmann v. Northwestern Mutual Life Ins. Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 16-6261, 2018 U.S. Dist. LEXIS 86103 (E.D. Pa. May 22, 2018) (Goldberg, J.)

CASE 2

The second case involved UIM breach of contract and bad faith claims. The insurer moved for summary judgment on the bad faith claim. In carrying out its bad faith analysis, the court observes the same principles quoted above concerning denial of benefits, burden of proof, and inadequate investigation, but also adds more detailed principles concerning delay as a basis for bad faith.

Similar to the first decision, the court initially observes basic bad faith principles: “In Pennsylvania, ‘bad faith’ in insurance cases is defined as ‘any frivolous or unfounded refusal to pay proceeds of a policy. … Bad faith must be demonstrated by clear and convincing evidence, ‘a burden that applies even on summary judgment.’ … To establish bad faith under 42 Pa.C.S. § 8371, a plaintiff must demonstrate that the insurer (1) lacked a reasonable basis for denying benefits and (2) knew or recklessly disregarded its lack of a reasonable basis. … In the insurance context, bad faith denotes a ‘frivolous or unfounded’ refusal to pay policy proceeds, which imports a dishonest purpose and a breach of a known duty, such as good faith and fair dealing. … While mere negligence or bad judgment are insufficient, a showing of reckless disregard will suffice to establish bad faith.”

UNREASONABLE DELAY BAD FAITH

Next, as in the first case, the court states “Section 8371 is not restricted to an insurer’s bad faith in denying a claim. An action for bad faith may extend to the insurer’s investigative practices.” The court then observes standards for another measure of bad faith not detailed in the first opinion: “A bad faith insurance practice can also include an unreasonable delay in handling or paying claims. … Thus, even when ‘an insurance claim has been settled and paid, Pennsylvania’s bad faith statute provides insurance claimants a means of redressing unreasonable delays by their insurers.’”

The court sets forth the following principles concerning bad faith delay claims:

  1. “To establish a claim of bad faith based on the insurer’s delay in paying the claim, the plaintiff must show that (1) the delay was attributable to the insurer; (2) the insurer had no reasonable basis for causing the delay; and (3) the insurer knew or recklessly disregarded the lack of a reasonable basis for the delay.”

  2. The plaintiff bears the burden of establishing delay by clear and convincing evidence.”

  3. A long period of time between demand and settlement does not, on its own, necessarily constitute bad faith.”

  4. “[I]f delay is attributable to the need to investigate further or even to simple negligence, no bad faith has occurred.”

The court uses examples from prior case law to show specific time periods that did not constitute bad faith delays. In one precedent, “a delay of fifteen months to resolve a claim—during which the insurer took the insured’s deposition nine months after notification of the claim, waited one year before taking the insured’s deposition and waited fourteen months to obtain a vocational assessment—was not an unreasonable length of time so as to rise to the level of bad faith, even though the insurer could have completed its investigation with greater speed”. In another, “even if all delay were attributable to the insurer, a period of approximately thirteen months between notification of UIM claim and resolution of claim through arbitration would not, without more, be sufficient to establish bad faith”.

In applying these principles, the court lays out a detailed factual history of the insurer’s claim handling during the adjuster’s investigation, including the history of communications between the adjuster and the insured’s attorney and requests for various documents and records. Despite this detailed factual record, however, the insured solely relied on his complaint’s averments to oppose summary judgment. These amounted to conclusory allegations that could not meet the clear and convincing evidence standard.

Independently, the court found “the undisputed evidence reveal[ed] no bad faith investigation or delay on Defendant’s part.” In conclusion, the court observed that “any delay was attributable to both Defendant’s well-founded need to investigate the claim and Plaintiff’s own delays in providing the requested information. Based on this undisputed record, no reasonable factfinder could determine that Defendant acted in bad faith in investigating and/or evaluating Plaintiff’s UIM claim.” Thus, the court granted summary judgment on the bad faith claim.

Date of Decision: May 23, 2018

Williams v. Liberty Mutual Insurance, U. S. District Court, Eastern District of Pennsylvania CIVIL ACTION No. 17-3862, 2018 U.S. Dist. LEXIS 86356 (E.D. Pa. May 23, 2018) (Goldberg, J.)

 

 

MAY 2018 BAD FAITH CASES: SINCE THERE WAS NO DUTY TO COVER DAMAGES THERE CAN BE NO BAD FAITH CLAIM (Middle District)

In this homeowner’s water damage case, after a detailed analysis of the facts and coverage issues, the court dismissed the insured’s breach of contract claim for failure to pay insurance coverage. The court then quickly addressed the insured’s bad faith claim.

“[B]ecause [the insurer] had a reasonable basis to deny [the insured’s] claim for coverage, the bad faith claim will be dismissed.” The court explained: “[T]o recover under a claim of bad faith, the plaintiff must show that the defendant did not have a reasonable basis for denying benefits under the policy and that defendant knew or recklessly disregarded its lack of reasonable basis in denying the claim.” “Therefore, where the insurance company had a reasonable basis for denying Plaintiff’s claim, the bad faith claim necessarily fails.”

Specifically, the Court quoted from two prior cases: (1) “[W]e will affirm the grant of summary judgment … on this claim because [the] bad faith claim necessarily fails in light of our determination that [the insurer] correctly concluded that there was no potential coverage under the policy” and (2) “Since there was no duty by Defendant to cover the damages to the Plaintiffs’ house and personal property, there can be no bad faith claim”.

Date of Decision: May 18, 2018

Sanko v. Allstate Ins. Co., U. S. District Court Middle District of Pennsylvania No. 3:16-CV-1620, 2018 U.S. Dist. LEXIS 84943 (M.D. Pa. May 18, 2018) (Mariani, J.)

MAY 2018 BAD FAITH CASES: NO BAD FAITH WHERE NO BENEFIT HAS BEEN DENIED (Philadelphia Federal)

Note:  This decision was reversed by the Third Circuit on August 2, 2019.  A summary of that decision can be found here.

In something of a contrast with today’s first post, the Court’s analysis of the insureds’ breach of contract claim determined the outcome of their bad faith claim.

The facts involved insurance coverage for a car rental. After closely parsing the facts, the Court concluded that there was no viable breach of contract claim against the insurer for failing to provide the insureds with rental car coverage.

On the bad faith claims, the Court first rejected an argument that the insureds could bring a breach of the implied covenant of good faith and fair dealing distinct from their breach of contract claim. After going over the history of this type of claim, the Court concluded “in practice, the covenant of good faith functions ‘as an interpretive tool’ to aid the court in evaluating breach of contract claims but the implied duty is never divorced from specific clauses of the contract.” Thus, any effort to assert this claim independent form the contract claim was rejected.

As to statutory bad faith, the Court cited the well-recognized standards: “To recover for bad faith, a plaintiff must show by clear and convincing evidence that the insurer (1) did not have a reasonable basis for denying benefits under the policy and (2) knew or recklessly disregarded its lack of reasonable basis in denying the claim.” The Court made clear that “the essence of a bad faith claim is the unreasonable and intentional or reckless denial of benefits.” Further, “an insurer may defeat a claim of bad faith by showing that it had a reasonable basis for its actions.”

The Court found that the evidentiary record did not support a finding that a benefit to which the insureds were entitled was denied. “For this reason, the only conclusion which we can now reach is that [the insurers] did not act in bad faith within the meaning of Section 8371 and that judgment is properly entered in their favor as a matter of law….”

Date of Decision: May 17, 2018

Stechert v. Travelers Home & Marine Ins. Co., U. S. District Court Eastern District of Pennsylvania, CIVIL ACTION NO. 17-CV-784, 2018 U.S. Dist. LEXIS 83126 (E.D. Pa. May 17, 2018) (Joyner, J.)

This Opinion was reversed by the Third Circuit.  See Blog post here.

MAY 2018 BAD FAITH CASES: COURT ALLOWS FOR POSSIBILITY OF SECTION 8371 BAD FAITH CLAIM FOR CLAIMS HANDLING, EVEN THOUGH NO COVERAGE IS DUE (Middle District)

In this action, the Court found that there was no insurance coverage due for a variety of reasons, and dismissed an insured’s breach of contract claim. However, the Court still gave the insureds leave to file an amended complaint asserting common law and statutory bad faith claims.

The Court cited the general standard that a bad faith plaintiff has (1) to show that there was no reasonable basis to deny coverage and (2) the insurer knew or recklessly disregarded this fact. However, the Court then set forth a second standard: “A plaintiff may also make a claim for bad faith stemming from an insurer’s investigative practices, such as a ‘lack of a good faith investigation into facts, and failure to communicate with the claimant.” It appears to be this second standard, treated here as an independent basis for a section 8371 claim even if no coverage is actually due under the policy, on which an amendment was allowed. The Court did recognize that section 8371 does no cover alleged bad faith in soliciting a policy and dismissed that claim outright.

As to whether a bad faith claim can exist when no coverage is due under a policy, and there is no breach of any duty to defend or indemnify, see this article previously posted on our blog.

Date of Decision: May 15, 2018

Frantz v. Nationwide Insurance Co., U.S. District Court Middle District of Pennsylvania No. NO. 3:18-CV-0509, 2018 U.S. Dist. LEXIS 81817 (M.D. Pa. May 15, 2018) (Caputo, J.)

The plaintiff did file an amended complaint, including a new bad faith claim.  This claim was subsequently dismissed with prejudice on September 4, 2018.

MAY 2018 BAD FAITH CASES: NO BAD FAITH WHERE MERE DISAGREEMENT OVER CLAIM VALUATION; SOCIAL MEDIA POSTS RELEVANT TO COURT'S CONCLUSIONS (Middle District)

The insured pedestrian sustained injuries after being struck by an automobile. The insured settled with the tortfeasor’s insurer. The insured claimed the injuries left her “permanently lame, sore, and disabled,” and filed a UIM claim with her insurer. The insurer denied the claim and argued that the total value of the insured’s injuries did not exceed $100,000.

Litigation ensued, and the insurer successfully moved for summary judgment on the bad faith claim. The Court stated that “[a]n insured must meet the heightened standard of clear and convincing evidence, which ‘is the highest standard of proof for civil claims’, to establish a claim of bad faith.” The Court found that the evidence of record revealed the insurer reasonably evaluated the claim, and reasonably concluded that the claim did not exceed $100,000.

The Court further observed that the insured continued to work at her job, obtained a new job as a nurse, and never requested any physical accommodations or limitations. Furthermore, the insured’s social media posts showed that she continued to live a very active lifestyle, and an IME report stated that she had recovered from her injuries and required no further care.

In conclusion, the record showed a mere disagreement as to the valuation of the claim. Such a disagreement cannot amount to bad faith under Pennsylvania law.

Date of Decision: May 11, 2018

Shaw v. USAA Casualty Insurance Co., United States District Court, Middle District of Pennsylvania, Civil Action No. 17-947, 2018 U.S. Dist. LEXIS 80101 (M.D. Pa. May 11, 2018) (Mannion, J.)

 

MAY 2018 BAD FAITH CASES: CLAIM REPRESENTATIVE’S FAILURE TO CONSULT WITH COUNSEL ON SCOPE OF POLICY EXCLUSIONS UNDER UNFAMILIAR PENNSYLVANIA LAW BEFORE DENIAL MAY RESULT IN FINDING THAT DENIAL WAS UNREASONABLE FOR BAD FAITH PURPOSES (Western District)

The insured owned two buildings that suffered failed retaining walls. The insurer denied coverage. The insurer’s claim representative relied on an expert who stated the loss was caused “by the lateral forces of the earth coupled with the walls’ inadequate design, construction, and maintenance,” which the claim representative concluded invoked various policy exclusions. However, he did not consult an attorney before denying coverage, and he was unfamiliar with Pennsylvania law governing any insurance coverage issues.

The insured sued for bad faith and breach of contract, and the insurer moved for summary judgment on both claims. As outlined below, the Court found issues with the policy exclusions applicability, which the claim representative had determined himself without the aid of counsel.  Thus, on the bad faith claim the Court denied the insurer’s motion, reasoning “there is a material question of fact as to whether [insurer’s] interpretation of the policy was reasonable given that [the claim representative] was unfamiliar with Pennsylvania law and did not consult legal counsel.”

The Court denied the insurer summary judgment on the breach of contract claim for the following reasons:

  1. The insurer’s interpretation of the policy’s earth movement exclusion was unreasonably broad;

  2. The applicability of the maintenance and ensuing loss exclusion was in doubt due to a question of fact as to whether collapse of the walls was foreseeable; and

  3. The insurer’s interpretation of the abrupt collapse exclusion under the policy was erroneous.

Date of Decision: May 11, 2018

Burgunder v. United Specialty Ins. Co., United States District Court, Western District of Pennsylvania, Civil Action No. 17-1295, 2018 U.S. Dist. LEXIS 79477 (W.D. Pa. May 11, 2018) (Schwab, J.)

MAY 2018 BAD FAITH CASES: ALLEGED POST-CLAIM MISREPRESENTATIONS BY INSURER NOT RELEVANT TO ISSUE OF REASONABLE BASIS TO DENY CLAIM (New Jersey Federal)

The insured commenced this coverage action after the insurer denied coverage for property damage. The insurer argued no coverage was owed because the water damage derived from either freezing pipes or wear and tear. The insured argued the insurer acted in bad faith by “willfully and intentionally” misrepresenting the communications between the parties, and by falsely accusing the insured of failing to preserve evidence relevant to the claim. The insurer moved for judgment on the pleadings as to the bad faith claim.

The Court held the bad faith claim “may only be supported by factual allegations concerning whether [the insurer] lacked a reasonable basis for denying coverage[,]” not whether insurer deliberately misrepresented communications between the parties months after coverage had already been denied. The Court reasoned, “[i]t is of no moment what alleged mischaracterizations or misrepresentations [the insurer] made . . . because such allegations have no bearing on whether [the] policy . . . covered the water damage from the accident.”

As such, the Court granted the insurer’s motion for judgment on the pleadings, but also granted the insured leave to amend the complaint.

Date of Decision: May 10, 2018

Olirei Investments, LLC v. Liberty Mutual Insurance Co., United States District Court, District of New Jersey, Civil Action No. 18-524, 2018 U.S. Dist. LEXIS 78949 (D.N.J. May 10, 2018) (Chesler, J.)

 

MAY 2018 BAD FAITH CASES: NO BAD FAITH IF INSURER DID NOT BREACH THE INSURANCE CONTRACT (New Jersey Federal)

This action arises from a coverage dispute over a flood insurance policy issued under the National Flood Insurance Program. Per federal law, these policies must conform to the requirements of the Standard Flood Insurance Policy (“SFIP”). Among other requirements, insureds must submit a proof of loss that conforms to SFIP standards. After the insurer denied coverage in this case, the insured sued for breach of contract and bad faith. The insurer moved for summary judgment.

As to the bad faith claim, the insurer argued that its coverage denial was based on the insured’s failure to submit a proof of claim conforming to SFIP guidelines. The Court accepted this argument, finding, among other things, that the insured’s proof of loss was “so confusing as to be impossible to process….” The Court further found “[the insured’s] Proof of Loss submission is incomprehensible and does not comply with the requirements of the SFIP.” Thus, the denial was not a breach of the insurance contract. As to bad faith, the Court found: “This Court has just ruled in favor of [the insurer] on Plaintiff’s breach of contract claim. Given that, Plaintiff cannot prove a bad faith denial of coverage.”

Date of Decision: May 8, 2018

Uddoh v. Selective Insurance Company, United States District Court, District of New Jersey, Civil Action No. 13-2719 (SRC), 2018 U.S. Dist. LEXIS 77075 (D.N.J. May 8, 2018) (Chesler, J.)

This case was affirmed by the Third Circuit on May 13, 2019.  A copy of that opinion can be found here.

 

MAY 2018 BAD FAITH CASES: ISSUES OF MATERIAL FACT ON UIM CLAIMS HANDLING AND SETTLEMENT NEGOTIATIONS PREVENT SUMMARY JUDGMENT FOR EITHER PARTY (Western District of Pennsylvania)

This UIM action began after the insured suffered a serious head injury in an auto accident. The claims-handling process spanned a two-and-a-half year period. The insured demanded the $100,000 policy limits, and insurer initially offered to settle for $17,000. Eventually, the insurer paid policy limits.

The insured sued for bad faith, among other claims. The insured alleged bad faith in the delay of payment of benefits. Both parties moved for summary judgment on bad faith. The Court found genuine issues of material fact existed on bad faith, precluded relief to either party.

The Court reasoned that the insured’s attorney did not demand settlement of the claim for nearly two years after its filing, and once he did, the insurer acted promptly. The Court further reasoned that a jury could conclude that the initial $17,000 offer was reasonable, because the insured admitted that her special damages were only $15,000 at one point during the claims handling process, and testimony was given stating “head injuries are particularly difficult to evaluate. . . .”

However, the Court also denied insurer summary judgment because a jury could conclude there was an unreasonable delay in paying benefits, and that the $17,000 offer was a low-ball offer. A jury could find the insurer failed to conduct a meaningful investigation or attempted settlement between the time of filing and the time when the insured’s attorney demanded settlement 18 months later. Further, an argument could be made that the $17,000 was a low-ball offer because the insurer had valued the claim between $46,800 and $61,800.

[It is interesting to compare this result to New Jersey’s fairly debatable standard on bad faith, where an insured’s inability to obtain summary judgment on bad faith means there can be no bad faith.]

Date of Decision: May 7, 2018

Parisi v. State Farm Mut. Auto. Ins. Co., United States District Court, Western District of Pennsylvania, Civil Action No. 16-179, 2018 U.S. Dist. LEXIS 76246 (W.D. Pa. May 7, 2018) (Gibson, J.)