Monthly Archive for August, 2018

AUGUST 2018 BAD FAITH CASES: COURT DISMISSES FRAUD CLAIM AGAINST INSURED (New Jersey Appellate Division)

The carrier brought action against its insured alleging violations of the New Jersey Insurance Fraud Prevention Act, breach of contract, breach of good faith and fair dealing, and unjust enrichment. The trial court dismissed the claims and the appellate division affirmed. Both courts found the evidence did not support a fraud claim, and that any such claim was subject to a general release.

Date of Decision: August 16, 2018

Selective Casualty Insurance Co. v. Exclusive Auto Collision Center, Inc., DOCKET NO. A-0568-17T1, 2018 N.J. Super. Unpub. LEXIS 1935, 2018 WL 3892740 (N.J. App. Div. Aug. 16, 2018) (Suter and Whipple, JJ.)

 

AUGUST 2018 BAD FAITH CASES: OVERVIEW OF NEW JERSEY STANDARDS ON FAILURE TO SETTLE BAD FAITH AND FAIRLY DEBATABLE STANDARD; REQUIREMENT OF EXPERT TESTIMONY ON BAD FAITH; INSURED’S SETTLEMENT CONDUCT WHERE INSURER HAS DECLINED COVERAGE; SEVERANCE OF BAD FAITH CLAIMS (New Jersey Appellate Division) (Unpublished)

This case addresses a wide array of New Jersey bad faith issues. The underlying facts involve disputed coverage and defense obligations in a suit against the insured based on the Telephone Consumer Protection Act (TCPA).

The insurer withdrew its defense based on trial court finding no coverage, which was later reversed on appeal

The insurer had been defending under a reservation of rights, but withdrew the defense when the trial court ruled no coverage was due. The underlying case proceeded. A $19 million judgment was entered on an unopposed summary judgment motion against the insured.

Subsequently, the appellate division reversed the trial court’s coverage ruling, and remanded to explore further factual issues before determining the coverage question.

The insured assigned it claims to the underlying plaintiffs, who counterclaimed for bad faith and failure to settle within policy limits, and who also intervened in the coverage dispute again alleging bad faith. Before reaching a jury in the declaratory judgment action, the court dismissed the bad faith claims “except for the count in its counterclaim that alleged [the insurer] acted in bad faith by failing to settle the underlying action at a time when it controlled that litigation and could have settled the claim within …  policy limits.”

The jury found for the insured on coverage, and the court further awarded attorney’s fees under R. 4:42-9(a)(6). The total award exceeded $5 million.

On appeal, the court went through the relevant policy language and exclusions in great detail. Among other issues addressed, it found the verdict should have been reversed on the issue of what constituted “property damage,” with a single exception, that was also the sole actionable occurrence. Thus, the judgment was significantly undermined on appeal.

Bad faith issues

The court then addressed a variety of bad faith issues. This was triggered by the insurer’s late effort on the eve of trial to renew an attempt to dismiss the bad faith failure to settle claims for failure to bring forth expert testimony to support the failure to settle claim.

The insured “objected to the untimeliness of the motion and requested an adjournment if the court was inclined to dismiss for lack of an expert.” The judge found that there was no actionable bad faith claim under the “fairly debatable standard”, and that the insured had failed to negotiate a reasonable settlement once the defense was withdrawn.

“Alternatively, the judge found that any assessment of [the insurer’s] conduct in this complex case was beyond the ken of the average juror and dismissed the bad faith failure to settle claim because [the insured] had no expert. Noting the case management order required [the insured] to furnish an expert report nearly one year earlier, she denied any adjournment and dismissed the bad faith failure to settle counterclaim.”

The Appellate Division agreed an expert was necessary, but reversed the trial court’s ruling. It found that the motion in limine was functionally a summary judgment motion that was untimely and prejudicial.

The Court then addressed the nature of New Jersey bad faith claims, and the standards applicable in first and third party contexts.

Standards for failure to settle within policy limits

The failure to settle a third party claim within policy limits is governed by the New Jersey Supreme Court’s Rova Farms decision. Because the insurer controls the settlement, it has a fiduciary obligation to exercise good faith in considering settlement. The decision not to settle within policy limits “must be a thoroughly honest, intelligent and objective” decision.

“It must be a realistic one when tested by the necessarily assumed expertise of the company. This expertise must be applied, in a given case, to a consideration of all the factors bearing upon the advisability of a settlement for the protection of the insured. While the view of the carrier or its attorney as to liability is one important factor, a good faith evaluation requires more. It includes consideration of the anticipated range of a verdict, should it be adverse; the strengths and weaknesses of all of the evidence to be presented on either side so far as known; the history of the particular geographic area in cases of similar nature; and the relative appearance, persuasiveness, and likely appeal of the claimant, the insured, and the witnesses at trial.”

Expert needed on bad faith claim to assist jury

Rejecting a settlement by itself does not constitute bad faith. There must be “an assessment of the reasonableness of an insurer’s settlement negotiations in the underlying action” and this assessment “will likely hinge upon the credibility of fact witnesses, as well as expert testimony as to what went wrong on the settlement front and why.”

In this case, the factors were varied and complicated, and expert testimony was necessary to assist the jury in making a bad faith decision under Rova Farms and its progeny. Thus, the trial court was right on the issue that an expert was needed.

Some advice of how to handle late raised issues that will be allowed to go to trial, and the ability to sever bad faith claims

In reversing the dismissal, the appellate judges gave some practical advice to trial courts under these circumstances. Either the trial court have been adjourned to allow time to obtain the expert testimony and response, or the bad faith claim could have been severed and tried after the coverage case. The case was remanded for the trial judge to address the bad faith claim.

Some advice of using “fairly debatable” standard (Pickett) in failure to settle cases (Rova Farms)

The appellate judges then stated they would not address the issue of whether the trial judge’s fairly debatable ruling as a basis for dismissal was proper. The court then went on to discuss the interplay of Rova Farms and the Pickett fairly debatable standard at some length. It observed that the fairly debatable standard arose in the first party context, and that Rova Farms addressed failure to settle third party claims.

The Appellate Division had previously ruled that the fiduciary duty implicated in the third party failure to settle context does not exist in the first party context. However, another Appellate Division panel had ruled that the fairly debatable standard did apply in third party coverage cases (as differentiated from failure to settle cases). Thus, “[n]o reported New Jersey decision has addressed whether Pickett‘s ‘reasonably debatable’ standard applies to an insured’s bad faith refusal to settle claim.”

The Third Circuit has addressed the issue, and found that the Rova Farms’ standards, rather than the Pickett fairly debatable standards should control third party failure to settle claims.

“Whether [the insured] would be held liable for [the third-party’s] injuries was “fairly debatable,” but in the context of a third-party claim with a possibility of an excess verdict, Pickett supplies only part of the equation. The “fairly debatable” standard is analogous to the probability liability will attach in a third-party claim, but it does not consider the likelihood of an excess verdict.

A third-party claim that may exceed the policy limit creates a conflict of interest in that the limit can embolden the insurer to contest liability while the insured is indifferent to any settlement within the limit. This conflict is not implicated when the insured is a first-party beneficiary, where the claimant and the insurer are in an adversarial posture and the possibility of an excess verdict is absent.

Rova Farms, not Pickett, protects insureds who are relegated to the sidelines in third-party litigation from the danger that insurers will not internalize the full expected value of a claim due to a policy cap.”

The present panel chose to decide the issue, though (no pun intended), it acknowledged “the appeal of the Third Circuit’s rationale. An insurer who, while exclusively controlling the litigation, acts in bad faith and refuses to settle a third-party claim within its insured’s policy limits exposes the insured to personal liability. The situation therefore presents different concerns from those posed by a suit where the insurer acts in bad faith and wrongfully denies contractual benefits to the insured under its policy of insurance.”

Failure to negotiate a settlement after coverage denial may not preclude a later bad faith claim

Finally, the panel rejected the trial court’s finding that the insured’s failure to negotiate a settlement once coverage was denied precluded the possibility of a later bad faith claim.

The court looked generally to case law concerning insured’s conduct in settling, or not settling, cases where the insurer has declined involvement on the basis it does not believe coverage is due. Insured are not required as a matter of law to settle at their own expense. Rather, “under certain circumstances, insureds could do so without violating policy terms where there has been a breach by the insurer.”

In sum, the panel reversed the bad faith claim dismissal and remanded the matter to proceed on the bad faith claim.

Date of Decision: July 31, 2018

Penn National Insurance Co. v. Group C Communications, Inc., New Jersey Superior Court Appellate Division, DOCKET NOS. A-0754-15T1 A-0808-15T1, 2018 N.J. Super. Unpub. LEXIS 1833 (N.J. App. Div. July 31, 2018) (O’Connor, Messano and Vernoia, JJ.)

 

AUGUST 2018 BAD FAITH CASES: POTENTIAL BAD FAITH CLAIM FOR UNTIMELY FILING AND BACKDATING FORM (New Jersey Appellate Division)

The insurer cancelled a workers’ compensation policy, and suit was brought for failing to meet statutory requirements to do so, along with a bad faith claim. The trial court found the cancellation proper.

The New Jersey Appellate Division reversed, and reinstated a bad faith claim for further proceedings, based on allegations that the carrier revoked coverage after failing to file a timely statutory certification, and later attempted to cure its alleged failure by backdating a form.

M&S Waste Service, Inc. v. Praetorian Insurance Co., New Jersey Superior Court Appellate Division DOCKET NO. A-4860-15T1, 2018 N.J. Super. Unpub. LEXIS 1981 (N.J. App. Div. Aug. 24, 2018) (Accurso and Messano, JJ.)

 

AUGUST 2018 BAD FAITH CASES: POLICY VOIDED BY JURY ON BASIS OF FRAUDULENT APPLICATION, AND DAMAGES AWARDED TO INSURER (Pennsylvania Superior Court) (Non-precendential)

The insured sued based on a denial of benefits for a vandalism loss. During the course of pre-suit examinations under oath, the insurer concluded that the policy was obtained by fraud. Thus, in addition to denying the claim, the insurer counterclaimed for common law fraud, breach of contract, statutory insurance fraud and reverse bad faith, based on a false insurance application. The jury ruled for the insurer and voided the policy.

The court awarded damages of over $285,000 to the insurer for claims paid and claim expenses incurred under the now voided policy, subject to a reduction for the return of premiums paid. Post-trial motions were denied, and the verdict was affirmed on appeal.

In upholding the verdict, the Superior Court recognized that fraud required the highest standard of proof known in a civil setting. The jury did not err, however, in finding the standard met. The appellate court found “the record is replete with evidence that [the insured], through an agent, knowingly provided … false, misleading and incomplete information in his insurance application statement.”

The court stated the insured had misrepresented his loss history, failed to disclose a foreclosure complaint, failed to disclose tax judgments against him and failed to reveal “he incurred a federal conviction in the Eastern District of Pennsylvania for filing false corporate tax returns.”

The court also rejected arguments concerning the trial court’s evidentiary rulings. There was no error in allowing evidence relating to a prior conviction for underpaying corporate taxes, and previous tax liens. Nor was there error in allowing testimony from an underwriter to describe underwriting practices during the relevant time period.

Date of Decision: August 15, 2018

Smith v. United States Liability Insurance Company, Superior Court of Pennsylvania, No. 1287 EDA 2017, 2018 Pa. Super. Unpub. LEXIS 2968 (Pa. Super. Ct. Aug. 15, 2018) (Lazarus, Panella, Strassburger, JJ.) (Not precendential)

 

AUGUST 2018 BAD FAITH CASES: ERISA PREEMPTS GOOD FAITH AND FAIR DEALING CLAIM (Philadelphia Federal)

The court analogized a breach of the implied covenant of good faith and fair dealing to a bad faith claim, in finding such claims preempted by ERISA.

Date of Decision: August 3, 2018

D’Antuono v. Temple University Health System, U.S. District Court Eastern District of Pennsylvania, CIVIL ACTION NO. 18-1518, 2018 U.S. Dist. LEXIS 130492, 2018 WL 3707853 (E.D. Pa. Aug. 3, 2018) (Baylson, J.)

 

AUGUST 2018 BAD FAITH CASES: BAD FAITH ACTION CANNOT BE BROUGHT AGAINST CLAIM REPRESENTATIVE WHO IS NOT AN INSURER (Philadelphia Federal)

A UIM insured brought a breach of contract, loss of consortium, and bad faith action against both the claim representative and the insurer. The insurer argued that the claim representative was “fraudulently joined” to defeat diversity. The insurer asserted that bad faith actions against claim representatives are impermissible.

The court noted that the “removing party has a heavy burden of persuading a court that joinder is fraudulent.” However, “[t]he claims against [the claim representative] are wholly insubstantial and frivolous.” The court concluded as a matter of law “there is no basis to support a contract” against the claim representative because “only the principal, [insurer], may be held liable.” The claim representative was only an agent, who did not have a separate contract with the insured.

Further, the court concluded the insured could not state a bad faith claim against a claim representative. “The bad faith statute applies only to insurance companies.” The claim representative was not an insurer because she identified as an insurer in the policy, and the insured did not plead that claim representative acted as an insurer.

Thus, the court concluded the insured improperly joined the claim representative.

Date of Decision: August 8, 2018

Reto v. Liberty Mutual Insurance, U. S. District Court Eastern District of Pennsylvania, CIVIL ACTION NO. 18-2483, 2018 U.S. Dist. LEXIS 133336 (E.D. Pa. Aug., 8, 2018) (Savage, J.)

AUGUST 2018 BAD FAITH CASES: IMPROPER CLAIM HANDLING RELEVANT TO CONTRACT CLAIM EVEN WITHOUT BAD FAITH COUNT (Middle District)

This is a UIM case where bad faith was not pleaded. The insured and insurer did not reach an agreement on UIM benefits, and the insured commenced an action for breach of contract and generic violations of the Motor Vehicle Financial Responsibility Law (MVFRL).

The insurer argued, the allegations of improper claim handling should be stricken from the complaint, because improper claim handling is not relevant to an action that does not plead bad faith. The court disagreed. It found that improper claim handling could be relevant to a contract claim, even in the absence of bad faith, because the decision making during the claim handling could go to the reasoning behind denying the contract claim.

Next, the insurer argued the court should dismiss or order a more definite statement of insured’s unidentified statutory violations because insured failed to allege a bad faith violation or identify the provision of the MVFRL that insurer allegedly violated. The court dismissed this statutory count because the insured failed to plead an alleged statutory violation with any detail, and the facts pleaded did not set forth any wrongdoing.

Date of Decision: August 8, 2018

Swientisky v. American States Insurance Co., U. S. District Court Middle District of Pennsylvania, NO. 3:18-CV-1159, 2018 U.S. Dist. LEXIS 133352 (M.D. Pa. Aug. 8, 2018) (Caputo, J.)

AUGUST 2018 BAD FAITH CASES: PUNITIVE DAMAGES CONSIDERED IN DETERMINING REMAND, EVEN IF MOTION TO DISMISS BAD FAITH CLAIM WAS PENDING (Philadelphia Federal)

The insured claimed “removal was improper because the amount in controversy [did] not exceed $75,000” on the face of the complaint. The insurer argued that the controversy exceeded $75,000 because the complaint sought attorneys’ fees, interest, costs, and punitive damages. The insured sought remand because the insurer “has not shown that punitive damages would lead to an award exceeding $75,000.”

On removal, the “defendant bears the burden of showing that federal jurisdiction is proper.” The insurer specifically argued the controversy exceeded the $75,000 jurisdictional minimum because the complaint asserted a claim for “compensatory damages consisting of collision coverage benefits ‘in a sum in excess of $14,500.00,’ punitive damages (which are available under Pennsylvania law if Defendant has acted in bad faith), attorneys’ fees, interest, and costs.” It cited authority “where jurisdiction was retained based on asserted compensatory damages of $14,000-$15,000 as well as the plaintiffs’ requests for attorney fees and punitive damages.”

The insured did not refute this authority, but instead argued the insurer moved to dismiss the bad faith claim, which was the source for punitive damages. The Court observed that a “motion to remand must be decided before the Court exercises jurisdiction over the case and Defendant’s motion to dismiss.” Thus, the Court considered the punitive damages claim and denied insured’s motion to remand.

Date of Decision: July 24, 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 123266, 2018 WL 3546560 (Conaboy, J.)

 

 

AUGUST 2018 BAD FAITH CASES: PLAINTIFF MUST SPECIFICALLY INCLUDE FACTS TO ADDRESS WHO, WHAT, WHERE, WHEN, AND HOW THE ALLEGED BAD FAITH CONDUCT OCCURRED; 13 EXAMPLES OF CONCLUSORY ALLEGATIONS (Western District)

The court found the following allegations all conclusory in nature, and therefore insufficient to make out a bad faith claim. However, the plaintiff was given leave to amend to file an Amended Complaint. The court made clear that “Plaintiff must specifically include facts to address who, what, where, when, and how the alleged bad faith conduct occurred.”

The conclusory allegations are:

  1. by sending correspondence falsely representing that Plaintiff’s loss caused by a peril insured against under the Policy was not entitled to benefits due and owing under the Policy;

  2. in failing to complete a prompt and thorough investigation of Plaintiff’s claim before representing that such claim is not covered under the Policy;

  3. in failing to pay Plaintiff’s covered loss in a prompt and timely manner;

  4. in failing to objectively and fairly evaluate Plaintiff’s claim;

  5. in conducting an unfair and unreasonable investigation of Plaintiff’s claim;

  6. in asserting Policy defenses without a reasonable basis in fact;

  7. in flatly misrepresenting pertinent facts or policy provisions relating to coverages at issue and placing unduly restrictive interpretations on the Policy and/or claim forms;

  8. in failing to keep Plaintiff or their representatives fairly and adequately advised as to the status of the claim;

  9. in unreasonably valuing the loss and failing to fairly negotiate the amount of the loss with Plaintiff or their representatives;

  10. in failing to promptly provide a reasonable factual explanation of the basis for the denial of Plaintiff’s claims;

  11. in unreasonably withholding policy benefits;

  12. in acting unreasonably and unfairly in response to Plaintiff’s claim;

  13. in unnecessarily and unreasonably compelling Plaintiff to institute this lawsuit to obtain policy benefits for a covered loss, that Defendant should have paid promptly and without the necessity of litigation.

Dates of Decision: July 12, 2018 (Report and Recommendation) July 30, 2018 (Order adopting Report and Recommendation as Opinion of the Court)

Rosenberg v. Amica Mutual Ins. Co., Civil Action No. 18-406, 2018 U.S. Dist. LEXIS 117116 (W.D. Pa. July 12, 2018) (Kelly, M.J.) (Report and Recommendation), adopted as Opinion of District Court on July 30, 2018 (Fischer, J.)

AUGUST 2018 BAD FAITH CASES: BAD FAITH CLAIM NOT PRE-EMPTED BY MVFRL; PLEADING ADEQUATE TO AVOID DISMISSAL AND PROCEED TO DISCOVERY (Philadelphia Federal)

This opinion gives a detailed overview on the issue of when, and if, the Motor Vehicle Financial Responsibility Law, 75 Pa.C.S. § 1797, pre-empts the bad faith statute, 42 Pa.C.S. § 8371. The court follows the majority Schwartz line of cases on pre-emption limits.

Thus, e.g., “Section 1797 does not extend to claims for interpretation of an insurance contract, disputes as to whether the motor vehicle accident caused the insured’s injuries, or claims that the insurer did not invoke or properly follow the peer review process.” Further, a bad faith claim is not at issue “where the peer review process set out in § 1797, namely to determine the propriety of treatment and charges therefore, is not actually followed.” Id. Section 1797 is “narrowly limited to those situations in which a disputed claim is to be submitted to the PRO procedure. . . . If the procedure is followed by an insurer, its liability cannot be greater than as therein set forth.”

Finally, “[w]here an insurer has not complied with Section 1797’s specific provisions, there is no reason to limit the damages recoverable from the insurer to those damages set out in Section 1797. … In those situations, as alleged here, Section 1797 and Section 8371 are not irreconcilable. … Both statutes can be given full effect: Section 1797 is the exclusive remedy when it applies; Section 8371 applies in all other cases.”

The court rejected a Twombly/Iqbal motion to dismiss, finding enough facts had been pleaded to state a plausible claim. The court added, in light of the allegations (if true), “it is reasonable to expect that discovery will reveal evidence that Plaintiff’s case was neither the only instance of abusive insurance practices nor an anomaly.”

Date of Decision: July 25, 2018

Shea v. USAA, U. S. District Court Eastern District of Pennsylvania, CIVIL ACTION NO. 17-4455, 2018 U.S. Dist. LEXIS 124163 (E.D. Pa. July 25, 2018) (Surrick, J.)