Monthly Archive for April, 2019

BAD FAITH ADEQUATELY PLEADED IN RAISING BIAS ON PART OF INSURER’S EXPERT (Middle District)

As we posted earlier today, the theme is plaintiffs adequately pleading bad faith claims in federal court.

In this second post, the insured set out plausible bad faith claims in this property damage case by making specific factual allegations. The key assertions were that the insurer improperly “hired, retained and relied upon the opinion of an engineer or other professional knowing that such opinion would be favorable to [the insurer] on a financial incentive basis; and (2) disregarded information provided to it from the Plaintiffs that [the insurer’s] inspection and engineering report was inadequate, flawed, and erroneous.”

The court found the “complaint, taken as a whole, goes beyond a mere boilerplate recital of the elements of the statute. Rather, as we construe the complaint, it provides a chronology detailing alleged failures … to evaluate this claim in good faith. Instead, according to the plaintiffs [the insurer] relied upon false justifications to deny their claim; under-valuated their property; failed to account for the loss of use of the property; and demonstrated bad faith in its investigation of this insurance claim in 14 different ways, including specific allegations that [the insurer]: (1) hired, retained and relied upon the opinion of an engineer or other professional knowing that such opinion would be favorable to Allstate on a financial incentive basis; and (2) disregarded information provided to it from the Plaintiffs that Allstate’s inspection and engineering report was inadequate, flawed, and erroneous.”

The issue of the expert’s alleged financial bias could not be resolved in a judgment on the pleadings. “Thus, the plaintiffs’ complaint raises questions of motivation and bias which cannot be resolved on the pleadings alone. Therefore, the task of determining whether this expert report provides a defense as a matter of law to the bad faith claim in this case, in our view, may not be performed on consideration of a motion for judgment on the pleadings, where we must simply assess the adequacy of the pleadings. Instead, assessment of any such defense must await a properly documented motion for summary judgment.”

Date of Decisions: January 8, 2019 (Report and Recommendation), adopted by District Court on April 25, 2019

Flower v. Allstate Property & Casualty Insurance Co., U.S. District Court Middle District of Pennsylvania Civil No. 3:18-CV-1321, 2019 U.S. Dist. LEXIS 4096 (M.D. Pa. Jan. 8, 2019) (Carlson, M.J.) (Report and Recommendation), adopted by District Judge Mariani on April 25, 2019

COURT RELIES ON DELAYS IN FACT, AND DELAYS AS DEFINED IN THE UNFAIR INSURANCE PRACTICES ACT (UIPA), IN ALLOWING BAD FAITH CASE TO PROCEED (Philadelphia Federal)

The common theme in today’s two posts is the plaintiffs’ adequately pleading bad faith in federal court.

In this first post, the carrier moved to dismiss the uninsured motorist bad faith claim. The insured alleged bad faith for the carrier’s failing to negotiate or offer adequate compensation for damage claims submitted, with an apparent policy limits ($300,000) demand in place.

The court found the complaint adequately pleaded a bad faith claim, focusing on delays in the claims handling process. Significantly, some of the facts the court relied upon were framed expressly as violations of the Unfair Insurance Practices Act (UIPA). [Note: Compare this decision to the Eastern District Horn case, decided three weeks later, where the court stated “that, since the current bad faith standard was established in Terletsky ‘courts in the [Third] circuit have … refused to consider UIPA violations as evidence of bad faith.'” The Terletsky standards have since been adopted by Pennsylvania’s Supreme Court in Rancosky.]

The following facts were considered sufficient to support a plausible claim: “Defendant unduly delayed the investigative insurance process, which is aptly illustrated by his allegations that: Defendant became aware of Plaintiff’s claim ‘nearly immediately’ after the accident; Defendant failed to conduct a Statement Under Oath until January 5, 2018—nearly 18 months after the accident; Defendant did not perform an Independent Medical Evaluation for the case until May 9, 2018—nearly 23 months after the accident; and, Defendant did not make a first claim offer until two years and nine months after the accident.”

“With that said, the statutory violation would not be found in the delay per se, but rather in Defendant’s alleged failure to send any periodic, statutorily mandated communications, in writing, explaining such delay, and informing Plaintiff of when a decision on the claim might be expected, in violation of 31 Pa. Code § 146.6. Beyond the alleged delay in the investigation of the disputed claim, Plaintiff further pleads Defendant’s complete failure to provide the required written notices in connection with Defendant’s acceptance (or denial) of the disputed insurance claim until 17 months after the accident, in violation of 31 Pa. Code § 146.7(c)(1).” [Note: The court’s footnotes citing these two codes sections are quoted at length below]

“The consistent lack of timely notices, if ultimately proven true, would be relevant in determining the nature of Defendant’s dealings with Plaintiff, particularly so when considering Plaintiff’s averment that he did not receive a settlement offer until two years and nine days after the claimed accident, and for $285,000.00 below [the $300,000.00] policy limits.”

“This Court further notes that a plaintiff seeking damages for an insurer’s bad faith conduct under 42 Pa. Cons. Stat. § 8371 may attempt to prove bad faith by demonstrating that the insurer has violated one or more provisions of related Pennsylvania insurance statutes or regulations, even if they do not independently provide for private causes of action. See Berg v. Nationwide Mut. Ins. Co., 2012 PA Super 88, 44 A.3d 1164, 1174 (Pa. Super. 2012).”

“This Court finds that the extended duration, coupled with the alleged statutory violations, speak to a plausible ‘reckless disregard’ by Defendant as to its duties relating to good faith and fair dealing.”

Date of Decision: April 3, 2019

Blease v. Geico Casualty Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-3893, 2019 U.S. Dist. LEXIS 57145 (E.D. Pa. April 3, 2019) (Jones, II, J.)

Footnote 5 states: Section 146.6 sets forth appropriate standards for prompt investigations of insurance claims, providing that “[e]very insurer shall complete investigation of a claim within 30 days after notification of claim, unless the investigation cannot reasonably be completed within the time. If the investigation cannot be completed within 30 days, and every 45 days thereafter, the insurer shall provide the claimant with a reasonable written explanation for the delay and state when a decision on the claim may be expected.” 31 Pa. Code § 146.6.

Footnote 6 states: 31 Pa. Code § 146.7(c)(1) sets forth standards for prompt, fair, and equitable settlements applicable to insurers: “If the insurer needs more time to determine whether a first-party claim should be accepted or denied, it shall so notify the first-party claimant within 15 working days after receipt of the proofs of loss giving the reasons more time is needed. If the investigation remains incomplete, the insurer shall, 30 days from the date of the initial notification and every 45 days thereafter, send to the claimant a letter setting forth the reasons additional time is needed for investigation and state when a decision on the claim may be expected.” 31 Pa. Code § 146.7(c)(1).

NO BAD FAITH WHERE (1) REASONABLE AND TIMELY INVESTIGATION AND (2) INSURED FAILED TO MEET CONTRACTUAL BURDEN TO SHOW CONNECTION BETWEEN CLAIM AND PROPERTY DAMAGE (Philadelphia Federal)

In this homeowner’s case, the insured attempted to tie a fallen tree to water pipe damage. The court laid out a detailed history of the insurer’s responses to the insured’s claims and communications, demonstrating the insurer’s active role in investigating the claim. The court also detailed the carriers’ review of documents and information from the insured’s contractors. The court found the insured’s communications and investigation timely and reasonable.

Further, the insured was contractually obligated to show property damage resulting from a covered event, but failed to do so, e.g., there were no photographs of the fallen tree, nor sufficient evidence of how the tree could have damaged concrete encased pipes. Under the circumstances, the insured “had to retain a contractor to provide a report making the connection.”

Moreover, the insured’s “plumbing and heating contractors both testified the fallen tree did not cause the pipe damage, rather, the pipes needed to be replaced because of their age.” On these facts, the carrier could not be expected to “make payments on claims devoid of some evidence linking damage to an event.”

In light of the delineated efforts by the insurer to investigate the claim, and the insured’s failure to produce evidence of the necessary connection between the fallen tree and the pipe damage, the court granted summary judgment on the bad faith claim.

Date of Decision: March 29, 2019

Mitchell v. Allstate Insurance Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-1806, 2019 U.S. Dist. LEXIS 55613, 2019 WL 1440043 (E.D. Pa. Mar. 29, 2019) (Kearney, J.)

BAD FAITH PLAINTIFF ALLEGED FACTS SUFFICIENT TO WITHSTAND MOTION TO DISMISS IN THIS MORTGAGE INSURANCE CASE (Philadelphia Federal)

This case involved mortgage insurance. The insured alleged breach of contract, conversion, unjust enrichment, and bad faith. The insurer moved to dismiss on a number of grounds. The court refused to dismiss the bad faith count.

Plaintiff alleged bad faith on the basis that the insurer “denied, rescinded, and curtailed coverage for valid claims and refused to reimburse [the insured] for premium overpayments.” The court found the Complaint “replete with allegations arguing that [the insurer] lacked a reasonable basis for its coverage decisions.” Moreover, the insured alleged the insurer “knew and understood that if it wrongfully rescinded, denied and/or curtailed claims that third parties would seek to have [the insured] repurchase these loans.” Thus, both elements of a bad faith claim were satisfied.

The court found the following factual allegations, among others, sufficient to make out a plausible claim under Rule 8 and Twombly/Iqbal: Curtailing benefits through implementing post-hoc servicing guidelines and standards; misinterpreting policy language to deny claims improperly based on lateness and missing documents; rescinding claims based on “post-hoc re-underwriting” loans it had previously agreed to insure; and refusing to return premium overpayments. Further, the plaintiff actually listed over 5,000 specific loans at issue in its complaint.

These allegations could not be treated as conclusory, and the motion to dismiss the bad faith claim was denied.

Date of Decision: March 22, 2019

Nationstar Mortgage LLC v. Radian Guaranty, Inc., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-03798, 2019 U.S. Dist. LEXIS 48164, 2019 WL 1318541 (E.D. Pa. Mar. 22, 2019) (Pappert, J.)

BAD FAITH CLAIM TIME BARRED WHEN WRIT OF SUMMONS WAS NOT PROPERLY SERVED (Philadelphia Federal)

The issue in this case involved a federal court determining the validity of service under Pennsylvania state law governing writs of summons. The court had to rule on whether service was effected before the two year bad faith statute of limitations expired. The court found that proper service was not made, but permitted the pro se plaintiff to file an amended complaint in which “she will need to show either that she properly served, or made good faith efforts to serve” the insurer.

Date of Decision: March 22, 2019

Shearer v. Allstate Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 18-3277, 2019 U.S. Dist. LEXIS 47770, 2019 WL 1317635 (E.D. Pa. Mar. 22, 2019) (Pratter, J.)

NO BAD FAITH WHERE COVERAGE IS EXCLUDED UNDER THE POLICY (Philadelphia Federal)

The insured leased a rental car, and obtained excess insurance through the rental company. He was injured in a motor vehicle accident and sought UIM coverage under the excess policy. The excess carrier asserted UIM coverage was excluded, and denied coverage. The insured brought breach of contract and bad faith claims.

The court granted the excess insurer summary judgment on all counts. The court agreed the excess policy excluded UIM coverage, and there were no exceptions that could force such coverage on the carrier. The court held that because the policy “specifically excluded coverage for underinsured motorist claims … Plaintiff’s claims for breach of contract and bad faith are unfounded.”

Date of Decision: March 25, 2019

Warrick v. Empire Fire & Marine Insurance Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-1952, 2019 U.S. Dist. LEXIS 49716, 2019 WL 1359737 (E.D. Pa. Mar. 25, 2019) (Kenney, J.)

BAD FAITH INADEQUATELY PLEADED: (1) NO BAD FAITH SOLELY BECAUSE THIRD PARTY UIM CLAIMS WERE NOT PAID WHILE FIRST PARTY BENEFITS WERE PAID; (2) TIME GAP BETWEEN DEMAND AND OFFER ALONE DOES NOT SUPPORT BAD FAITH; (3) ABSENCE OF COMMUNICATIONS WITHOUT ALLEGING EXPLANATION WAS SOUGHT BY THE INSURED NOT BAD FAITH; AND (4) WIDE DIFFERENCE IN VALUE BETWEEN DEMAND VALUE AND AN INSURER’S LOWER VALUATION ALONE IS NOT BAD FAITH ABSENT ADDITIONAL ALLEGATIONS OFFER WAS UNREASONABLE AND MADE IN BAD FAITH (Middle District)

In this UIM bad faith case, the court dismissed the bad faith count, but sua sponte allowed the insured to file an amended complaint. In setting out general bad faith law, among other things, the court observed that “[f]ailing to plead explanations or descriptions of what an insurer actually did, or why they did it, is fatal to a bad faith claim.”

In carrying out its analysis of whether the complaint could survive a motion to dismiss, the court first identified conclusory allegations that need not be considered in determining the issue. The court then took a close look at the complaint’s actual factual allegations to determine whether those allegations could support an actionable bad faith claim.

Paying first party medical benefits while not paying third party UIM claims is not in itself bad faith.

First, the court observed that an insurer’s paying first party medical benefits “without indicating any dispute regarding the causal relationship between the accident and Plaintiff’s medical bills or income loss,” while denying third party UIM benefits is insufficient, in itself, to make out a bad faith claim. Bad faith must go beyond “a mere inconsistency” in handling these two categories of claims.

A time gap between the insured’s demand and the insurer’s offer of payment alone is not sufficient to make out bad faith.

Second, the court rejected the argument that a seven month time period between here policy limit demand and the insurer’s offer in response does not by itself constitute bad faith “if the insurer had a reasonable basis for the delay.” Here, the plaintiff failed to allege “any facts indicating that Defendant’s delay of nearly seven months did not have a reasonable basis” and the mere calculation of time between demand and offer is not sufficient to make out a bad faith claim.

Alleging a bad faith failure to communicate requires pleading actual efforts to communicate to which the insurer failed to respond in good faith.

Third, if plaintiff wanted to plead failure to communicate as a basis for her bad faith claim, she needed to allege “specific facts regarding the plaintiffs’ unsuccessful attempts to elicit such information from the defendant insurers.” The complaint does not identify any communications attempting to get an explanation from the insurer about the basis for its offer (which was over $800,000 lower than the policy limits demand). Allegations that the insurer failed to support its offer with medical evidence or expert reports did not support the argument of an unreasonable failure to communicate with the insured.

Identifying difference between demand and offer alone cannot be the basis for bad faith, absent allegations that the insurer acted unreasonably and in bad faith in making the lower offer.

Fourth, the insured argued that the large difference between her $1,000,000 demand (which she further averred was lower than her actual damages), and the insurer’s $107,012 offer was alone sufficient to sustain a bad faith claim. The court likewise rejected this argument. A low but reasonable estimate will not be treated as bad faith, and the insured did not allege “facts from which a factfinder could plausibly conclude that Defendant’s offer was unreasonable and made in bad faith … rather than made as part of the ordinary course of negotiations between insurers and insureds.” Judge Kane cites Judge Caputo’s recent Clarke decision to support this conclusion.

She also cited Judge Caputo’s recent Moran decision for the proposition that even a facially unreasonable offer, without more pleaded, may not constitute bad faith, because “[e]ven if an offer is facially unreasonable, it must also be shown to have been made in bad faith.” The complaint must sufficiently allege conduct supporting the unreasonable offer was made in bad faith, rather than the result of a negligent failure to investigate and evaluate the claim.

Summaries of Clarke and Moran can be found here.

Date of Decision: March 26, 2019

Rosenthal v. Am. States Ins. Co., U. S. District Court Middle District of Pennsylvania No. 1:18-cv-01755, 2019 U.S. Dist. LEXIS 50485, 2019 WL 1354141 (M.D. Pa. Mar. 26, 2019) (Kane, J.)

BAD FAITH CLAIM FAILS WHEN COURT DETERMINES THERE IS NO BREACH OF THE DUTY TO DEFEND (Pennsylvania Superior Court)

The insured was sued for physically attacking the underlying plaintiff, while hurling racial epithets. The carrier denied a defense on the basis the alleged injuries resulted from an intentional attack, which was not an “occurrence” under the policy.  The insured sought a declaratory judgment that a defense was due, and further asserted breach of contract and bad faith. The insurer counterclaimed with its own request for declaratory judgment.

The case went to trial. After the insured put on her case, the trial court granted the insurer a non-suit. On appeal, the Superior Court affirmed, but applied stricter standards than the trial court in doing so.

The Superior Court reiterated the rule that the duty to defend is defined solely by the allegations in the complaint, and courts cannot consider extrinsic evidence outside the complaint. Here, the trial court permitted the insured to put on evidence of mental incapacity to support her position that the conduct was not intentional. The appellate court ruled the trial court erred in permitting or considering this extrinsic evidence when evaluating the duty to defend, which is solely defined by the four corners of the complaint.

In this case, the complaint itself only alleged intentional conduct, without any mitigating circumstances.  Thus, the Superior Court concluded the conduct alleged did not constitute an “occurrence”, and there was no duty to defend on the face of the complaint. [Note:  This suggests the case could have been decided on Preliminary Objections or Summary Judgment.]

The Superior Court’s Opinion does not separately address the bad faith claim on the merits. It is clear, however, that once the Court determined there was no duty to defend, the bad faith claim simultaneously failed because the necessary predicate of unreasonably denying a benefit owed under the policy did not exist.

Date of Decision: March 26, 2019

Kiely v. Philadelphia Contributionship Insurance Co., Superior Court of Pennsylvania No. 1957 EDA 2018, 2019 Pa. Super. LEXIS 277, 2019 PA Super 90, 2019 WL 1348397 (Pa. Super. Ct. Mar. 26, 2019) (Dubow, Ott, Stevens, JJ.)

1. SUPREME COURT GRANTS APPEAL IN BERG V. NATIONWIDE, ASSURING THIS EXTRAORDINARY BAD FAITH CASE WILL GO INTO ITS THIRD DECADE. 2. UPDATE ON UIM BAD FAITH SEVERANCE AND STAY CASE LAW.

After 20 Years, Berg v. Nationwide is Headed to the Supreme Court.

We once again note that the Supreme Court has granted an appeal in the long running Berg v. Nationwide bad faith litigation.  Our original post can be found here.

The Court’s Order focuses the appellate issues on the Superior Court’s review of the trial judge’s evidentiary findings and mindset, as well the issue of whether the insurer assumed a specific additional responsibility under its duty of good faith and fair dealing.

There is always the possibility, however, that the Court could go beyond the proper scope of appellate review or the potential specific duty assumed, and into more fundamental issues of what constitutes bad faith.

UIM/Bad Faith Severance and Stay Granted.

The excellent Tort Talk Blog, authored by Attorney Daniel Cummins, continues to be the leading resource on severance/bifurcation and stay issues in post-Koken UIM/UM litigation. The most recent post summarizes a Pike County opinion granting a motion to sever and stay, and can be found here.