Monthly Archive for February, 2020

FAILURES TO COMMUNICATE WITH THE INSURED UNDERMINE INSURER’S SUMMARY JUDGMENT EFFORTS; INSURER MUST SHOW ACTUAL DISAGREEMENT OVER VALUE OCCURRED (Western District)

The court denied the insurer’s motion for summary judgment on plaintiff’s UIM bad faith. Key issues were the insurer’s having failed to adduce evidence explaining the basis for its denial, and not sufficiently adducing facts contrary to the claims handling allegations in the insured’s complaint. The carrier focused on the fact that the insured did not take discovery, but this was not as detrimental to plaintiff’s case as the insurer believed.

The insured received $50,000 from the tortfeasor’s carrier, and had $250,000 in UIM coverage under his own policy. The complaint alleged detailed facts supporting the position that the insured was highly cooperative in producing information, both independently and upon the insurer’s request. Moreover, the insured submitted to an examination under oath and an independent medical examination, and follow up requests after both.

The claim/investigation process went on for eight months, with the insured’s counsel repeatedly making policy limits demands, with no counteroffer. Ultimately, the insurer offered no payment of any kind to the insured.

During the claim/investigation process, the insured filed a writ of summons. The insurer ultimately responded with a rule to file a complaint, and after the complaint was filed it removed the action to federal court. [Note: Among the various legal principles governing bad faith claims the court recites, is “[t]he Third Circuit has also recognized that ‘using litigation in a bad faith effort to evade a duty owed under a policy [is] actionable under [Pennsylvania’s bad faith statute].’” The court did not amplify on that principle in this case.]

The court observed the carrier did not develop a factual record refuting the detailed claims handling history in the complaint. Thus, “[w]hether the undisputed facts in the Complaint are sufficient for Plaintiff to prove by clear and convincing evidence that [the insurer] acted in bad faith is for the jury to determine.” Further, there was no evidence in the record as to how, or if, the insurer provided the basis for its claim denial to the insured. At most, the rule to file a complaint functioned as the notice of denial; but even then, the insurer never gave the insured “any information about the basis for its decision.”

The insurer did include a copy of its medical expert’s reports in moving for summary judgment. These reports concluded that the insured “required no further care, treatment or limitations as a result of his motor vehicle accident.” On the other hand, the court found that the insured had apparently produced his own medical expert report during the litigation, opining that significant medical issues resulted in a “no work” restriction.

The court stated: “It may well be that [the insurer] relied upon the results of the independent medical examination or other valid grounds, but the record does not reflect that [this] report was supplied to Plaintiff or that [the insurer] relied on this report in denying Plaintiff’s claim.”

Generally, the court accepted that there might a been a reasonable basis for evaluating the claim for eight months and then denying it, but that reasoning was not disclosed in the record. The insurer attempted to frame the issue as merely a disagreement over value (apparently $250,000+ on the insured’s end and $0 on the insurer’s end).

However, “to prevail on its motion on the ground that the parties had a legitimate value disagreement, it is [the insurer’s] burden, [1] initially, to point to evidence illustrating not only that there was indeed a disagreement over the value of Plaintiff’s claim (as opposed to an outright denial), but [2] also that [the insurer] communicated that disagreement to Plaintiff, for example, by making a counter-offer. [The insurer] has not done so.”

In sum, “[b]ecause there are genuine issues of material fact regarding Plaintiff’s bad faith claim based upon the current state of the record, [the insurer] is not entitled to judgment as matter of law.”

Date of Decision: February 10, 2020

Baldridge v. Geico Insurance Co., U.S. District Court Western District of Pennsylvania, Civil Action No. 18-1407, 2020 U.S. Dist. LEXIS 22311 (W.D. Pa. Feb. 10, 2020) (Dodge, M.J.)

NO BAD FAITH WHERE COVERAGE ISSUES FAIRLY DEBATABLE; NO PUNITIVE DAMAGES WHERE NO BAD FAITH; NO RIGHT TO ATTORNEY’S FEES IN DIRECT ACTION (New Jersey Federal)

The insurer filed a declaratory judgment action concerning first party property damage to a commercial building. The insureds counterclaimed for breach of contract and bad faith, and the insurer moved to dismiss the bad faith counterclaim.

Under New Jersey law, “to establish a claim for bad faith in the insurance context, a [claimant] must show two elements: (1) the insurer lacked a ‘fairly debatable’ reason for its failure to pay a claim, and (2) the insurer knew or recklessly disregarded the lack of a reasonable basis for denying the claim.”

“To meet the ‘fairly debatable’ standard, a claimant must be able to establish, as a matter of law, a right to summary judgment on the substantive claim; if [claimant] cannot establish a right to summary judgment, the bad faith claim fails. In other words, if there are material issues of disputed fact which would preclude summary judgment as a matter of law, an insured cannot maintain a cause of action for bad faith.” “Thus, dismissal of the bad faith claim is proper when the insured cannot prevail on summary judgment for the underlying insurance claim.”

“[A] bad faith claim against the insurance company fails at the motion to dismiss stage if the claimant cannot establish a right to summary judgment on the substantive claim.”

The case involved an alleged partial building collapse. There were issues of fact as to what caused the collapse, the resolution of which were necessary to determine coverage under the policy. There were also issues concerning policy interpretation. The insureds took the position that the insurer’s policy interpretation position was irrelevant to bad faith, rather than arguing the insurer’s position was incorrect and taken in bad faith. The court found this argument fatal to the insured’s bad faith claim.

Moreover, the court concluded the insurer’s reading of the insurance policy provided a reasonable basis to deny the claims. It stated that denying benefits on the basis there was no coverage “is the ‘easiest to understand’ why the denial of insurance claims is ‘fairly debatable.’” Thus, the insureds failed to show the insurer lacked a fairly debatable reason to deny the claim. Further, “[b]ecause this deficiency cannot be cured by further amendment or through discovery, the Court dismisses Defendants’ claim for bad faith with prejudice.” (Emphasis in original)

The court also dismissed the insured’s punitive damages claim, with prejudice, stating “an insured who cannot state a claim for bad faith damages is necessarily unable to prevail on a claim for punitive damages under the higher standard of egregious circumstances.”

Finally, the court dismissed the claims for attorney’s fees and legal costs with prejudice, under either the contract or bad faith claims. “New Jersey law does not allow awards of attorney’s fees and costs ‘to an insured who brings direct suit against his insurer to enforce casualty or other direct coverage.’”

Date of Decision: February 10, 2020

Merchants Mutual Insurance Co. v. 215 14th St., LLC, U.S. District Court District of New Jersey Civil Action No. 19-9206 (ES) (SCM), 2020 U.S. Dist. LEXIS 23664 (D.N.J. Feb. 10, 2020) (Salus, J.)

COURT REFUSES TO STRIKE INSURER’S FRAUD IN THE APPLICATION DEFENSE; BUT DENIES MOTION TO SEVER AND STAY INSURED'S BAD FAITH CLAIM (Western District)

This case involves a homeowners’ fire loss claim. The carrier refused to pay on the basis that the insureds made material misrepresentations in applying for their policy. The insurer asserted affirmative defenses that the homeowners falsely stated that they did not have knob and tube wiring and that no insurer had ever cancelled the homeowners’ coverage, when in fact, they did have knob and tube wiring and a prior policy was cancelled.

The matters before the court were the insureds’ motion to strike the affirmative defenses as inadequately pleaded, and the insurer’s motion to sever and stay the insureds’ bad faith claim.

The Insurer Adequately Pleaded Fraud as an Affirmative Defense

The court denied the motion to strike. It found that affirmative defenses are measured by Rule 8(c) and do not have to be rigorously articulated. That being said, because fraud is pleaded, there are additional pleading requirements under Rule 9(b) to plead with particularity (other than intent).

Still, measured by these standards, the affirmative defenses are adequate. The insurer pleads that the insureds made written misrepresentations on the application, and that it would never have issued the policy if the insureds stated the true facts in their application. This was sufficiently specific to put the insureds on notice of the grounds for the affirmative defenses.

The Court Refuses to Sever and Stay the Bad Faith Claims

The insurer sought to sever the insureds’ bad faith claims from their breach of contract claim. The court found this unwarranted for the following reasons:

  1. The underlying issues in the two claims overlapped. The court recognized the ultimate issues were distinct on breach of contract and bad faith, but found “they are subject to the same sources of proof and concern the same underlying issues.”

  2. Trying the claims together would not unduly prejudice the insurer. The insurer “failed to show exactly how it would be prejudiced if [the insureds’] claims are tried together.” Further, if discovery disputes arise, the court could properly resolve them at that future time.

  3. Trying the claims together would promote judicial economy. The court stated that “judicial economy strongly disfavors severance in this case.” Turning one case into two cases “would require the Court to schedule deadlines separately for each case and hold two separate trials on claims stemming from the same dispute.” Moreover, the insurer did not provide any valid reason for severance.

Date of Decision: February 6, 2020

Walls v. American Modern Select Insurance Co., U.S. District Court Western District of Pennsylvania Case No. 3:19-cv-80, 2020 U.S. Dist. LEXIS 20088 (W.D. Pa. Feb. 6, 2020) (Gibson, J.)

EVEN THOUGH COVERAGE MIGHT BE DUE, INSURED COULD NOT ESTABLISH DENIAL WAS UNREASONABLE (Philadelphia Federal)

This case involved a wall collapse. The insured and carrier provided each other with expert reports on causation. The carrier’s expert analysis would result in a finding of no coverage under the policy, but the insured’s expert analysis would result in coverage. The insurer denied coverage, and the insured sued for breach of contract and bad faith.

After discovery, the insured moved for summary judgment on both counts. The court denied summary judgment on the contract claim, because issues of fact remained on causation that might allow for coverage, but granted summary judgment on the bad faith claim after finding that the insured could not meet her burden to show the insurer lacked a reasonable basis in denying coverage.

In addressing bad faith, the court observed that an insurer can defeat bad faith by showing there was a reasonable basis for its action. The court further made clear that at the summary judgment stage, the plaintiff’s obligation to prove its case at trial by clear and convincing evidence of bad faith was a necessary consideration. In this case, even taking the facts in the insured’s favor, the insurer had a reasonable basis to deny the claim.

The insurer’s denial was based on a reputable forensic engineer’s report that determined two causes of the collapse; both of which were excluded under the policy. The insured argued that the carrier should have rejected this report, and instead followed the analysis in the report provided by the insured’s expert. The court found this was not enough to make out a claim of bad faith because “the mere fact that the parties disagree about coverage is not enough to show bad faith.” The court cited Post v. St. Paul Travelers Ins. Co., for the proposition that there is no bad faith “when the plaintiff could only show the parties disagreed about coverage….”

The insured also argued bad faith because the insurer allegedly “ignored the possibility that [the insured’s] house would be demolished.” The court found this irrelevant to the bad faith claim.

“If the collapse was not covered under the insurance policy, [the insurer] would not have been obligated to pay [the insured] regardless of whether her house was later demolished. In other words, whether the house was demolished would have no impact on [the] coverage decision.” Thus, this argument did not go to the reasonableness of the coverage decision itself.

In sum, the insured did not adduce evidence that the insurer lacked a reasonable basis for its coverage decision, and summary judgment was granted on the bad faith count.

Date of Decision: January 31, 2020

Hentz v. Allstate Property & Casualty Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 19-2007, 2020 U.S. Dist. LEXIS 17379 (E.D. Pa. Jan. 31, 2020) (Sanchez, J.)

LACK OF COVERAGE CONSTITUTES UNDISPUTED EVIDENCE OF REASONABLE BASIS TO DENY CLAIM, AND WARRANTS REJECTION OF BAD FAITH CAUSE OF ACTION (Philadelphia Federal)

The loss at issue was the result of intentional conduct by the named insured’s son, in this tragic matter. The son was also an insured under the policy.

The court found the named insured (actually his estate) could not make out a prima facie case for coverage because the loss was not accidental, and the intentional conduct was the act of an insured. Alternatively, the court found the intentional loss exclusion applied. For these reasons, the court granted summary judgment on the breach of contract claim.

As to bad faith count, the court first reiterates that the insurance coverage claims are barred under the policy. Next, “[t]he Court therefore concludes that undisputed evidence demonstrates that defendant had a reasonable basis for denying plaintiff’s claim. The bad faith claim is therefore rejected.”

Thus, summary judgment was granted on all counts.

Date of Decision: January 30, 2020

Tartour v. Safeco Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-1896, 2020 U.S. Dist. LEXIS 16271, 2020 WL 489467 (E.D. Pa. Jan. 30, 2020) (DuBois, J.)

BAD FAITH EXPERT PERMITTED TO TESTIFY, WITHIN CERTAIN LIMITATIONS (Western District)

The court permitted plaintiff’s insurance bad faith expert to testify, within certain limitations as to what may be discussed or disclosed.

The case involved a first party property loss, arising out of fire damage to a commercial greenhouse sterilization system (the “ozone system”). The insured alleged the carrier (1) “wrongly denied coverage to replace the entire ozone system; (2) … wrongly denied coverage for crops that were damaged by ozone exposure caused by a mechanical breakdown of the ozone system; and (3) [the insured] was forced out of business as a result of the Defendant’s conduct.” The insured sued for breach of contract and bad faith.

The insured sought to use three experts, including a bad faith expert. The bad faith expert was an attorney and had over 20 years of experience as a claim adjuster. He was proffered “as a bad faith expert to offer opinions regarding: (1) insurance industry standards and practices; (2) Defendant’s handling of the insurance claim at issue; (3) Defendant’s compliance with insurance statutes and regulations; and (4) the interpretation of Defendant’s policy issued to Plaintiff.”

The insurer brought a Daubert motion to preclude the bad faith expert’s proposed testimony. The carrier argued that the expert attorney’s legal conclusions would not help a jury, and that at a minimum the expert “be precluded from testifying as to: (1) whether or not the Defendant violated statutes or regulations; and (2) the interpretation of Plaintiff’s insurance policy.”

The court observed “that the admissibility of expert testimony hinges on a ‘trilogy of restrictions’: qualification, reliability, and fit.” The testimony here hinged on fit. Federal Rule 702 the “expert testimony must ‘help the trier of fact to understand the evidence or to determine a fact in issue.’” “The standard for fit is ‘not that high,’ although it is ‘higher than bare relevance.’” The insurer argued that the bad faith expert’s “testimony does not ‘fit’ the claim at issue: bad faith is a legal concept of general application,  which does not require scientific, technical, or specialized knowledge to be presented to assist the jury.”

The Court thought otherwise. It found, with certain limitations, that the bad faith expert’s testimony would “assist the jury in determining what constitutes reasonable conduct when handling an insurance claim. In the Court’s estimation, [the expert’s] twenty-six (26) years of experience as a claims adjuster will be quintessentially helpful in providing the jury with guideposts as to what constitutes reasonable adjusting and claims handling conduct and will be substantially more useful than asking the jury to in essence ‘wing it’ as to reasonableness in this out-of-the-ordinary situation.”

This expert was “permitted to testify as to best practices in handling insurance claims of the type involved here. [He] may not discuss his legal training or experience. And he is not permitted to testify as to whether or not the Defendant violated statutes or regulations (but he is not barred from testifying as to what constitutes best practices regarding the handling of insurance claims, even if the genesis of such practices are statutes or regulations, which he cannot talk about).”

Date of Decision: January 27, 2020

Three Rivers Hydroponics, LLC v. Florists’ Mutual Insurance Co., U. S. District Court Western District of Pennsylvania No. 2:15-cv-809, 2020 U.S. Dist. LEXIS 12644 (W.D. Pa. Jan. 27, 2020) (Hornak, J.)

INSURED SETS OUT BAD FAITH DELAY CLAIM, AS WELL AS CLAIM FOR ATTORNEY’S FEES (Philadelphia Federal)

This UIM case involved a claim for full policy limits, amounting to $45,000. The insured alleged serious permanent injuries.

Over two years passed from the time the insured gave notice until the time of suit, with the claim neither paid nor denied. The insured filed suit for declaratory judgment, breach of contract, and bad faith. The insurer moved to dismiss the bad faith claim and attorney’s fee claim, and the court denied the motion.

Bad Faith Claim Based on Delay Adequately Pleaded

The court recognized at least two sources of statutory bad faith: (1) failure to pay and (2) delay in making payment. As to the first, “[w]here a claim of bad faith is based on a refusal to pay benefits under a policy, ‘the plaintiff must show that the defendant did not have a reasonable basis for denying benefits under the policy and that defendant knew or recklessly disregarded its lack of reasonable basis in denying the claim.’” As to the second, “[t]o sufficiently plead bad faith by way of delay, ‘a plaintiff must allege that a defendant had no reasonable basis for the delay in coverage, and that the defendant delayed coverage with knowing or reckless disregard for the unreasonableness of its action.’”

The court found bad faith delay pleaded, based on the following factual allegations:

  1. The insurer “was put on notice of [the] underinsured motorist benefits claim in March 2017.”

  2. “In January 2018, [the insurer] waived its subrogation rights and consented to … settlement with the third-party insurance carrier.”

  3. “On March 30, 2018, [the insurer] advised [the insured] that her claim for underinsured motorist benefits was being evaluated.”

  4. “From April to July 2018, the parties communicated regarding scheduling an EUO, which took place on July 9, 2018.” As pleaded, it was the insurer that sought an EUO in July, and the insured asked to move it up.

  5. “On July 26, 2018, [the insurer] advised [the insured] that it would likely require her to undergo an IME, however, [the insurer] never moved forward with the IME.”

  6. “Between August 2018 and February 2019, [the insured] provided medical records to [the insurer], both unsolicited and at their request.”

  7. “Between February and June 2019, [the insurer] did not notify [the insured] as to the status of her claim, and at the time of the filing of the instant Complaint in September 2019, [the insurer] had neither paid [the] claim, nor denied it.”

The court summarized how these factual allegations made out a bad faith claim. The insured repeatedly tried to have her claim evaluated. She complied with requests for information, provided unsolicited information, and inquired as to the claim status. However, “despite having over two years to conduct its investigation, [the insurer] has unreasonably and without justification failed to approve or deny her claim.” Based on these factual allegations, there appears no reasonable basis to delay the claim evaluation, which the court equated with a failure to evaluate. The knowing/reckless bad faith element was met because the insured had given notice to the insurer through her inquiries and providing information that the claim had not been paid or rejected.

The court cited the Ridolfi, Kelly, and Smerdon cases concerning a delay-based bad faith analysis.

Clear and Convincing Evidence Standard Held Irrelevant at Pleading Stage

The court rejected the argument that the factual pleadings had to be measured against the clear and convincing evidence standard at the motion to dismiss stage. The court stated this standard is relevant, e.g., to trial, but not at the pleading stage. Rather, pleadings are governed by the plausibility standard. Thus, the insured “need not ‘establish’ anything at this early point in the proceedings, let alone ‘by clear and convincing evidence.’” “Whether sufficient facts will be discovered for [the insured] to survive a motion for summary judgment is unknown and may be addressed at a later date.”

Attorney’s Fees Possible under Bad Faith Statute or MVFRL

Finally, the court refused to dismiss the attorney’s fee claim based on both the bad faith statute, and the possibility that attorney’s fees might be permitted under section 1716 of the Motor Vehicle Financial Responsibility Law.

Date of Decision: January 24, 2020

Solano-Sanchez v. State Farm Mutual Auto Insurance Co., U. S. District Court Eastern District of Pennsylvania No. No. 5:19-cv-04016, 2020 U.S. Dist. LEXIS 11784 (E.D. Pa. Jan. 24, 2020) (Leeson, Jr., J.)

BAD FAITH SUIT BARRED BY TWO-YEAR STATUTE OF LIMITATIONS: (1) DISCOVERY RULE INAPPLICABLE AND (2) CONTINUING BREACH THEORY REJECTED (U. S. Court of Appeals for the Third Circuit)

In this case, the alleged bad faith conduct at issue occurred in 2011. The statutory bad faith suit was filed in 2019. The Third Circuit affirmed the trial court’s finding that the two-year bad faith statute of limitations barred the suit.

The Third Circuit rejected both a discovery rule argument, and an argument that there was a continuing breach that restarted the statute of limitations.

As to the first argument, the court upheld the finding that the insured and counsel witnessed the 2011 conduct at issue. The court quoted the principle: “’Where, however, reasonable minds would not differ in finding that a party knew or should have known on the exercise of reasonable diligence of his injury and its cause, the court determines that the discovery rule does not apply as a matter of law.’” Thus, the discovery rule did not toll the statute of limitations in this case.

On the second argument, the appellate court stated: “As to a continuing breach, in Pennsylvania, the statute of limitations runs when the first denial occurs, but continuing or subsequent denials do not newly trigger the statute of limitations.” (Emphasis in original) Thus, the statute ran in 2013.

Date of Decision: January 24, 2020

Feingold v. Brooks, U. S. Court of Appeals for the Third Circuit No. 19-1495, 2020 U.S. App. LEXIS 2279 (3d Cir. Jan. 24, 2020) (Jordan, Rendell, Scirica, JJ.)