Monthly Archive for September, 2018

SEPTEMBER 2018 BAD FAITH CASES: NO COMMON LAW BAD FAITH WHERE NO BREACH OF CONTRACT (Philadelphia Federal)

In this disability insurance case, the court held that because the insurer did not breach the policy terms, “it cannot be liable for [common law] bad faith based on the alleged breach thereof.”

Date of Decision: September 21, 2018

Arya v. Provident Life & Accident Ins. Co., U. S. District Court Eastern District of Pennsylvania, CIVIL ACTION NO. 15-4362, 2018 U.S. Dist. LEXIS 161604 (E.D. Pa. Sept. 21, 2018) (Robreno, J.)

SEPTEMBER 2018 BAD FAITH CASES: COURT FINDS BAD FAITH ALLEGATIONS SUFFICIENT TO SURVIVE MOTION TO DISMISS (Middle District)

The homeowner insured was using an excavator to do work on his property, and damaged utility lines owned by a third party. Reviewing the complaint on this motion to dismiss, the court found the third party power line owner was making a claim for damages against the insured, and the insurer refused to cover that claim. The court described this as denying benefits under the policy.

The insured brought various claims, including a bad faith claim, which the insurer moved to dismiss for lack of pleading facts supporting a plausible case.

The court denied the motion, finding the allegations adequate. The plaintiff alleged that the insurer refused “to provide insurance coverage to Plaintiff is without reasonable basis in fact and/or law. . . In refusing to pay insurance benefits to Plaintiff, Defendant knowingly or recklessly disregarded its lack of reasonable basis for such refusal.”

The court stated of the pleading: “Although the factual detail here may not be great, we find that it is sufficient when the complaint is viewed as a whole to support the bad faith cause of action. This conclusion is especially apt because we are dealing with a motion to dismiss stage before any discovery has been done. This issue may be more fully addressed at the summary judgment stage if the defendant finds that insufficient evidence supports the claim at that point.”

It is interesting to compare this decision to another recent Middle District decision applying Twombly/Iqbal to a bad faith complaint, as recently posted to this Blog. In that case, the court required a more specific pleading after finding 29 averments of bad faith “conclusory”.

Date of Decision: September 21, 2018

Stewart v. Travelers Insurance Co., U. S. District Court Middle District of Pennsylvania No. 3:18cv170, 2018 U.S. Dist. LEXIS 161125 (M.D. Pa. Sept. 20, 2018) (Munley, J.)

SEPTEMBER 2018 BAD FAITH CASES: MOTION TO SEVER AND STAY UIM BAD FAITH CLAIMS DENIED (Blair County Common Pleas)

As we have noted before, the excellent Tort Talk Blog keeps close tabs on post-Koken motions to sever and stay UIM bad faith claims. In its interesting post today, a Blair County Common Pleas Court is described as giving an overview of state and federal case law on the subject: “In its decision, the court reviewed the split of authority and case law in the various state and federal courts on the issues of severance and stay of bad faith claims in post-Koken matters. The court noted that the federal courts in Pennsylvania tend to deny such motions and that the state trial courts have varying results, including conflicts within some same counties.”

 

 

SEPTEMBER 2018 BAD FAITH CASES: OUTRAGEOUSLY EXCESSIVE FEE PETITION RESULTS IN DENIAL OF ALL FEES; 10 FACTORS TO CONSIDER IN EVALUATING A FEE PETITION (Third Circuit, Pennsylvania Bad Faith Statute)

In this unusual case, the trial court entirely denied a successful bad faith plaintiff attorney’s fees petition, and the Third Circuit affirmed.

On appeal, the Third Circuit summarized the trial court opinion: “As the prevailing party under the Bad Faith Statute, [the insured] then submitted a petition for attorney’s fees, in which he requested an award of $946,526.43 in fees and costs. The District Court denied this request in its entirety, however.

In a thorough and well-reasoned one-hundred-page opinion, the court reviewed every time entry submitted, performed a traditional lodestar analysis, and concluded that eighty-seven percent of the hours billed had to be disallowed as vague, duplicative, unnecessary, or inadequately supported by documentary evidence. In light of that substantial reduction, the District Court deemed [the] request ‘outrageously excessive’ and exercised its discretion to award no fee whatsoever.”

The Third Circuit affirmed, and made clear that under circumstances of “outrageously excessive” fee demands, a trial court has discretion to award no fees at all, even though some fees were obviously incurred. The court stated:

“The District Court denied this petition in its entirety, reasoning that it was not adequately supported and that the requested amount was grossly excessive given the nature of the case. Finding no abuse of discretion, we will affirm and, in doing so, take the opportunity to formally endorse a view already adopted by several other circuits—that is, where a fee-shifting statute provides a court discretion to award attorney’s fees, such discretion includes the ability to deny a fee request altogether when, under the circumstances, the amount requested is ‘outrageously excessive.’”

The opinion gives some guidance on how to properly petition for attorney’s fees:

  1. Maintain contemporaneous time records. Even if not required, this is the best practice.

  2. It is best not to reconstruct time records. This is not forbidden, but will call for higher scrutiny in evaluating the fee petition.

  3. It is best not have one attorney reconstruct time records for another attorney, especially where the other attorney is no longer with the firm and cannot be consulted.

  4. Time entries should not be so vague that the amount of time needed to complete the task cannot be evaluated from the time entry. As the court states, the time entries must “be specific enough to allow the district court to determine if the hours claimed are unreasonable for the work performed.”

  5. Time spent must not be unnecessary or excessive.

  6. Purely clerical matters should not be billed at attorney rates.

  7. Trial preparation time should not be disproportionate to the time actually spent at trial.

  8. Do not seek to recover fees that never would have been billed to the client. (“Hours that would not generally be billed to one’s own client are not properly billed to an adversary.”)

  9. At trial, be prepared and know the applicable rules of court, especially when considerable time is billed for trial preparation.

  10. The billing attorneys themselves must put on evidence, by affidavit or testimony, of the reasonableness of their hourly rates.

In sum, “district courts have the discretion to deny a fee request in its entirety when the requested amount is ‘outrageously excessive’ under the circumstances.” “If courts did not possess this kind of discretion, ‘claimants would be encouraged to make unreasonable demands, knowing that the only unfavorable consequence of such conduct would be reduction of their fee to what they should have asked for in the first place.’”

“When a party submits a fee petition, it is not the ‘opening bid in the quest for an award.’ Rather, it is the duty of the requesting party to ‘make a good faith effort to exclude . . . hours that are excessive, redundant, or otherwise unnecessary, just as a lawyer in private practice ethically is obligated to exclude such hours from his fee submission.’”

Date of Decision: September 12, 2018

Clemens v. New York Central Mutual Fire Insurance Company, U. S. Court of Appeals for the Third Circuit No. 17-3150, 2018 U.S. App. LEXIS 25803 (3d Cir. Sept. 12, 2018) (Bibas, Greenaway, Restrepo, JJ.)

 

SEPTEMBER 2018 BAD FAITH CASES: BAD FAITH LAW DOES NOT APPLY TO CLAIM THAT INSURER TOOK EXCESSIVE PREMIUMS; BAD FAITH MUST BE PREDICATED ON CLAIM UNDER THE POLICY (Philadelphia Federal)

The insureds alleged the insurer took excessive premiums. The court found such claims were not subject to Pennsylvania’s Bad Faith Statute since there was no denial of any benefit, a prerequisite to any bad faith claim. The court stated its legal reasoning as follows:

“Defendants argue that Plaintiffs’ claims do not arise from an insurer’s failure to pay a claim pursuant to the terms of an insurance policy, and therefore, Plaintiffs have not stated a claim for bad faith. Courts have interpreted “bad faith” to include an insurer’s conduct other than an unreasonable denial of benefits. See, e.g., Davis v. Fid. Nat. Title Ins. Co., 120 A.3d 1058, 2015 WL 7356286, at *15 (Pa. Super. 2015) (recognizing that bad faith claim can arise from a delay in making payment); O’Donnell ex rel. Mitro v. Allstate Ins. Co., 1999 PA Super 161, 734 A.2d 901, 906 (Pa. Super. Ct. 1999) (holding that an action for bad faith may also extend to the insurer’s investigative practices and misconduct during litigation).”

“However, the insured must have made a claim under the policy to state a claim for bad faith. In Toy v. Metro Life Ins. Co., the Pennsylvania Supreme Court evaluated whether the plaintiff insured stated a bad faith claim based on allegations that an insurer resorted to unfair or deceptive practices to convince the insured to purchase a policy. 593 Pa. 20, 928 A.2d 186, 199-200 (Pa. 2007). Interpreting the meaning of ‘bad faith,’ the court determined that “the term captured those actions an insurer took when called upon to perform its contractual obligations of defense and indemnification or payment of a loss that failed to satisfy the duty of good faith and fair dealing implied in the parties’ insurance contract.”

The court concluded that the legislature intended not to give relief under the bad faith statute to an insured who alleges that his insurer solicited the purchase of the policy unfairly. It cited Ash v. Cont’l Ins. Co., 593 Pa. 523, 932 A.2d 877, 882 (Pa. 2007) (“[Section 8371] applies only in limited circumstances—i.e., where the insured first has filed ‘an action arising under an insurance policy’ against his insurer.”); and Aquila v. Nationwide Mut. Ins. Co., No. CIV.A. 07-2696, 2008 U.S. Dist. LEXIS 93823, 2008 WL 4899359, at *6 (E.D. Pa. Nov. 13, 2008) (holding that a plaintiff who did not bring claim under insurance policy could not state a bad faith claim because § 8371 presupposes a claim made of the insurer) (citing Toy and Ash).

Date of Decision: August 31, 2018

Yandrisovitz v. Ohio State Life Ins. Co., U. S. District Court Eastern District of Pennsylvania No. 5:18-cv-1036, 2018 U.S. Dist. LEXIS 149673 (E.D. Pa. Aug. 31, 2018) (Leeson, J.)

SEPTEMBER 2018 BAD FAITH CASES: UIM BAD FAITH CLAIM SEVERED, BUT DISCOVERY TO PROCEED (Luzerne County Common Pleas)

The excellent Tort Talk Blog has posted a recent Luzerne County Common Pleas decision, severing a UIM bad faith claim from the breach of contract claim, but allowing discovery to proceed.  The Court’s Opinion also includes specific instructions on how that discovery is to proceed.

SEPTEMBER 2018 BAD FAITH CASES: NO BAD FAITH WHERE CARRIER’S DECISIONS BASED ON REASONABLE POLICY INTERPRETATION (Philadelphia Federal)

In this case, involving a debris removal policy provision, the court dismissed the bad faith claim. There was no averment that the carrier lacked a reasonable basis for its decision to withhold debris removal funds. The court further found that the carrier’s determination to reduce the appraised loss sum by the cost of demolition and debris removal was based on a reasonable interpretation of the policy.

Date of Decision: August 27, 2018

Williams v. Allstate Vehicle & Property Insurance Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-0675, 2018 U.S. Dist. LEXIS 145493 (E.D. Pa. Aug. 27, 2018) (Slomsky, J.)

SEPTEMBER 2018 BAD FAITH CASES: INSURED’S FRAUD ON SMALL FRACTION OF TOTAL CLAIM RESULTS IN FORFEITURE OF ALL SUMS PAID, UNDER BOTH PENNSYLVANIA COMMON LAW AND NEW JERSEY STATUTORY LAW (Philadelphia Federal)

The insurer sought damages and rescission under Pennsylvania common law and New Jersey’s Insurance Fraud Prevention Act. There was a fire at the insured’s New Jersey shore home, and allegedly subsequent theft of personal property from the home. The insured made a claim for lost personal property and submitted photographs of the lost items.

After investigation, the insurer concluded that the photographs were taken after the fire loss at issue, at a different home owned by the insured in Philadelphia. Thus, contrary to the insured’s sworn statement, these items were not lost or stolen from her shore home.

The policy provided there was no coverage “if, whether before or after a loss, an ‘insured’ has: 1. intentionally concealed or misrepresented any material fact or circumstance; 2. engaged in fraudulent conduct; or 3. made false statements relating to this insurance.”

The insurer denied the claims for the personal property in the photos on the basis that the insured “intentionally concealed and/or misrepresented material facts concerning [her] claim for personal property, and made false statements regarding the items that were allegedly lost due to the fire or theft.”

The insured brought breach of contract and bad faith claims, which were dismissed for lack of prosecution. The insurer’s fraud claims were raised as counterclaims. The insured did not file any opposition, and by the time the insurer moved for summary judgment, the insured was pro se.

On the Pennsylvania common law fraud claims, the court observed: “It follows, as the night follows the day, that [the insured] has suffered no personal property loss for the items photographed since she still had possession of those undamaged items after the fire and alleged theft.”

The court not only granted relief on the personal property damage claims for the allegedly lost items, but as to the entire loss, including the sum paid for the value of the home. The court stated:

“The record is clear that [the insurer] made payments … in reliance on what it believed at the time to be her truthful representations about her losses as a result of the fire and alleged theft. [The insurer paid] $351,767.17 in dwelling coverage and $10,000 in personal property coverage. As it turned out, there is no genuine dispute about the fact that [the insured] made materially false representations … in an effort to mislead it into paying her for personal property which she did not lose. … Under the terms of the insurance policy, no coverage is provided if the insured either before or after the loss intentionally concealed or misrepresented any material fact, engaged in fraudulent conduct, or made a false statement relating to their insurance. Clearly, [the insured] breached these provisions of the policy.”

Accordingly, we will enter summary judgment … against [the insured] on the counterclaim of common law fraud for $361,767.16, the amount …paid to her.”

The court also granted equitable rescission under Pennsylvania common law fraud principles, and granted relief under New Jersey’s Insurance Fraud Prevention Act. The court noted that the New Jersey statute includes recovery of reasonable investigation expenses, costs of suit and attorney’s fees. However, the court did not appear to award damages for investigation, costs or legal fees.

The Act itself provides for relief against an insured who “(1) Presents or causes to be presented any written or oral statement as part of, or in support of or opposition to, a claim for payment or other benefit pursuant to an insurance policy . . . knowing that the statement contains any false or misleading information concerning any fact or thing material to the claim; or . . . (3) Conceals or knowingly fails to disclose the occurrence of an event which affects any person’s initial or continued right or entitlement to (a) any insurance benefit or payment or (b) the amount of any benefit or payment to which the person is entitled[.] N.J.S.A. § 17:33A-4(a).(1, 3).”

The same facts supporting the common law fraud finding supported this statutory relief.

Finally, the court also awarded over $45,000 in prejudgment interest on the Pennsylvania claims.

Date of Decision: August 21, 2018

Pallante v. Certain Underwriters at Lloyd’s, London, U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-1142, 2018 U.S. Dist. LEXIS 141427 (E.D. Pa. Aug. 21, 2018) (Bartle, J.)

SEPTEMBER 2018 BAD FAITH CASES: COURT DISMISSES AMENDED COMPLAINT WITH PREJUDICE, AFTER GIVING INSURED ANOTHER OPPORTUNITY TO PLEAD AN ACTIONABLE BAD FAITH CLAIM (Middle District)

In some contrast with today’s earlier post, this district court reiterated its prior legal restatement of bad faith law, that in addition to coverage denial being a basis for bad faith, “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.” Even under that standard, the case was dismissed.

The court had previously dismissed the bad faith claims, with leave to amend. The amended complaint only added conclusory allegations. Thus, relying on the same principles set forth in its first opinion, the Court now dismissed the bad faith claim with prejudice. The court stated:

“The allegations of bad faith are virtually identical to those that I previously found insufficient. Again, Plaintiffs do not plead any facts to support a finding of bad faith. Instead, they rely solely on “bare-bones” conclusory allegations which are not sufficient to state a bad faith claim. … Moreover, insofar as the claim is predicated on Nationwide’s purported bad faith in soliciting the purchase of the insurance policy at issue, those allegations do not state a claim to relief under § 8371. … Since Plaintiffs fail to plead a plausible basis to support a finding of bad faith, that claim will be dismissed with prejudice.”

Date of Decision: September 4, 2018

Frantz v. Nationwide Insurance Company, U. S. District Court Middle District of Pennsylvania NO. 3:18-CV-0509, 2018 U.S. Dist. LEXIS 149898 (M.D. Pa. Sept. 4, 2018) (Caputo, J.)

SEPTEMBER 2018 BAD FAITH CASES: WHERE NO DEFENSE DUE COURT MUST DISMISS BAD FAITH CLAIM (Philadelphia Federal)

The court found there was no duty to defend under a title insurance policy. Citing the seminal Frog Switch case, the court observed: “Importantly, where there [is] no duty to defend, there [is] good cause to refuse to defend against suit.” The court then concluded, “[b]ecause we have already held that [the insurer] is entitled to summary judgment based on the finding that it did not have a duty to defend … in the Underlying Action, we must also find that [the insurer] had good cause to refuse [the] request for coverage. Accordingly, we grant summary judgment in favor of [the insurer] on [the] bad faith claim.”

Date of Decision: August 23, 2018

631 North Broad Street, L.P. v. Commonwealth Land Title Insurance Co., U.S. District Court Eastern District of Pennsylvania, CIVIL ACTION NO. 17-02805, 2018 U.S. Dist. LEXIS 143904 (E.D. Pa. Aug. 23, 2018) (Joyner, J.)

This opinion was affirmed by the Third Circuit.  See Blog post here.