Monthly Archive for November, 2019

COURT ALLOWS FOR POSSIBILITY OF STATUTORY BAD FAITH, EVEN WHERE NO BENEFIT DUE – BUT STILL DENIES CLAIM (Western District)

The court determined no coverage was due under a policy exclusion in this water damage case. Thus, there could be no statutory bad faith claim on the basis coverage was improperly denied.

However, even though no benefit was denied under the policy, the court concluded that denial of a benefit was only one type of statutory bad faith. Under this view, failures to investigate facts, communicate with insureds, or do proper legal research could still create actionable bad faith claims even if no duty to indemnify or defend exists under the policy. [Note: As this Blog has set forth on many occasions, this view is questionable, i.e., the denial of a benefit is a sine qua non of statutory bad faith, and poor investigation or communication are only evidence of bad faith where a benefit has been denied, and cannot be a stand-alone basis for bad faith claims where no benefit is denied.]

Even under this broader standard, the court granted the insurer summary judgment. The insured asserted inadequate investigation bad faith concerning the cause of water damage in this case. It alleged the investigation was too brief, the inspector did not investigate all areas of the property, and did not communicate with the insured about the loss. The plaintiff admitted the adjuster did investigate a burst public water supply pipe from which all of the alleged property damage originated.

The court found because the policy excluded losses originating from a burst water supply pipe, there was in fact no need for any further investigation. “Under these circumstances, any additional investigation would not have changed the outcome of [the] decision to deny [the insured’s] claim.” Thus, there was insufficient “evidence from which a reasonable jury could find by clear and convincing evidence that [the insurer] performed an inadequate investigation or otherwise acted in bad faith in its handling [the] claim.” [Note: It is clear that the policy’s coverage language defining benefits due informed the court’s decision on what constituted a reasonable investigation.]

Thus, summary judgment was granted on the bases that there was no improper benefit denial, and no bad faith investigation.

Date of Decision: November 21, 2019

Sypherd Enterprises, Inc. v. Auto-Owners Insurance Co., U. S. District Court Western District of Pennsylvania 2022102:18-CV-00141-MJH, 2019 U.S. Dist. LEXIS 202210 (W.D. Pa. Nov. 21, 2019) (Horan, J.)

It is interesting to compare this case to the statement of principles governing actionable statutory bad faith claim in last week’s post on Judge Beetlestone’s Purvi decision.

INSURED ADEQUATELY PLEADS BAD FAITH (Middle District)

In this UIM breach of contract and bad faith case, the insured alleged a series of physical injuries after being rear-ended at a red light. The insurer denied the UIM claim. The insurer moved to dismiss the bad faith count on the basis that plaintiff only set forth conclusory boilerplate allegations without any supporting facts. Judge Munley disagreed and denied the motion.

In denying the motion, the court found the following sufficient to survive a motion to dismiss:

Plaintiff’s complaint pleads facts indicating that defendant’s actions were unreasonable. Plaintiff alleges that he was injured in an automobile accident that was covered by the insurance policy. He further asserts that he made a claim for benefits under the policy and defendant was dilatory and abusive in the handling of the claim. … Plaintiff additionally claims that defendant failed to reasonably and adequately investigate the claim and failed to reasonably evaluate or review the medical documents and/or photographs which were in its possession. … Defendant failed to make an honest, intelligent and objective settlement offer. … The defendant, thus, compelled plaintiff to file suit and engage in litigation, when a reasonable evaluation of the claim would have avoided suit. … Moreover, the defendant failed to follow its own manual with regard to the evaluation and payment of benefits-and even failed to pay the undisputed amount owed.

We have previously summarized Judge Munley’s recent decisions in Castillo and Deluca reaching similar results.

Date of Decision: November 19, 2019

Ranieli v. State Farm Insurance Co., U.S. District Court Middle District of Pennsylvania No. 3:19cv1176, 2019 U.S. Dist. LEXIS 200380 (M.D. Pa. Nov. 19, 2019) (Munley, J.)

BAD FAITH REQUIRES DENIAL OF A BENEFIT, EXCEPT IN LIMITED CIRCUMSTANCES; NO SEPARATE BREACH OF GOOD FAITH ACTION (Philadelphia federal)

To paraphrase from the summary below: Though courts have extended the concept of bad faith beyond an insured’s denial of a claim in several limited areas, the essence of a bad faith claim must be the unreasonable and intentional or reckless denial of benefits.

A dispute between the insured and insurer settled for $237,000. During the post-settlement drafting process, the insurer included a term in the settlement agreement making the insured’s mortgagee a payee on the settlement check. The insured objected, but the carrier responded the policy required it to include the payee. It refused to issue the settlement check without the mortgagee and the parties were at loggerheads.

The insured filed a new action against the carrier, seeking to enforce the settlement agreement without the mortgagee’s inclusion. The insured brought a breach of contract claim, as well as a separate breach of the duty of good faith and fair dealing in connection with the settlement agreement. The carrier moved to dismiss the good faith and fair dealing count.

The court dismissed that count, following the principle a breach of the covenant of good faith and fair dealing is subsumed within the contract claim, and cannot state a distinct cause of action. “Such subsuming occurs when ‘the actions forming the basis of the breach of contract claim are essentially the same as the actions forming the basis of the bad faith claim.’” Here, both counts arose out of the refusal to remove the mortgagee from the settlement payment.

The court also noted there was no separate tort claim for bad faith in Pennsylvania.

Finally, the court rejected the notion that the good faith count could survive if treated as a statutory bad faith claim. It observed that the case arose from an alleged breach of a settlement agreement, not a violation of the insurance policy. The issue here was the insurer’s including the mortgagee on the payment check, not the denial of a benefit, i.e., the carrier was ready and willing to make a payment under the policy.

As the court states:

Critically, while Plaintiff does claim that [the carrier] “refus[ed] to make payment of a settlement amount within 60 days as required by the policy of insurance,” it is clear from Plaintiff’s own recitation of the facts that what Plaintiff means by “refus[al] to make payment” amounts to Plaintiff’s refusal to accept a settlement check naming the mortgagee as a payee, rather than a denial of benefits under the policy. Though “Courts have extended the concept of ‘bad faith’ beyond an insured’s denial of a claim in several limited areas,” … “the essence of a bad faith claim must be the unreasonable and intentional (or reckless) denial of benefits….” [Emphasis in original] As such, Section 8371 “do[es] not apply to [mere] disputes over contract terms.” … Tellingly, Plaintiff identifies no case in which a Pennsylvania court or a court interpreting Pennsylvania law has found that Section 8371 encompasses the type of settlement dispute at issue here. Count II of Plaintiff’s Amended Complaint is therefore dismissed for failure to state a claim.

Date of Decision: November 18, 2019

Purvi, LLC v. Nat’l Fire & Marine Insurance Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-4250, 2019 U.S. Dist. LEXIS 199469 (E.D. Pa. Nov. 18, 2019) (Beetlestone, J.)

NO BAD FAITH UNDER NEW JERSEY LAW WHERE INSURED CANNOT ESTABLISH A BREACH OF THE INSURANCE CONTRACT (New Jersey Appellate Division) (Unpublished)

The insured had a long-term care policy. The carrier denied coverage and the insured sued for breach of contract, bad faith, and breach of the duty to act in good faith. The trial court granted summary judgment on all counts, and the Appellate Division affirmed.

The crux of the case involved policy interpretation and the carrier’s alleged failure to review a physician letter/plan. The trial court found the policy was unambiguous, i.e., it was not susceptible to two reasonable readings of the same policy language, one of which favored the insured over the insurer. Rather, the language was clear, sufficiently prominent, and written in plain language. That language put the insured’s claims outside the policy’s coverage terms.

To the extent the physician letter may have arguably come within the policy’s coverage, the evidence showed that letter was never provided to the carrier before suit. Further, there was no other evidence showing the insurer acted unreasonably.

As to bad faith, “[t]he trial court also found that the bad faith claim failed under the ‘fairly debatable’ standard, since plaintiff could not establish the breach of contract claim as a matter of law.” As stated above, the Appellate Division affirmed on all counts.

Date of Decision: November 12, 2019

Cooper v. CNA Insurance Co., Superior Court of New Jersey Appellate Division DOCKET NO. A-4824-17T4, 2019 N.J. Super. Unpub. LEXIS 2316, 2019 WL 5884584 (App. Div. Nov. 12, 2019) (Koblitz, Mawla, Whipple, JJ.) (unpublished)

CASE REMANDED BECAUSE NO PROOF TO A LEGAL CERTAINTY THAT PUNITIVE DAMAGES CLAIM WOULD TAKE THE CASE ABOVE $75,000 (Philadelphia Federal)

This UIM breach of contract and bad faith case was removed to federal court. The court sua sponte remanded the matter to state court. Significantly for this action, the tortfeasor driver was also named as a defendant.

The ad damnum clauses in the complaint’s various counts expressly state damages do not exceed $50,000. The bad faith count’s ad damnun clause specifically only seek an “’award of compensatory and punitive damages in an amount not in excess of Fifty Thousand Dollars ($50,000).’” The civil cover sheet states the damages were not in excess of $50,000. Pennsylvania’s Rules provide compulsory arbitration for cases at or below $50,000.

Any federal jurisdiction would have to be based on (1) diversity of citizenship, and (2) a jurisdictional minimum amount-in-controversy above $75,000. The removing party bears the burden of proving these two jurisdictional elements, and doubts concerning jurisdiction are resolved in favor of remand. Because subject matter jurisdiction is involved, the court always has the power to review diversity jurisdiction, and can raise the issue sua sponte.

The court first ruled there was no diversity. The plaintiff insureds and defendant tortfeasor driver were all Pennsylvania citizens. The court rejected the notion that because the non-diverse tortfeasor defendant had not been served, the diverse insurer defendant could remove the case. [This is not the situation where diversity otherwise exists, and a non-forum defendant can remove because the forum defendant has not been served, as in the Third Circuit’s 2018 Encompass case.]

Second, the $75,000 jurisdictional minimum amount-in-controversy was not established. A plaintiff is the master of its own claim and may limit a claim so it falls below the jurisdictional threshold. In those circumstances “’a defendant seeking removal must prove to a legal certainty that plaintiff[s] can recover the jurisdictional amount.’” Three principles guide a court under these circumstances:

“(1) The party wishing to establish subject matter jurisdiction has the burden to prove to a legal certainty that the amount in controversy exceeds the statutory threshold;

(2) A plaintiff, if permitted by state laws, may limit her monetary claims to avoid the amount in controversy threshold; and

(3) Even if a plaintiff states that her claims fall below the threshold, this Court must look to see if the plaintiff’s actual monetary demands in the aggregate exceed the threshold, irrespective of whether the plaintiff states that the demands do not.”

The insurer failed to makes its case here. First, the insureds limited their demand below $50,000, putting themselves within the state court’s compulsory arbitration threshold. Eastern District courts have found that a plaintiff expressly limiting damages to $50,000, so as to fall within the compulsory arbitration limit, does not meet the $75,000 federal jurisdiction minimum.

The court looked further into whether the facts pleaded could result in more than $75,000 in damages, to a legal certainty. Here the UIM $15,000 policy limit fell well below $75,000, but the insurer argued punitive damages could bring the case above that sum, implying a punitive damages multiplier of four times compensatory damages. The court rejected that argument (1) because the insurer provided no basis why a multiplier of four would be applied and (2) a multiplier of four would bring the case up to $75,000, but federal jurisdiction requires the damages exceed $75,000.

In sum, the insurer could not prove to a legal certainty the amount in controversy would exceed $75,000.

Date of Decision: November 5, 2019

Mordecai v. Progressive Casualty Insurance Co., U. S. District Court Eastern District of Pennsylvania, CIVIL ACTION NO. 19-4351, 2019 U.S. Dist. LEXIS 192331 (E.D. Pa. Nov. 5, 2019) (Younge, J.)

GENERAL ALLEGATIONS OF KNOWLEDGE OR RECKLESSNESS SUFFICIENT, AND THE INSURER’S INTENT CAN BE PURSUED IN DISCOVERY (Middle District)

In his second bad faith opinion this week, Middle District Judge James Munley found bad faith adequately pleaded, and denied a motion to dismiss. The case involved an uninsured motorist claim. The insured suffered injuries, the insurer had $300,000 on its policy, and it appears the insurer refused to pay policy limits or make a payment meeting the insured’s demands.

First, on the reasonableness prong of the bad faith test, Judge Munley stated: “Plaintiff’s complaint pleads facts indicating that defendant’s actions were unreasonable. Plaintiff alleges that she was injured in an automobile accident that was covered by the insurance policy. … She notified defendant of the damages and provide it with sufficient documentation to support her claim, including updating records for ongoing medical treatment. … Defendant refused to make a reasonable offer of settlement despite plaintiff trying to work with it and despite the ‘mountain of evidence’ that she had provided. … ‘[D]espite the results of any investigations performed by [defendant] and the clear medical documentation supporting their claim for UM benefits, [defendant] has blatantly ignored the evidence, has done no further investigation and has simply denied [plaintiff] the recovery of appropriate UM benefits without explaining its reason for the denial. … These allegations are sufficiently specific to make out a claim for bad faith — at least with respect to the first prong, that defendant lacked a reasonable basis for denying the benefits at issue.”

The court rejected the argument that these allegations were akin to the failed pleadings in the Third Circuit’s 2012 Smith v. State Farm case. By contrast to the “much more general” allegations in Smith, and the exhibits attached to the Smith Complaint indicating there was no bad faith, the instant allegations “are much more specific and no exhibits indicate that the defendant acted in good faith.”

As to the second prong, i.e., whether the benefit denial was known to be unreasonable or its unreasonableness was recklessly disregarded, Judge Munley states: “Additionally, we find that plaintiff has sufficiently pled the second element of a bad faith claim, that is, that defendant knew or recklessly disregarded its lack of reasonable basis to deny the benefits. Plaintiff’s complaint makes a general allegation that defendant knew it had no basis to deny the claim. … We find that at this stage of the proceedings, such an allegation is sufficient to survive a motion to dismiss. This element goes to the knowledge and state of mind of the defendant. Plaintiff will not be able to fully inquire into such matters until discovery occurs in the case. Accordingly, we find that the motion to dismiss should be denied.”

Date of Decision: November 6, 2019

Deluca v. Progressive Advanced Ins. Co., U. S. District Court Middle District of Pennsylvania No. 3:19cv1661 (M.D. Pa. Nov. 6, 2019) (Munley, J.)

INSURED ADEQUATELY PLEADS BAD FAITH CLAIM AGAINST THIRD LAYER INSURER (Middle District)

There were three policy layers in this uninsured motorist case, concerning an opinion issued yesterday by Middle District Judge James Munley. Plaintiff alleged significant and permanent injuries, and she sought payment from the third layer insurer. This insurer had $60,000 in potential coverage and offered $1,000 to settle. The insured brought claims for breach of contract and bad faith.

The insurer moved to dismiss the bad faith claim. Judge Munley denied the motion to dismiss, after examining the allegations against the two elements of statutory bad faith: (1) reasonableness of the insurer’s benefit denial and (2) knowing or reckless disregard of that denial’s unreasonable nature.

First, Judge Munley found the following allegations sufficient to set forth a claim that the settlement position and claims handling were unreasonable:

“An inadequate investigation by the insurance company may lead to a claim of bad faith. Smith v. Allstate Ins. Co., 904 F. Supp. 2d 515, 524 (W.D. Pa. 2012). Count II, of the complaint alleges that the defendant, inter alia, failed to properly investigate plaintiff’s claims, refused to pay plaintiff’s claims without conducting a prompt, reasonable investigation based upon all available information, denied the claim without conducting a completely independent review of plaintiff’s injuries and damages, and caused unreasonable delay in all aspects of the handling of plaintiff’s claim. … Plaintiff further avers that the defendant lacked a reasonable basis for underestimating the value of plaintiff’s UM claim and denying benefits. … We find that these factual allegations, which we must accept as true at this stage of the proceedings, are sufficient to meet the first element, that is, defendant lacked a reasonable basis to deny the benefits.”

Next, Judge Munley found the plaintiff met the knowing or reckless disregard element, concluding: “Plaintiff’s complaint makes a general allegation that defendant knew it had no basis to deny the claim. … We find that at this stage of the proceedings, such an allegation is sufficient to survive a motion to dismiss. This element goes to the knowledge and state of mind of the defendant. Plaintiff will not be able to fully inquire into such matters until discovery occurs in the case. Accordingly, we find that the motion to dismiss should be denied.”

Date of Decision: November 4, 2019

Castillo v. Progressive Insurance, U.S. District Court Middle District of Pennsylvania No. 3:19cv1628, 2019 U.S. Dist. LEXIS 190834 (M.D. Pa. Nov. 4, 2019) (Munley, J.)