Monthly Archive for January, 2019

TWO THINGS WITH THE SAME NAME DO NOT MAKE THEM THE SAME: PENNSYLVANIA STATE CASE LAW ON THE WORK PRODUCT DOCTRINE NOT APPLICABLE IN FEDERAL COURT (Philadelphia Federal)

Magistrate Judge Wells addressed the difference between the federal and Pennsylvania work product doctrines in this federal UIM bad faith case.

Under the Federal Rules of Civil Procedure, a party must be anticipating litigation when documents are created to get work product protection. Courts must find the “temporal trigger” to determine when federal work product protection starts, i.e., “the point in the insurance company’s investigation when its activity shifted from ordinary claims evaluation to work performed in anticipation of litigation.” There are two components: (1) when did the insurer subjectively anticipate litigation and (2) when did it become objectively reasonable to expect a lawsuit. Documents created before this time are deemed prepared in the ordinary course of business.

The insurer argued that UIM cases are inherently adversarial, and therefore litigation is anticipated in all UIM cases from inception. It relied only on Pennsylvania state case law for this argument. The court found state case law interpreting Pennsylvania’s work product doctrine did not provide guidance on applying the federal work product doctrine because the doctrine’s application differed in federal and state court.

Absent any effort to “prove the moment when [the insurer] shifted from ordinary evaluation of Plaintiff’s UM claim to subjectively anticipating litigation” or demonstrating “that it was objectively reasonable for it to have anticipated litigation at any precise point in time” the court found the insurer “failed to properly invoke the starting point for application of the work product doctrine … [and] cannot avail itself of that doctrine’s protection.”

Date of Decision: January 24, 2019

Brown-Comfort v. Progressive Insurance, U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-2929, 2019 U.S. Dist. LEXIS 11884 (E.D. Pa. Jan. 24, 2019) (Wells, M.J.)

 

 

STATUTORY BAD FAITH CLAIMS REQUIRE DENIAL OF A BENEFIT, AND THERE IS NO CAUSE OF ACTION SOLELY FOR POOR CLAIMS HANDLING ABSENT A DENIAL (Philadelphia Federal)

This is one of the few cases directly to take on the issue of whether statutory bad faith can exist where the insurer has not denied a benefit.

As observed numerous times in this Blog over the years, the Pennsylvania Supreme Court’s Toy v. Metropolitan decision requires the denial of a benefit as a predicate for making a statutory bad faith claim. Yet, numerous courts have repeated language from older case law that bad faith might exist outside of that context, e.g., solely for poor claims handling or failures to communicate. These courts have not directly addressed the argument that Toy rejected this concept, and that such conduct may be evidence of bad faith, but not bad faith in itself where no benefit is denied. [There is little dispute that a delay in paying a benefit due may be deemed a denial of a benefit, so it is assumed in the foregoing discussion that there has been no delay that could constitute a statutory denial.]

In this case, the insured argued “that § 8371 does not require a denial of benefits in order to state a cause of action and contends that [the insurer’s] investigative practices and faulty conclusions based on egregious investigative inaction provide a cause of action under § 8371.”

In rejecting this position, Judge DuBois states:

The Court concludes plaintiff misstates the law. Plaintiff relies exclusively on O’Donnell ex rel. Mitro v. Allstate Ins. Co, which states that “[S]ection 8371 is not restricted to an insurer’s bad faith in denying a claim. An action for bad faith may also extend to the insurer’s investigative practices.” 1999 PA Super 161, 734 A.2d 901, 904 (Pa. Super. Ct. 1999). As the Third Circuit subsequently explained, O’Donnell merely clarified that “the alleged bad faith need not be limited to the literal act of denying a claim.” UPMC Health Sys. v. Metro. Life Ins. Co., 391 F.3d 497, 506 (3d Cir. 2004). However, “the essence of a bad faith claim must be the unreasonable and intentional (or reckless) denial of benefits.” Id.; see also Duda v. Standard Ins. Co., No. 12-1082, 2015 U.S. Dist. LEXIS 56606, 2015 WL 1961170, at *26 (E.D. Pa. Apr. 30, 2015), aff’d, 649 F. App’x 230 (3d Cir. 2016) (“Pennsylvania law makes clear that claim denial is essential to a bad faith claim.” (internal citations omitted)). Thus, plaintiff must allege the denial of benefits to state a claim under § 8371.”

The insured attempted to argue that benefit denial includes failure to provide fair and reasonable treatment after submitting a claim, the insurance company’s failing to stand behind the insured in his time of need, and failing to pursue deductibles from the party at fault. Again rejecting these arguments, Judge DuBois found that:

Even assuming that the bad faith denial of the benefits claimed by plaintiff was properly alleged in the Complaint, plaintiff’s argument fails because plaintiff does not allege the denial of any benefits within the meaning of the statute. “‘[B]ad faith’ as it concern[s] allegations made by an insured against his insurer ha[s] acquired a particular meaning in the law.” Toy v. Metro. Life Ins. Co., 593 Pa. 20, 928 A.2d 186, 199 (Pa. 2007). Courts in Pennsylvania and the Third Circuit have consistently held that “[a] plaintiff bringing a claim under [§ 8371] must demonstrate that an insurer has acted in bad faith toward the insured through ‘any frivolous or unfounded refusal to pay proceeds of a policy.'” Wise v. Am. Gen. Life Ins. Co., 459 F.3d 443, 452 (3d Cir. 2006) (emphasis added); see also Nw. Mut. Life Ins. Co. v. Babayan, 430 F.3d 121, 137 (3d Cir. 2005); Toy, 593 Pa. at 41. None of the “benefits” that defendant allegedly denied plaintiff concern the refusal to pay proceeds under an insurance policy.  To the contrary, plaintiff concedes that he “does not allege bad faith for refusal to pay benefits.”

Date of Decision: January 23, 2019

Buck v. Geico Advantage Insurance Company, U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-5148, 2019 U.S. Dist. LEXIS 11968 (E.D. Pa. Jan. 23, 2019) (DuBois, J.)

By contrast, e.g., this 2018 case finds statutory bad faith may still exist even when no coverage is due, meaning the court believed there could be bad faith even if no benefit was withheld or even due.

 

NEW JERSEY FEDERAL COURT OBSERVES ORDERS TO SEVER AND STAY BAD FAITH CLAIMS ARE COMMON IN NEW JERSEY STATE AND FEDERAL COURTS (New Jersey Federal)

The carrier successfully moved to sever and stay plaintiff’s bad faith claim. The case involved a CGL policy, and the carrier’s refusal to defend and indemnify a breach of loyalty suit against the insured. The case is of some extra interest because it does not involve an underinsured motorist claim as the basis of a bad faith claim.

Magistrate Judge Mannion observed that it is common practice in New Jersey’s state and federal courts to sever and stay bad faith insurance claims, awaiting a decision on the breach of contract claim.

The court applied a four factor test: “(1) whether the issues sought to be tried separately are significantly different from one another[;] (2) whether the separable issues require the testimony of different witnesses and different documentary proof[] (3) whether the party opposing the severance will be prejudiced if it is granted[;] and (4) whether the party requesting severance will be prejudiced if it is not granted.”

Magistrate Judge Mannion referenced his earlier decision in the Legends case in support of his decision to sever and stay in this action.

First, the breach of contract claim concerns policy coverage, and the bad faith claim concerns claims handling, thus making them significantly difference.

Second, the bad faith claims call for discovery that is unnecessary to resolve the breach of contract claim, and different witnesses and documentary evidence to prove the bad faith case.

Third, where relatively little discovery has taken place, the insured is not prejudiced or denied an opportunity to pursue the bad faith claim, if successful on the breach of contract claim.

Fourth, the insurer is prejudiced if forced to litigate the bad faith claim because “the insurer would ‘suffer significant expenditure of time and money, [which would be] rendered needless if’ it were to prevail on the breach of insurance contract claim.”
Date of Decision: January 18, 2019

Spectrum Data Systems, LLC v. State Farm Insurance Co., U. S. District Court for the District of New Jersey, Civil Action No. 18-CV-10318-ES-SCM, 2019 U.S. Dist. LEXIS 9109 (D.N.J. Jan. 18, 2019) (Mannion, M.J.)

SUBJECTIVE BELIEF THAT ALLEGED BREACH OF POLICY WAS DONE IN BAD FAITH IS INADEQUATE WITHOUT OBJECTIVE FACTUAL ALLEGATIONS TO SUPPORT UNREASONABLE CONDUCT (Middle District)

The District Court adopted the Magistrate Judge’s Report and Recommendation that the bad faith case be dismissed without prejudice, with an opportunity to re-plead. As with many other bad faith complaints, “the plaintiff has not yet stated a bad faith claim that meets the exacting standards prescribed by the state statute and federal pleading rules.”

In his analysis, Magistrate Judge Carlson set out these exacting standards plaintiff had to meet in making out a bad faith case. The spare, and inadequate, averments allegedly supporting the bad faith claim were:

  1. At all times pertinent hereto, Plaintiff was the owner of the premises known as 71 Center Avenue, Schuylkill Haven / Landingville, Pennsylvania 17972.

  2. At all times pertinent hereto, Plaintiff and Defendant were parties to a contract of insurance covering the aforesaid subject property.

  3. On or about May 21, 2017, the subject property was damaged by fire and Plaintiff submitted a claim to Defendant for same.

  4. At all times pertinent hereto, Plaintiff maintained the subject insurance policy in good standing and made any and all payments due thereupon.

  5. Plaintiff performed his obligations pursuant to the subject policy/contract.

  6. At the time of making said claim to the present, Defendant has failed to honor its obligations under the subject policy/contract, to wit, Defendant continues to undervalue the property damage and fails to properly process the claim and make full payment.

The insured argued that the averments in paragraph 9 concerning undervaluation and failure to properly assess made out a bad faith action. The court disagreed, and concluded that, “fairly construed, this averment simply states the plaintiff’s subjective belief that the defendants have undervalued this particular insurance claim. Such claims, stated in a conclusory manner, do not meet federal pleading standards….”

Subjective beliefs on value “may reasonably, and permissibly, differ.” In the absence of additional supporting fact that the insurer’s valuation was unreasonable, subjective conclusions fail to make out a claim. Put another way, inferences of bad faith must be drawn from factual allegations directed to the insurer’s unreasonableness, not a subjective conclusory leap from facts that merely show a potential breach of contract.

Dates of Decision: December 17, 2018 (Report and Recommendation), January 10, 2019 (Order adopting Report and Recommendation)

Grustas v. Kemper Corporate Servs., U.S. District Court Middle District Pennsylvania Civil No. 3:18-CV-1053, 2018 U.S. Dist. LEXIS 212935 (M.D. Pa. Dec. 17, 2018) (Carlson, M.J.) (Report and Recommendation), Judge Mariani’s Order adopting Report and Recommendation (January 10, 2019)

It should be noted that Magistrate Judge Carlson has handled numerous bad faith cases, as reported on this Blog.

 

Split in the Courts on Severance and Stays in UIM Bad Faith Cases

Dan Cummins of the excellent Tort Talk Blog has provided the latest on the split in opinions on granting or denying severance and stays in the UIM bad faith context. This is a split of authority within the Allegheny County Court of Common Pleas.  Tort Talk’s Post-Koken Scorecard  indicates “a vast majority of the county courts have ruled in favor of severing the bad faith claims.”

A THIRD PARTY CANNOT CREATE A DUTY TO DEFEND SIMPLY BY PLEADING THE DEFENDANT HAD INSURANCE COVERAGE, WHERE THE FACTS AND CONTROLLING POLICY LANGUAGE SHOW NO COVERAGE (Philadelphia Federal)

The insured’s boyfriend was at a family reunion with his daughter. The boyfriend was listed as an additional driver on the policy. His daughter went to retrieve some items from the insured’s car, and decided to move the car, resulting in injury to the underlying plaintiff.

The injured plaintiff sued the daughter, who claimed she was an insured. The insurer disagreed, and refused to defend or indemnify the daughter on the basis she was not an insured under the policy. The injured plaintiff, as assignee, sued for breach of contract and bad faith after settling with the daughter.

After a close look at the facts, the court agreed that the daughter was not an insured or a permissive user. Thus, the insurer had no duty of any kind to her. Further, no bad faith claim could exist where the person denied coverage was not an insured.

The assignee-plaintiff argued that the insurer still had a duty to defend because he had alleged facts in the underlying tort complaint implying she was an insured. Therefore, on the theory that the four corners of the complaint controls the duty to defend, the allegation that the defendant was an insured overcame the actual facts and policy language under which she was not insured.

The court found this issue had never been decided by Pennsylvania’s courts, and so the judge had to predict what the Pennsylvania Supreme Court would do. He found “the Pennsylvania Supreme Court would hold that an insurer is not required to defend someone it has determined is not an insured under the policy even if a subsequent third-party complaint suggests the person is an insured.” The complaint does not control because “the duty to defend stems directly from the insurance policy and should not apply where there is no possibility of coverage.” The court also cited case law from other jurisdictions supporting its conclusion.

The court granted summary judgment. Plaintiff appealed the following day.
Date of Decision: January 10, 2019

Myers v. Geico Casualty Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 17-3933, 2019 U.S. Dist. LEXIS 5093 (E.D. Pa. Jan. 10, 2019) (Rice, M.J.)

 

 

INSUREDS HAVE A DUTY OF CANDOR IN POST-LOSS INVESTIGATION AND CANNOT MISREPRESENT MATERIAL FACTS (New Jersey Appellate Division)

In this case, the New Jersey Appellate Division provides a detailed analysis of the notice requirements due from insured to insurer in UIM cases, where the underlying tortfeasor is seeking to settle the claim. The key is that notice must be given before the underlying claim has been settled and released, to protect the insurer’s subrogation options and rights. The court also cites generally principles governing an insured’s duty of candor.

The court was particularly concerned with the situation where the insured informs the insurer that a potential settlement is on the table, when the case is already settled and the insurer’s subrogation rights are actually compromised.

In this case, the insureds’ counsel had informed the UIM insurer that a settlement offer was pending, when in fact the case had already settled and potential claims against the tortfeasor were released. The UIM insurer refused to pay benefits in these circumstances, and the insureds sued for UIM benefits.

The court found the New Jersey Supreme Court’s 2018 decision in Ferrante v. New Jersey Manufacturers Insurance Company controlling. In Ferrante, the Supreme Court held that if “the insured, regardless of his state of mind, fails to give the UIM carrier any notice of the UIM claim until after the final resolution of the underlying tort action, thereby causing the irretrievable loss of the carrier’s rights to subrogation and intervention before the carrier has ever learned of the existence of the claim, coverage is forfeited.”

The Ferrante court made general observations about an insured’s duties and obligations. “Our case law has routinely emphasized the importance of candor by insureds and the obligation to act in a forthright, open, and honest manner with their carriers throughout the entire process of their claim.” The insured has a commitment “not to misrepresent material facts [that] extends beyond the inception of the policy to a post-loss investigation.” Insureds have been given incentive to tell the truth, and it “would dilute that incentive to allow an insured to gamble that a lie will turn out to be unimportant.” In the UIM context, these general rules mean that courts should “seek to avoid rewarding insureds for omitting key details in a UIM claim.”
Date of Decision: December 21, 2018

Iellimo v. Amica Mut. Ins. Co., Superior Court of New Jersey Appellate Division DOCKET NO. A-4975-16T1, 2018 N.J. Super. Unpub. LEXIS 2795, 2018 WL 6712251 (App. Div. Dec. 21, 2018) (DeAlmeida and O’Connor, JJ.) (Not Precedential)

 

SUMMARY JUDGMENT MOTION PREMATURE WHERE FACTS ON WHO CAUSED UNDERLYING ACCIDENT, AND CARRIER’S DECISION ON CAUSATION, WERE STILL SUBJECT TO INCOMPLETE DISCOVERY

In this UIM bad faith case, the insured’s complaint alleged that the claim history showed the other driver was at fault, and the other driver’s carrier had paid policy limits. Yet, when the insured sought further damages under his UIM policy, the carrier refused to pay over a period of three years.

In its answer, the carrier asserted the facts showed the insured was at fault, not the other driver. The carrier attached the police report and a deposition from the underlying case in support of that position. It moved to dismiss the bad faith claim, or alternatively for summary judgment based on its factual position that the insured caused the accident.

Magistrate Judge Carlson recommended denying the motion to dismiss, and denying the summary judgment motion without prejudice. The insurer could renew the summary judgment motion after a full factual record was developed in discovery. District Judge Mariani adopted the Report and Recommendation based on Magistrate Judge Carlson’s reasoning.

First, the court denied the motion to dismiss. The complaint provided a detailed chronology of persistent refusals to pay UIM benefits spanning several years. The insured further alleged that the insurer’s position in denying the claim was incorrect, unreasonable, and taken in bad faith. The insurer argued the facts showed it was prudent in its decision making, but the court found these arguments required looking beyond the pleadings, something the court could not do on a motion to dismiss.

On the alternative summary judgment motion, the court observed summary judgment is rarely granted when discovery is incomplete. When this does happen, it is typically only when the missing discovery does not implicate material facts on the issue at hand.

The court found that factual issues around which driver caused the accident, and the carrier’s reasonableness in concluding the insured caused the accident, were open issues of material fact on the bad faith claim. Thus, the summary judgment motion was premature until discovery was complete on these issues.

Dates of Decision: December 11, 2018 (Report and Recommendation), January 7, 2019 (Order adopting Report and Recommendation)

Baltzley v. State Farm Mut. Auto. Ins. Co., U.S. District Court Middle District of Pennsylvania Civil No. 3:18-CV-00959, 2018 U.S. Dist. LEXIS 209672 (M.D. Pa. Dec. 11, 2018) (Carlson, M.J.) (Report and Recommendation), adopted by District Court on January 7, 2019 (Mariani, J.)

 

INSURERS DO NOT AUTOMATICALLY ACT IN BAD FAITH BY RELYING ON THEIR OWN EXPERT’S CONCLUSIONS INSTEAD OF THE INSURED’S EXPERTS (Middle District)

The insured claimed it was bad faith for the insurer to rely upon its medical expert’s opinion rather than the insured’s medical experts. The court found that such allegations alone do not make out a bad faith case.

The court stated that it “is well-settled that, when making a claim determination, an insurer may reasonably rely on the findings of an independent medical examination—even in the face of contrary medical opinions.” In addressing the allegation that the insurer “improperly favored” its own expert’s conclusions, the court further observed that “an insurer is not required to give greater credence to opinions of treating medical providers.”

Finally, even if relying on its own medical expert amounted to negligence or bad judgment, this does not equate to statutory bad faith in Pennsylvania.

Thus, the court dismissed the bad faith count, but the insured was given leave to replead her claims in an amended complaint if these deficiencies could be cured.

Date of Decision: December 17, 2018

Phillips v. State Farm Mut. Auto. Ins. Co., U.S. District Court Middle District of Pennsylvania No. 4:18-CV-01672, 2018 U.S. Dist. LEXIS 211729 (M.D. Pa. Dec. 17, 2018) (Brann, J.)

CONSUMER PROTECTION LAW STATUTE DOES NOT APPLY TO POST-POLICY CLAIM HANDLING (Western District)

In this case, Magistrate Judge Mitchell outlines the scope of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (UTPCPL) in relation to Pennsylvania’s Insurance Bad Faith Statute. Citing prior case law, he makes clear that UTPCPL claims only address an insurer’s conduct prior to entering the insurance agreement, while Statutory Bad Faith suits focus on claim handling under the policy, i.e., post policy conduct.

The present complaint’s UTPCPL claims fell on the wrong side of this time line. The allegations at issue only addressed post policy claim handling, not malfeasance in forming the insurance contract. Thus, the UTPCPL claims could not stand under Magistrate Judge Mitchell’s analysis. District Court Judge Schwab agreed. He entered an order adopting the magistrate’s report and recommendation, and dismissed the UTPCPL count.

Dates of Decision: November 29, 2018 (Report and Recommendation), December 17, 2018 (District Court Order Adopting Report and Recommendation)

Neustein v. Gov’t Emples. Ins. Co., U.S. District Court Western District of Pennsylvania Civil Action No. 18-cv-645, 2018 U.S. Dist. LEXIS 203439 (W.D. Pa. Nov. 29, 2018) (Mitchell, M.J.) (Report and Recommendation), adopted by District Court (Dec. 17, 2018)