Monthly Archive for October, 2018

OCTOBER 2018 BAD FAITH CASES: COURT FINDS BAD FAITH POSSIBLE EVEN WHEN NO COVERAGE IS DUE (BUT OVERALL, THE LAW ON THIS ISSUE REMAINS UNCLEAR) (Philadelphia Federal)

This case may provide the clearest statement of the view that Pennsylvania permits statutory insurance bad faith claims to proceed where no benefit is due under the policy. As we have observed previously on this Blog, there is an argument that the Supreme Court’s Metropolitan v. Toy case requires that a benefit be denied as a predicate to bringing a statutory bad faith claim. There are some rare cases where no benefit is due for a purely procedural reason and bad faith claims were permitted to proceed, e.g., the contract claim was time barred. However, the principle set forth in this case, and others like it, appears to go beyond that narrow proposition.

Specifically, the court in this case did a choice of law analysis between Pennsylvania and Wisconsin law. It found a conflict because Wisconsin law requires that “first-party bad faith cannot exist without some wrongful denial of benefit under the insurance contract.” Looking at Pennsylvania law, the court stated, “On the other hand, Pennsylvania’s bad faith statute, 42 Pa. C.S.A. § 8371, has been interpreted to provide that when ‘bad faith is asserted as to conduct beyond a denial of coverage, the bad faith claim is actionable as to that conduct regardless of whether the contract claim survives.’”

The court summed up: “So, while a party may bring a viable bad faith claim under Pennsylvania law based on the insurer’s lack of investigation or failure to communicate even when the purported insured is not covered by the policy see Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 751 n.9 (3d Cir. 1999), such a claim is not viable under Wisconsin law ….” By contrast, in another recent district court case finding no breach of the insurance contract, the court found no bad faith possible, likewise citing Frog Switch: “Count II of Plaintiff’s Amended Complaint … for Insurance Bad Faith is hereby dismissed. In light of the dismissal of the Breach of Contract claim, the Bad Faith claim cannot survive. Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 751 n.9 (3d Cir. 1999) (‘[W]here there was no duty to defend, there was good cause to refuse to defend against a suit.’).”

Under the categories “No coverage due, bad faith still possible” and “No coverage duty, no bad faith”, we list summaries of cases addressing the split on this issue, and a few general comments concerning that split.

In the present case, the court determined Wisconsin law applied, and that there could be no bad faith because no coverage was due under the contract.

Date of Decision: October 22, 2018

Achenbach v. Atlantic Specialty Insurance Co., U. S. District Court for the Eastern District of Pennsylvania CIVIL ACTION NO. 17-534, 2018 U.S. Dist. LEXIS 181146 (E.D. Pa. Oct. 22, 2018) (Beetlestone, J.)

OCTOBER 2018 BAD FAITH CASES: INSURED CAN NEITHER PURSUE (1) PRIVATE CLAIMS UNDER UNFAIR CLAIMS SETTLEMENT PRACTICES ACT, NOR (2) UNDER PROPOSED INSURANCE FAIR CONDUCT ACT SINCE IT HAS NOT BECOME LAW (New Jersey Federal)

The insured attempted to bring a claim under Senate Bill 2144, the proposed Insurance Fair Conduct Act. However, this bill has never become law, and the court would not permit the insured to pursue such a claim. Nor could the insured pursue a claim under New Jersey’s Unfair Claims Settlement Practices Act since this did not provide a private right of action.

Date of Decision: October 23, 2018

Bell v. Crown Life Ins. Co., United States District Court District of New Jersey Civil Action No. 3:16-cv-08006 BRM-DEA, 2018 U.S. Dist. LEXIS 181562 (D.N.J. Oct. 23, 2018) (Arpert, J.)

OCTOBER 2018 BAD FAITH CASES: SUIT BROUGHT BEFORE INVESTIGATION COULD BE COMPLETED AND CLAIM COULD BE PROPERLY NEGOTIATED, SO NO BAD FAITH (Western District)

In this UIM case, the court separated out the actual facts pleaded from the complaint’s conclusory legal allegations, to determine if those facts could plausibly support the legal conclusions. They could not.

After a few months of the insurer’s involvement with the plaintiff’s injury and treatment, the matter was not resolved. The insurer did pay certain medical benefits, but not all of the UIM injury claims. It took the position that the scope of injury investigation was ongoing, without denying the insured’s claims. The insured sued for breach of contract and bad faith, and the insurer moved to dismiss.

The court observed that it must first accept all well-pleaded facts as true, while disregarding legal conclusions, to determine if a plausible claim is pleaded. A court may consider the allegations in the complaint, attached exhibits, matters of public record, and the contents of documents identified in the complaint.

The court stated that an insurer has a right to investigate and evaluate UIM claims, and need not immediately accede to the insured’s policy limits demand. Delay is relevant, but even if lengthy, must be measured under the circumstances of each case to determine whether it is unreasonable and in bad faith.

In this case, the insurer responded to the insured’s demand package within 3 months, and suit was filed 2 months later. This did not indicate bad faith. Nor were there facts to show an unreasonable delay in payment. The court contrasted this 5-month period with cases where the delays went on for 10 months and 2 years.

The court granted the motion to dismiss, because the insurer “has not had a substantial amount of time to investigate the claim, unlike the insurer in the cases Plaintiff relies on; and (2) has not denied the claim, but has indicated it needs to further investigate.”

The court also found the following allegations to be legal conclusions, which it need not consider as setting out a plausible claim unless supported by independent factual allegations:

  1. Refused to engage in good faith settlement discussions with Plaintiff;

  2. Refused to offer an amount in settlement of Plaintiff’s UIM claim that was commensurate with the gravity of his injuries and damages;

  3. Failed to engage in reasonable and proper settlement practices or protect the interests of its insured;

  4. Making an unreasonably low/no settlement offer;

  5. Failing to act in good faith to effectuate a prompt, fair, and equitable settlement of Plaintiff’s claim in which the company’s liability was clear;

  6. Violated the Unfair Insurance Practices Act, 40 P.S. § 1171.5(a)(10);

  7. Failing and refusing to properly evaluate Plaintiff’s claim for settlement purposes;

  8. Failing to act in good faith and fair dealing in the handling of Plaintiff’s claim for UIM benefits; and

  9. Refusing to pay Plaintiff the amount he was legally entitled to recover from a driver of an underinsured vehicle.

The court rejected the argument that the complaint’s factual allegations redeemed this conclusory language. The court looked at the factual allegations closely, and concluded that the neither the insured or insurer could have known the extent of the insured’s injuries for some period of time after treatment. Thus, the insurer did not refuse to pay a known claim, and further investigation was reasonable.

While a court is obligated to draw reasonable inferences from the facts pleaded in favor of the insured, it is “not required to accept allegations that are belied by logic.” In sum, the alleged facts did not flesh out the legal conclusions that the insurer failed to properly evaluate or handle the claims.

The court also found the insured chose to file suit before the insurer fully investigated the claim, or even issued a denial. This choice precluded settlement discussions or offers. Thus, these facts undermined the legal conclusions of failure to engage in proper settlement practices and negotiations.

Finally, the court found the bare allegation that the insurer violated the Unfair Insurance Practices act was “not a factual allegation of bad faith conduct, but rather, an unsupported conclusion of law as to a claim not pled, and is completely lacking any factual support.”

The complaint was dismissed without prejudice, to allow plaintiff to set out sufficient facts to state a plausible claim (if possible).

Date of Decision: October 22, 2018

Higman v. State Farm Mutual Automobile Insurance Cos., U. S. District Court Western District of Pennsylvania Civil Action No. 2:18-cv-00662, 2018 U.S. Dist. LEXIS 180282 (W.D. Pa. Oct. 22, 2018) (Lenihan, M.J.)

OCTOBER 2018 BAD FAITH CASES: NEW JERSEY INSURANCE COMMISSIONER PURSUES CIVIL PENALTIES UNDER FRAUD PREVENTION ACT (New Jersey Superior Court Appellate Division) (Not Precedential)

This case involved New Jersey’s Commissioner of the Department of Banking and Insurance’s pursuit of a claim under the Insurance Fraud Prevention Act (IFPA). The trial court found that the insured falsely claimed she was injured while driving, and it imposed civil penalties, including counsel fees.

Before the commissioner’s action, the insured actually won $25,000 in arbitration against her carrier, but at the trial de novo the jury concluded that the accident never occurred and found for the insurer. After the jury verdict, the commissioner brought this IFPA action. The insured appealed on various procedural grounds, most of which were rejected. The appellate court did remand, however, as the special civil part judge did not provide the reasoning behind the civil penalties imposed.

Date of Decision: October 19, 2018

Badolato v. McMillan, Superior Court Appellate Division DOCKET NO. A-5474-16T1, 2018 N.J. Super. Unpub. LEXIS 2311, 2018 WL 5091799 (New Jersey Appellate Division Oct. 19, 2018) (Koblitz, Ostrer, JJ.)

 

OCTOBER 2018 BAD FAITH CASES: BECAUSE THE INSURER PROPERLY TERMINATED BENEFITS, IT CANNOT BE LIABLE FOR BAD FAITH (Philadelphia Federal)

This disability insurance case hinged on whether the insured could no longer perform his job because of a “factual disability” or a “legal disability”. The factual disability was a substance abuse problem, and the legal disability was the loss of an occupational license. The policy only covered factual disabilities, and the insurer had denied benefits finding employment ended for a legal disability. The court determined that the loss arose from the insured’s legal disability, and thus no coverage was due.

As to the bad faith claim accompanying the breach of contract action, the court noted: “Because [the insurer] properly terminated benefits, it cannot be liable for bad faith.”

Date of Decision: October 15, 2018

Rothman v. Unum Group, U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-1299, 2018 U.S. Dist. LEXIS 176525, 2018 WL 4961609 (E.D. Pa. Oct. 15, 2018) (Savage, J.)

 

OCTOBER 2018 BAD FAITH CASES: $10,000 OFFER ON CLAIM IN EXCESS OF $200,000 NOT FRIVOLOUS OR UNFOUNDED WHERE ALTERNATE CAUSE OF LOSS WOULD NOT BE COVERED (Middle District)

In this UIM bad faith case, the insured received $15,000 from the tortfeasor, and was offered $10,000 by his own insurer, on a $200,000 policy. The insurer had already paid $5,000 in medical bills on the claim. The insured brought breach of contract and bad faith claims. The insurer successfully moved for summary judgment on the bad faith claim.

The insured claimed $180,000 to $230,000 in lost income. On medical bills, the court found that the actual costs to date were less than $15,000 and the insurer had already paid $5,000 of that sum, though the insured’s expert said he might need future surgery. Thus, $20,000 was paid to date, with another $10,000 on the table for plaintiff.

The key issue on bad faith was causation. Both the insured’s and insurer’s medical experts found that the insured’s pre-existing medical condition contributed to his ailments. Thus, while the insurer’s $10,000 offer did not satisfy the insured’s six figure demand, the insurer “was not prohibited from considering the doctors’ opinions regarding alternate causation.” Thus, the court ruled: “On balance, while minds may differ as to the true sum of the … loss, it cannot be said that [the insurer’s] estimate was ‘frivolous or unfounded.’”

Date of Decision: October 12, 2018

Newhouse v. Geico Casualty Company, U.S. District Court Middle District of Pennsylvania No. 17-cv-477, 2018 U.S. Dist. LEXIS 175785 (M.D. Pa. Oct. 12, 2018) (Brann, J.)

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

The court previously denied a motion to sever and stay the bad faith claim.

 

OCTOBER 2018 BAD FAITH CASES: A FINDING THAT NO COVERAGE IS DUE REQUIRES JUDGMENT FOR INSURER ON BAD FAITH CLAIM (Western District)

The insurer refused to pay the claim based upon policy conditions not being met. The court agreed there was no coverage based on the policy’s language and the facts of record, and it rejected the bad faith claim on that basis.

This was a property damage case resulting from a burst water pipe. The policy required continued residence as a condition for coverage. The insureds were not residing at the property at the time a water pipe burst. After the carrier refused to pay based on the residence requirement, the insured sued for breach of contract and bad faith.

In finding no breach of the policy, the court ruled the policy required continued residence, the facts showed the insureds did not meet that condition, and the insurer had not waived this residence condition.

On bad faith, the insureds unsuccessfully argued (1) the insurer had advised them to seek water remediation and then denied coverage; and (2) the insurer failed to inform them that they were not complying with the residency requirement. The court focused on the absence of any coverage obligation in determining whether (1) the insurer’s position lacked a reasonable basis, and (2) that it knew or recklessly disregarded that fact — Pennsylvania’s two criteria for determining statutory bad faith.

The court held that the insurer “clearly had a reasonable basis for denying coverage for the Subject Loss: the Policy required Plaintiffs to reside at the Subject Property, and Defendant concluded, after an investigation, that Plaintiffs did not reside there, a conclusion with which this Court agrees.” Thus, the carrier “could not have known or recklessly disregarded a lack of reasonable basis.” The court relied upon another recent Western District decision that “[i]n light of the dismissal of the Breach of Contract claim, the Bad Faith claim cannot survive.”

Date of Decision: October 11, 2018

Gerow v. State Auto Prop. & Cas. Co., U. S. District Court Western District of Pennsylvania Case No. 3:17-cv-203, 2018 U.S. Dist. LEXIS 175007 (W.D. Pa. Oct. 11, 2018) (Gibson, J.)

OCTOBER 2018 BAD FAITH CASES: BIFURCATION OF BAD FAITH COUNT DENIED UNDER FEDERAL RULES WHERE CASE WAS OVER TWO YEARS OLD, ISSUES WOULD NOT BE DECIDED ON THE PLEADINGS, AND ADDITIONAL DISCOVERY REQUIRED TO MOVE TO NEXT STAGE OF LITIGATION (New Jersey Federal)

In this complex federal case, the carrier sought to bifurcate trial and discovery on coverage and bad faith, asking the court to hold discovery in abeyance pending the coverage determination. The court declined.

“In determining whether bifurcation under Rule 42(b) is proper, ‘courts should consider whether bifurcation will avoid prejudice, conserve judicial resources, and enhance juror comprehension of the issues presented in the case.’” Applying this standard, the court found that “such considerations are not advanced by bifurcation, as this case: (1) was filed over two-and-a-half years ago; (2) will not be disposed of on the pleadings…; and (3) requires additional discovery to move on to the next stage of the litigation.”

The court found it exceedingly clear that this procedurally and substantively complex case was not going to be simplified or expedited “by holding bad faith discovery in abeyance pending a determination of coverage….” The court relied upon Magistrate Judge Clark’s opinion in National Union Fire Ins. Co. v. Becton, observing, “bifurcation of coverage and bad faith claims was not appropriate where case was pending for over three years, the case would not be disposed of on the pleadings, and discovery remained.”

Date of Decision: October 2, 2018

Ventrice v. Lexington Insurance Co., U.S. District Court District of New Jersey Civil Action No.: 2:16-cv-00660, 2018 U.S. Dist. LEXIS 169789 (D.N.J. Oct. 2, 2018) (Cecchi, J.)

OCTOBER 2018 BAD FAITH CASES: PLEADING 20 SPECIFIC ACTIONS TAKEN IN BAD FAITH SUFFICIENT TO SURVIVE MOTION TO DISMISS (Middle District)

This is a UIM bad faith case involving serious injuries to three family members. The insureds claimed their damages far exceeded the tortfeasors’ coverage, and their own carrier refused to pay benefits due. The insureds brought a bad faith claim alleging their insurer “refused to conduct a good faith reasonable investigation in order to effectuate a prompt, fair, and equitable settlement….”

The carrier moved to dismiss, arguing that the insureds merely pled a dispute over valuation, and failed to allege specific facts stating anything beyond that. The court disagreed.

Judge Munley found that, beyond merely refusing to pay, the insured had averred “with detail and specificity that [the insurer] also refused to conduct a good faith reasonable investigation in order to effectuate a prompt, fair, and equitable settlement of the plaintiffs’ claims. Specifically, paragraph 24 of the complaint sets forth twenty actions taken by the defendant that are specific to bad faith. Based on the facts pled, it is plausible that [the insurer] acted in bad faith when it failed to conduct an investigation before denying the plaintiffs’ insurance claims.”

The court further stated that, having pled failure to conduct a reasonable investigation, “it appears from the face of the complaint that [the insurer] denied the plaintiffs benefits with reckless disregard regardless of whether or not such a decision had a reasonable basis. The plaintiff has pled enough facts to raise a reasonable expectation that discovery will reveal evidence of bad faith on the part of the defendant.”

The 20 specific allegations in the Complaint include:

(i) Failing to acknowledge and act properly upon written and oral communications with respect to claims arising under an insurance policy;

(ii) Refusing to conduct a reasonable investigation based upon all the information available;

(iii) Not attempting in good faith to effectuate a prompt, fair and equitable settlement of Plaintiffs’ claims;

(iv) Compelling Plaintiff to file a Breach of Contract Claim and Bad Faith Claim to recover amounts due under the policy;

(v) Refusing to provide any reasonable counter offer to Plaintiffs’ July 6, 2016 written settlement demands;

(vi) Failing to objectively and fairly evaluate Plaintiffs’ claims;

(vii) Failing to objectively and fairly re-evaluate Plaintiffs’ claims when new information became available;

(viii) Engaging in dilatory and abusive claims handling;

(ix) Failing to adopt or implement reasonable standards in evaluating Plaintiffs’ claims;

(x) Acting unreasonably and unfairly in Response to Plaintiffs’ claims;

(xi) Not attempting in good faith to effectuate a prompt, fair and equitable settlement of Plaintiffs’ claims where Defendants’ … liability under the policy had become reasonably clear;

(xii) Subordinating the interests of its insured to its own financial monetary interest;

(xiii) Failing to promptly offer reasonable payment to Plaintiffs;

(xiv) Failing to reasonably and adequately investigate Plaintiffs’ claims;

(xv) Failing to reasonably and adequately evaluate and review the medical documentation in Defendants … possession related to this claim;

(xvi) Violating the fiduciary duty owed to Plaintiffs;

(xvii) Acting unreasonably and unfairly by withholding Underinsured Motorist Benefits justly due and owing to Plaintiffs;

(xviii) Failing to make an honest, intelligent and objection settlement offers [sic];

(xix) Causing Plaintiffs to expend money on the presentation of their claims; and

(xx) Causing Plaintiffs to bear the stress and anxiety association with litigation.

It is interesting to compare this decision to another decision from the same court where 29 averments of bad faith were found conclusory and inadequate to state a claim under Twombly/Iqbal.

Date of Decision: October 11, 2018

King v. Travelers Cos., U. S. District Court Middle District of Pennsylvania No. 3:18cv1549, 2018 U.S. Dist. LEXIS 174732 (M.D. Pa. Oct. 11, 2018) (Munley, J.)

The King Complaint can be found here

 

OCTOBER 2018 BAD FAITH CASES: NO BAD FAITH WHERE CLAIM DENIAL SUPPORTED BY EXPERTS; POTENTIAL BAD FAITH FOR CLAIMS OF RETALIATION (New Jersey Federal)

In this case, the insured’s damage claim would be covered if damages were caused by a sinkhole. The insured and insurer used a number of experts or investigators, who reached opposite conclusions. The insurer’s “team” relied upon its two engineers who concluded there was no sinkhole, and rejected the insured’s expert in favor of its own experts’ conclusions.

The insured brought breach of contract and bad faith claims. There were two distinct bad faith claims. The first was based on the sinkhole denial. The second was based on the insurer’s alleged threat to seek reimbursement of a previous payment on an earlier claim in retaliation for pursuing the sinkhole claim. The court granted summary judgment on the former, but allowed this threat based action to proceed.

No Bad Faith Where Denial Supported By Experts Made Denial Fairly Debatable

The court denied the insurer’s summary judgment motion on coverage, finding a dispute of fact on whether the loss resulted from a sinkhole. However, the court did grant summary judgment on the bad faith claim for denying coverage.

Under New Jersey’s fairly debatable standard, the bad faith plaintiff must show “the insurer knowingly or recklessly lacked a reasonable basis to deny the claim.” “A bad faith claim must fail where the insurer’s denial of the claim was fairly debatable.” Thus, a “claimant who could not have established as a matter of law a right to summary judgment on [the breach of contract claim] would not be entitled to assert a claim for an insurer’s bad-faith refusal to pay the claim.”

In this case, the insurer relied upon two expert engineers to deny the claim. The court found that “[n]o facts have been put forth to show that these reports were wholly fraudulent, or were crafted without any investigation or expertise.” It cited Bello v. Merrimack Mut. Fire Ins. Co., for the proposition that the “’fairly debatable’ question was one for the jury, in circumstances “where the insurer relied on a report by a non-engineer that acknowledged the merit of the insured’s claim….” [In that case, the jury found bad faith].

The court concluded: “Examining the record in the light most favorable to Plaintiffs, Defendant rubber-stamped the conclusions of [the insurer’s engineers] and ignored contrary evidence. But the fact that these two engineers arrived at conclusions consistent with Defendant’s decision to deny Plaintiffs’ claim demonstrates that that decision was fairly debatable. Summary judgment must therefore be granted in favor of Defendant on the Second Count.”

Bad Faith Claims Allowed To Proceed On Retaliation Threat Claim

The “insurer acts in bad faith when it acts without a reasonable basis, and when the insurer knows or is reckless in not knowing that its action lacks a reasonable basis.” In its second bad faith count, the insured alleged the carrier’s “decision to retroactively seek reimbursement was made in retaliation for Plaintiffs’ filing a new claim.” The insurer argued that it actually sought reimbursement because of a fraudulent misrepresentation, resulting in erroneous payment. The court found it lacked “sufficient information to rule on this Count as a matter of law,” and denied summary judgment.

Date of Decision: October 9, 2018

Orban v. Liberty Mutual Fire Ins. Co., U. S. District Court District of New Jersey Civ. No. 16-3050, 2018 U.S. Dist. LEXIS 173212 (D.N.J. Oct. 9, 2018) (Thompson, J.)

Should the New Jersey Senate’s proposed Insurance Fair Conduct Act become law in the future, this could very likely change the standards discussed in this case.