Monthly Archive for November, 2018

NOVEMBER 2018 BAD FAITH CASES: FEDERAL COURT WILL NOT REMAND BAD FAITH CLAIM SIMPLY BECAUSE INSURED INCLUDED A CLAIM FOR DECLARATORY RELIEF (New Jersey Federal)

The insured brought claims for declaratory relief, breach of contract and bad faith. The carrier removed to federal court, and the insured moved to remand.

The insured agreed that diversity jurisdiction existed, but asked the court to make a discretionary remand on the basis that the case sought declaratory relief, which should be deemed to encompass all claims in the case. The court disagreed because the breach of contract and bad faith claims were independent of the declaratory relief claim, and there was jurisdiction over those independent claims.

The test is whether the claims for non-declaratory relief would continue to exist even if the declaratory judgment claim were dropped. It is obvious that if the insured never sought declaratory relief he still could have sued for damages under the contract and bad faith theories.

Date of Decision: November 19, 2018

Vitale v. State Farm Fire & Cas. Co., U. S. District Court District of New Jersey Civil Action No. 18-8988 (MAS) (LHG), 2018 U.S. Dist. LEXIS 197043 (D.N.J. Nov. 19, 2018) (Shipp, J.)

 

NOVEMBER 2018 BAD FAITH CASES: JUDGMENT FOR RESCISSION AND RESTITUTION UPHELD ON APPEAL FOR MATERIAL MISREPRESENTATIONS IN OBTAINING POLICY (New Jersey Superior Court)

In this case, the court granted the insurer a judgment notwithstanding the verdict. The case involved misrepresentations in applying for insurance, specifically involving whether the insureds actually lived in the home they were seeking to insure.

The court recited a litany of evidence from the trial showing the homeowner wife knew that home for which she and her husband were seeking coverage had never actually been owner occupied, despite many representations to the contrary. Once the insurer discovered the misrepresentations, it issued a notice of cancellation. The home was destroyed by fire after the notice of cancellation, but before the cancellation effective date and the insureds sought coverage.

The carrier refused to pay, and rescinded the policy based on fraudulent representations. It did, however, pay $1.4 Million to the innocent mortgage company named on the policy. It took an assignment of the mortgage after payment.

The insured brought various claims, including bad faith, and the insurer counterclaimed for equitable fraud/rescission, unjust enrichment, and restitution as well as claims under the Insurance Fraud Prevention Act (IFPA). Prior to trial, the court granted the insurer summary judgment on the bad faith, consumer protection law, and attorney’s fee claims. At trial, the jury ruled for the insured on the breach of contract claim and against the insurer on all of its claims.

On the JNOV motion, the trial court concluded that the evidence, even taken in a light most favorable to the insureds, showed misrepresentations in obtaining the policy and during the fire investigation. It thus allowed for rescission and restitution.

On appeal, the Appellate Division observed that equitable rescission can be based on even innocent misrepresentations, as long as they are material misrepresentations. The appellate court agreed the representations made in obtaining the policy were both false and material. Though unnecessary to make the equitable fraud case, the court also found the record showed the misrepresentations were intentional. In sum, it upheld the judgment in favor of rescission and restitution.

Date of Decision: November 14, 2018

Sesztak v. Great N. Ins. Co., New Jersey Superior Court Appellate Division DOCKET NO. A-2846-15T4, 2018 N.J. Super. Unpub. LEXIS 2491 (N.J. Super. App. Div. Nov. 14, 2018) (DeAlmeida, Mawla, Yannotti, JJ.)

NOVEMBER 2018 BAD FAITH CASES: NEW JERSEY CFA CLAIM CAN PROCEED WHERE NO DENIAL OF AN INSURANCE BENEFIT ALLEGED (Third Circuit – New Jersey)

In this New Jersey action, the plaintiff alleged that the insurer’s agent deceived and defrauded her into signing a release of claims against the insurer. Specifically, the insured alleged that she was injured in an auto accident, and the insurer’s agent showed up at her home with papers to sign. The agent allegedly represented the documents were necessary to process and advance payments on her claim. However, unknown to her, the documents actually included a broad release of all her claims.

Plaintiff initiated a class action under New Jersey’s Consumer Fraud Act (CFA). The District Court found the CFA inapplicable to this fact scenario, on the basis that the CFA does not address the denial of insurance benefits, and further found the CFA conflicts with the Insurance Trade Practices Act (ITPA) or Unfair Claims Settlement Practices (UCSPA) regulations under these circumstances.

The Third Circuit reversed.

The Third Circuit found that the alleged deceptive and fraudulent conduct against a consumer did not amount to the denial of an insurance benefit. It further found that there was no conflict between allowing a statutory CFA private claim to proceed, even if regulatory relief might also be proper under the ITPA or UCSPA.

Date of Decision: November 15, 2018

Alpizar-Fallas v. Favero, United States Court of Appeal for the Third Circuit, No. 17-3837 (3d Cir. Nov. 15, 2018) (Jordan, Rendell, Vanaskie, JJ.)

BAD FAITH BLOG NOMINATED FOR BEST NICHE BLOG AWARD

The Pennsylvania and New Jersey Insurance Bad Faith Case Law Blog Has Been Nominated for The Expert Institute’s Best Legal Blog Contest, in the Niche and Specialty Blog category.

From a field of hundreds of potential nominees, our blog has received enough nominations to join the one of the largest competitions for legal blog writing online today.

Please consider voting for us. If you choose to vote for our blog, you can go to this voting page.

The competition will run from November 5th until the close of voting at 12:00 AM on December 17th, at which point the votes will be tallied and the winners announced.

 

BAD FAITH BLOG UPGRADED FOR EASIER USE

We have posted nearly 1,500 bad faith case summaries over the last 12 years. During October and November 2018, we significantly upgraded the Pennsylvania and New Jersey Insurance Bad Faith Case Law Blog and all of those posts, making them easier to search and read. Many hours and thousands of edits have gone into this process.

New Searchable Categories

We have added tens of new search categories, grouping cases by topic into distinct, searchable, subsets. These categories can be found on the far left of the home page, and are broken down into New Jersey (NJ) post categories, and Pennsylvania (PA) post categories.  You can click on the category to pull up the posts tagged under that category.

By way of only a few examples, we have identified case categories for: delays by insureds, claims handling delay, federal pleading adequacy and inadequacy, negligence distinguished from bad faith, removal, bifurcation (severance) and stays, who is an insurer for statutory bad faith purposes, when a finding of no duty under an insurance policy cuts off potential bad faith claims, the role state insurance statutes and regulations play in bad faith cases, and cases involving the insured’s own bad faith conduct. There are many more categories we invite you to explore.

General Searches and Opinion Links

You can also search using words you choose yourself. In the upper left of the home page, under the calendar, is a search box where users can enter search terms and get a set of posts with those terms.

We include the names of the judges making the decisions summarized in our posts so you can search posted case summaries by an individual judge’s name. We similarly include the court names in each summary’s caption so you can search by court name as well. (Our shorthand for courts names can be found here.)

We have added hundreds of links to the opinions themselves for many of the summaries that previously had no links (though we do not have an opinion link for all 1,500 posts).

Finally, some trends appear when organizing the cases by topic. Among other things, it is interesting to see where the balance falls between decisions finding claims handling reasonable or unreasonable, or between courts addressing whether bad faith can or cannot exist if there is no contractual duty to provide a benefit of indemnification or defense. And while it is not surprising that many cases originate in the uninsured/underinsured motorist context, it still leaps out that nearly 20% of our posts come from UM/UIM cases, indicating the impact this case type has in shaping bad faith law generally.

Again, we invite you to explore the site.

If you have a Pennsylvania or New Jersey bad faith judicial opinion or jury verdict of interest, please feel free to email us the case for posting. You can email us at lapplebaum@finemanlawfirm.com.

 

NOVEMBER 2018 BAD FAITH CLAIMS: CONCLUSORY ALLEGATIONS DISMISSED, AND ONE FACTUAL ALLEGATION DID NOT MAKE OUT A CASE OF BAD FAITH CLAIMS HANDLING (Middle District)

The insured failed to adequately plead a bad faith claim in this UIM case, but was given leave to amend. Most of the allegations were conclusory, and the one allegation that was factual in nature did not make out a bad faith claim.

The court set out the method for determining whether a pleading is adequate under the federal rules.

  1. Separate out the factual and legal elements of the claim.

  2. Accept all well-pleaded facts.

  3. Disregard all legal conclusions.

  4. Determine if the well-pleaded facts make out a plausible claim for relief.

“Where a complaint pleads facts that are merely consistent with’ a defendant’s liability, it stops short of the line between possibility and plausibility of ‘entitlement to relief.”

The court found the following averment to be well-pleaded:

“failing to make a reasonable settlement offer to Plaintiffs despite receipt of medical specials which supported tender of the full policy limit in Plaintiffs’ third-party claim….”

However, merely alleging an insured provided documents and the insurer failed to make a reasonable settlement offer “does not support an inference of bad faith without additional factual support such as the complexity of the claim and the time passed between the date Plaintiffs supplied the necessary information and the date the complaint was filed.”

The court also gave some scrutiny to an averment that the insurer failed to pay a covered loss in a prompt and timely matter. It found this to be a conclusory legal allegation, rather than a fact, because no facts were pleaded that would explain why the delay was unreasonable under the circumstances.

The court recognized the difficulty in pleading facts of an insurer’s internal processes, but still ruled that an insured had to plead some facts or the claim could not survive. Pleading a few months long delay by itself is not sufficient, without more details to fill out the nature of the claims handling that was allegedly unreasonable.

In sum, “Plaintiffs’ factual averments amount to no more than an allegation that Defendant failed to communicate or issue benefits within three months of Plaintiffs providing medical documentation and a written request for benefits. Plaintiffs point to no facts that suggest that this delay was unreasonable or dilatory. As such, the facts alleged in the complaint cannot suffice to raise a cause of action for bad faith under Pennsylvania law. Because it is not clear that an amendment would be futile, however, Plaintiffs will be given leave to amend their complaint if they are able to add factual allegations that would support their bad faith claims.”

Date of Decision: November 6, 2018

Rickell v. USAA Casualty Insurance Co., U. S. District Court for the Middle District of Pennsylvania No 18-cv-1279, 2018 U.S. Dist. LEXIS 189257 (M.D. Pa. Nov. 6, 2018) (Rambo, J.)

Other examples of conclusory pleading in this case are:

failing to evaluate Plaintiffs’ claim objectively and fairly;

failing to complete a prompt and thorough investigation of Plaintiffs’ claim;

conducting an unfair and unreasonable investigation of Plaintiffs’ claim;

violating the fiduciary duty owed to Plaintiffs;

failing to reasonably and adequately evaluate or review the medical documentation in Defendant’s possession;

failing to keep Plaintiffs or their representatives fairly and adequately advised as to the status of the claim;

unreasonably valuing the loss and failing to fairly negotiate the amount of the loss with Plaintiffs or their representatives;

unreasonably withholding policy benefits;

acting unreasonably and unfairly in response to Plaintiffs’ claim; and

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

 

NOVEMBER 2018 BAD FAITH CASES: CLAIMS HANDLING REASONABLE WHEN INSURER RELIES ON EXPERTS AND CONDUCTS THOROUGH INVESTIGATION; INSINUATION OF BAD INTENT IS NOT PROOF OF BAD FAITH (Middle District)

This decision was later reversed when the insurer’s expert was found unqualified.

The insurer ceased making payments under a disability policy on the basis of two independent medical examinations, and its interpretation that the results of those examinations fell outside the policy’s coverage. The insured brought various claims, including bad faith. The court ruled in the insurer’s favor on summary judgment.

First, the insurer had a reasonable basis to deny the claim. Insurers “may reasonably rely on the findings of an independent medical examination—even in the face of contrary medical opinions.” The insured argued the insurer unfairly favored its physician/expert opinion over the treating physicians’ opinions, however, “an insurer is not required to give greater credence to opinions of treating medical providers.”

Second, the record did not yield an inference that there was a frivolous or unfounded refusal to pay. The record showed a thorough investigation, with reviews by medical experts, and requests and reviews of relevant documents. This created a reasonable basis for denial.

Finally, “an insurer has a right to evaluate legitimate coverage issues and does not act in bad faith by aggressively protecting its interests.” Merely insinuating a pre-determined intent to deny a claim is not sufficient to meet the burden of actually establishing bad faith. Plaintiff’s claims handling examples adduced to discredit the insurer, did not actually evidence improper claims handling, “or that their methods otherwise went beyond mere negligence and constituted conduct amounting to bad faith.”

Date of Decision: November 2, 2018

Brugler v. Unum Group & Provident Life & Accident Ins. Co., U. S. District Court Middle District of Pennsylvania No. 4:15-CV-01031, 2018 U.S. Dist. LEXIS 187836 (M.D. Pa. Nov. 2, 2018) (Brann, J.)

NOVEMBER 2018 BAD FAITH CASES: BAD FAITH CLAIM SEVERED AND STAYED UNDER FEDERAL RULES; BUT CONTRACT CLAIM FOR CONSEQUENTIAL DAMAGES FROM DELAY IN PAYMENT NOT STAYED (New Jersey Federal)

Plaintiff was the beneficiary of a $1 Million life insurance policy. The carrier declined to pay benefits, and she brought 3 claims: (1) a declaration that the policy was valid and she was entitled to the proceeds; (2) breach of contract for damages resulting from delay in payment; and (3) bad faith. The carrier sought to sever the last two claims, and stay discovery, characterizing them both as bad faith claims.

The court found the delay in payment claim simply to be a contract claim for consequential damages, not bad faith in claims handling, and denied the motion on that count. The court also did not expect damage discovery to be extensive or complicated, and there would be no material benefit, or prejudice avoided, by severance and stay.

On the bad faith claim, the court recognized that stay and severance were common in bad faith cases; however, there was no automatic rule to that effect. Rather, each case is determined on its own merits. It cited to the Beachfront case for this proposition, though a stay was granted in that case due to prejudice in allowing the discovery to proceed. Similarly, in this case, plaintiff’s bad faith discovery requests were irrelevant to the underlying claims, and disproportional to those declaratory relief and contract claims.

Further, the focus of the underlying claims was whether the insured made misrepresentations when applying for insurance, whereas the focus of the bad faith case is claims handling and processes. Thus, the two types of claims and are best treated as distinct. Moreover, proof would involve different witnesses and documents. Further, there is also no prejudicial delay, as the bad faith claim could proceed promptly if plaintiff prevails on her contract claims.

Finally, the insurer would be prejudice by continuing with the bad faith discovery. It would have to undergo significant expenditure of time and money, which would be needless if it prevailed on the underlying claims.

Thus, the court severed and stayed the bad faith claim until resolution of those underlying claims.

Date of Decision: October 31, 2018

Ames v. USAA Life Ins. Co., U. S. District Court for the District of New Jersey Civil No. 18-9865 (RMB/JS), 2018 U.S. Dist. LEXIS 186315 (D.N.J. Oct. 31, 2018) (Schneider, M. J.)

 

NOVEMBER 2018 BAD FAITH CASES: COMMON INTEREST DOCTRINE BARS DISCOVERY OF POST-VERDICT COMMUNICATIONS BETWEEN INSURED’S COUNSEL AND UNDERLYING PLAINTIFF’S COUNSEL IN SUBSEQUENT BAD FAITH ACTION (New Jersey Superior Court Appellate Division) (Unpublished)

The insured doctor sued his medical malpractice carrier in bad faith for not settling a malpractice case within policy limits. The eventual verdict far exceeded policy limits. The doctor’s counsel and patient’s counsel communicated after the excess verdict, and the injured patient intervened in the bad faith action.

The insurer issued a subpoena on the patient’s counsel, seeking any post-verdict communications between them and any documents they exchanged post-verdict. They agreed pre-verdict communications and documents were discoverable.

The trial court ruled there was no common interest privilege and ordered compliance. The appellate court reversed.

The court recognized that communications to third parties are usually outside the attorney client privilege, but courts have fashioned a common sense exception when those third parties share the client’s interest. This “common interest doctrine permits ‘the free flow of information between or among counsel who represent clients with a commonality of purpose,’ and ‘offers all parties to the exchange the real possibility for better representation by making more information available to craft a position and inform decision-making in anticipation of or in the course of litigation.’”

The court laid out the common interest test: “(1) the parties must share a common purpose, though it is not necessary for their interests to be identical: (2) it is ‘not necessary for actual litigation to have [been] commenced’; (3) the common interest may arise during civil proceedings; and (4) there is no requirement for ‘the common interest [to] be legal rather than purely commercial.’”

The common interest doctrine applied here because “[t]he communications were made in the course of anticipated and actual litigation and [the doctor and patient] share the common purpose of seeking an order for [the insurer] to pay the outstanding [excess verdict]. The disclosures were intended to be confidential and were not made to a third party ‘in a way inconsistent with keeping it from an adversary.’”

The court refused the insurer’s effort to pierce the privilege, on the basis the information was needed to defend the bad faith case. It found the relevant issue was pre-verdict settlement discussions, and the parties agreed to produce those communications; however, post-verdict discussions were not relevant to that issue and need not be produced.

Finally, simply brining the bad faith action did not waive the privilege.
Date of Decision: October 26, 2018

Dipaolo v. New Jersey Physicians United Reciprocal Exchange, Superior Court of New Jersey Appellate Division DOCKET NO. A-3097-17T2, 2018 N.J. Super. Unpub. LEXIS 2369 (New Jersey App. Div. Oct. 26, 2018) (Ostrer and Currier, JJ.)