Monthly Archive for March, 2020
This case involved a highly disputed factual issue on coverage, with no clear guidance in the case law. The court denied summary judgment on the insured’s breach of contract claim, and rendered a split decision on the two bad faith claims.
The Close Coverage Call
Coverage existed if a roof was damaged by wind, allowing water to enter a building. The issue was whether a tarp could be considered part of a roof. The insurer denied coverage on the basis the tarp at issue was a temporary stopgap when blown off during a windstorm. The insured argued the tarp was sufficiently stable and integrated to be part of a roof system when it was blown off.
The court looked at local and national case law on when a tarp might be part of a more permanent structure, and thus part of a roof. The court found the issue highly fact-driven under this case law, and inappropriate for summary judgment. A jury had to decide the issue after hearing the disputed evidence and expert opinions.
The Bad Faith Claims
On the bad faith claims, the court stated that both denial of a benefit and/or improper investigative practices could constitute bad faith.
[As we have written on this Blog ad naseum, the idea that statutory bad faith covers anything other than benefit denials arguably runs contrary to Pennsylvania Supreme Court case law. In the 2007 Toy v. Metropolitan Life decision, Pennsylvania’s Supreme Court strongly appears to state that only denial of a benefit creates a cognizable statutory bad faith action, whereas matters like poor claims handling would be evidence of bad faith. See this article.
A few months later, the Supreme Court seems to confirm this conclusion. In Ash v. Continental Insurance Company, citing Toy, the Supreme Court states, “The bad faith insurance statute, on the other hand, is concerned with ‘the duty of good faith and fair dealing in the parties’ contract and the manner by which an insurer discharge[s] its obligation of defense and indemnification in the third party claim context or its obligation to pay for a loss in the first party claim context.’” (Emphasis added)
While it appears highly likely Pennsylvania’s Supreme Court made clear 13 years ago that section 8371 is limited to claims for denying benefits, numerous subsequent opinions conclude that there can be other bases for statutory bad faith. These cases typically do not address Toy or Ash in reaching this conclusion.]
In the present case, the insured allegedly made two separate claims, 19 days apart. The first had to do with wind damage to roof shingles, and the second addressed the issue concerning the tarp and interior water damage.
Bad Faith Possible for Undue Delay
On the first claim, the insured alleged it gave proper notice of loss, and the insurer failed to respond at all to the claim. The insurer alleged it had no notice, but in any event took the position that its denial letter addressed both the roof shingle and tarp claims.
The court found that there was an issue of whether the insurer had constructive notice of the first claim, even without formal notice. The adjuster was made fully aware of the event, but it is unclear if the insurer thought of this as a distinct event or just part of the continuum in a single claim. It was also unclear whether the denial letter actually addressed the shingle damage as such.
Thus, bad faith had to go to the jury. “If a jury were to conclude that Defendant was aware that Plaintiff had made a claim for the April damage, but ignored it, that could be seen as an objectively unreasonable, frivolous, intentional refusal to pay (or to otherwise resolve the claim in a timely fashion).”
[While there are certainly claims handling issues here regarding delay and responsiveness to an insured, this claim ultimately includes the denial of a benefit. Thus, the issue of whether there can be statutory bad faith without the denial of a benefit is not actually before the court.]
No Bad Faith where Governing Law is Uncertain
As to the second claim, the insurer won summary judgment. This gets back to the dispute over whether the tarp constitutes a roof. “An insurer who makes a reasonable legal conclusion based on an uncertain area of the law has not acted in bad faith.” Thus, “[w]ith no binding guidance from the Pennsylvania Supreme Court or the Third Circuit, and numerous fact-intensive cases on the subject, Defendant reasonably interpreted the membrane, and not the tarp, to be the roof. Even if that call is ultimately found to have been incorrect, Defendant did not act in bad faith by denying the claim.”
Date of Decision: March 18, 2020
Harrisburg v. Axis Surplus Ins. Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-1213, 2020 U.S. Dist. LEXIS 48115 (E.D. Pa. Mar. 18, 2020) (Beetlestone, J.)
In line with other recent case law from the Eastern District, two more Eastern District judges recently dismissed bad faith claims for failure to plead adequate facts beyond bare-bone allegations.
In Ridpath v. Progressive, Judge Pratter dismissed the insured’s bad faith claim because it rested “entirely on conclusory and bare-bones allegations.” Leave to file an amended complaint was given, provided the insured could rectify the deficient pleadings.
The complaint merely alleged, with no additional facts, that the insurer failed to negotiate the claim, failed to properly investigate and evaluate the claim, and failed to request a defense medical examination. The court looked to Judge Slomsky’s Kiessling and Toner decisions as guidance for the dismissal, as well as Judge Gardiner’s Atiyeh decision, Judge Leeson’s Krantz decision, Judge Caputo’s Sypeck decision, and Judge Baylson’s Eley decision.
Date of Decision: March 16, 2020
Ridpath v. Progressive Advanced Automobile Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-5871, 2020 U.S. Dist. LEXIS 44796 (E.D.Pa. Mar. 16, 2020) (Pratter, J.)
Three days later, Eastern District Judge Darnell Jones dismissed a bad faith claim for failing to meet pleading standards. In that case, the insurer cited 10 other cases dismissing insurance bad faith claims.
Judge Jones cited to Judge Leeson’s Soldrich opinion for the proposition that when alleging unreasonable delay, specific facts must be alleged concerning the length of any allegedly unreasonable delay between notification and response. Judge Jones also cited to the Mozzo, Atiyeh, Blasetti and Eley cases as examples of conclusory bare-bones allegations with no factual support. Like the complaints in those cases, the instant complaint was lacking.
For example, the insured only made bare bones allegations that the insurer “failed to complete a prompt and thorough investigation of Plaintiff’s claim” and “fail[ed] to promptly provide a reasonable factual explanation of the basis for the denial of Plaintiff’s claim,” without alleging facts relating to the alleged delay, e.g., the length of time between the date of notice of the insured’s claim and the date the insurer responded.
The insured did not attempt to distinguish the insurer’s authorities. Rather, she relied upon a single case, 1009 Clinton Properties v. State Farm (discussed at length in this post), to argue her position. More than that, her complaint used the exact language found in the Clinton Properties complaint, verbatim.
Judge Jones stated, “While the court in [Clinton Properties] deemed those allegations sufficient, it surely did not intend to create a rule whereby all future plaintiffs could simply parrot the exact same allegations in order to survive a motion to dismiss.” Judge Jones then cited the basic pleading standards set out in Twombly and its progeny, and dismissed the bad faith claim without prejudice to amend that claim if the insured so chooses.
Date of Decision: March 19, 2020
Clapps v. State Farm Insurance Cos., U.S. District Court Eastern District of Pennsylvania Civil Action No. 19-3745, 2020 U.S. Dist. LEXIS 47800 (E.D. Pa. Mar. 19, 2020) (Jones, II, J.)
For those wanting to research further examples of federal pleading standards case law, here are this Blog’s category links to adequate and inadequate pleading cases.
The court determined there was no coverage due under an additional insured endorsement. Thus the insured lost on its breach of contract and declaratory judgments claims. It likewise failed to salvage its bad faith claims.
The insured tried to evade this result by asserting it still had a common law bad faith claim. However, the only common law bad faith cause of action available in Pennsylvania arises out of the insurance contract. If the contract claim fails, the common law bad faith claim fails of necessity. Thus, “[b]ecause the Court dismisses [the] breach-of-contract claim based on lack of potential for coverage, so too must it dismiss a subsumed claim of common law bad faith.”
On the common law bad faith holding, the court relied upon the Eastern District decisions in CRS Auto Parts and Tubman, and the Middle District decisions in Bukofsi and Porter.
Date of Decision: March 13, 2020
NVR, Inc. v. Mutual Benefit Insurance Co., U.S. District Court Western District of Pennsylvania No. 2:19-cv-26-NR, 2020 U.S. Dist. LEXIS 44135 (W.D. Pa. Mar. 13, 2020) (Ranjan, J.)
This New Jersey District Court decision reiterates that New Jersey’s Consumer Fraud Act “is not implicated by the payment of insurance benefits.” Denying insurance benefits that an insured believes are due is not “an unconscionable commercial practice.” Moreover, even where an insurer allegedly violates New Jersey’s Unfair Claims Act regulations, “the alleged violations do not constitute fraudulent or misleading commercial practices.”
Date of Decision: March 13, 2020
Jones-Singleton v. Illinois Mutual Life Insurance Co., U.S. District Court District of New Jersey Case No. 3:19-cv-14220 BRM ZNQ, 2020 U.S. Dist. LEXIS 44613 (D.N.J. Mar. 13, 2020) (Martinotti, J.)
Middle District Judge Robert Mariani denied the insurer’s summary judgment motion on this UIM bad faith claim.
The court went into a lengthy recitation of the relevant facts, as well as a lengthy summary of statutory bad faith case law in Pennsylvania (though not citing the Rancosky decision). For immediate purposes, we focus solely on the court’s conclusions about whether a delay could amount to reckless indifference.
There was an undisputed delay in opening a file and starting the claim handling process, which the insurer argued amounted to negligence at most. Negligence cannot be the basis for statutory bad faith in Pennsylvania. The insurer cited cases where an internal mix-up in opening a file caused some delay. The court found it could not make a factual determination at this point attributing the delay solely to this level of negligence.
The court cited to facts from which a jury could find recklessness by clear and convincing evidence. The insured’s counsel wrote to the insurer making a claim, but no file was opened and no response was sent to counsel. Counsel sent another letter making a demand and asking for documents. Again, counsel received no response and still no UIM claim file was opened. Only after the insured called directly and asked to speak to an adjuster was a file opened and an adjuster assigned. Between then and the time of suit, the claim log showed no activity concerning the UIM claim. This all occurred over a six month period.
The court found this lack of responsiveness and activity over a six-month period could amount to reckless indifference, and should go to a jury to determine negligence vs. recklessness.
As the bad faith claim was allowed to proceed, the court did not address other allegations concerning alleged bad faith claims handling once the file was being actively adjusted.
Date of Decision: March 11, 2020
Angeli v. Liberty Mutual Insurance Co., U.S. District Court Middle District of Pennsylvania No. 3:18-CV-703, 2020 U.S. Dist. LEXIS 43159 (M.D. Pa. Mar. 11, 2020) (Mariani, J.)
The insured’s representatives sued the insured’s carrier and its claims adjuster for bad faith. The complaint alleged bad faith in claims handling and in refusing to defend the insured.
The claims adjuster, though the carrier, brought a Dragonetti action against the insured’s representative and her counsel for bringing the bad faith claim against the adjuster. The court described it as a wrongful use of civil proceedings claim. The trial court dismissed the wrongful use claim on preliminary objections, and the matter was on appeal in the Superior Court.
First, the appellate court found that the insurer/adjuster waived all issues on appeal regarding dismissal of the Dragonetti action.
Next, even if not waived, the Superior Court ruled dismissal was proper.
The trial court found that because the allegations against the adjuster were based on the adjuster’s conduct as a claims handler, and not as a private citizen, the wrongful use claim should be dismissed. The Superior Court agreed under these circumstances that “it was not unreasonable … to name the insurance claims adjuster who denied [the] claims for coverage.”
[Note: The court apparently was not faced with the issue that a statutory bad faith claim against an adjuster must be dismissed in the first instance because the bad faith statute does not apply to adjusters, only insurers themselves. For example, see Judge Savage’s opinion in Reto, Judge Nealon’s opinion in Fertig, Judge Surrick’s opinion in Kofsky, and Judge Bartle’s decision in the 2013 Feingold case.]
Date of Decision: February 28, 2020
Philadelphia Contributionship Ins. Co. v. Kiely, Superior Court of Pennsylvania No. 3111 EDA 2018, 2020 Pa. Super. Unpub. LEXIS 725 (Pa. Super. Ct. Feb. 28, 2020) (Colins, Panella, Strassburger, JJ.)
The Business Courts Blog has provided an updated list of Courts across the United States directing or encouraging the use of remote teleconferencing and videoconferencing in lieu of appearing in-person for conferences and hearings, to limit health risks. You can find that post here.
Case 1
In Park v. Evanston Insurance Company, the insureds successfully pleaded a breach of contract claim, but not a bad faith claim.
The insured alleged the nature of the loss, putative damages, and the policy covered the loss. The court agreed these allegations withstood the insurer’s motion to dismiss the breach of contract claim. Though not detailed in the opinion, the court obviously concluded that the facts as pleaded would fall within the policy’s coverage terms.
On the bad faith claim, however, no plausible claim was pleaded. The court dismissed the claim without prejudice, giving leave to amend if possible.
The flawed complaint asserted that the insurer had no reasonable and sufficient basis to deny coverage, but did “not contain any factual allegations that relate to why Defendants’ alleged acts or omissions were unreasonable.” The court cited a number of decisions for the proposition that “bare-bones allegations of bad faith such as these, without more, are insufficient to survive a motion to dismiss.” These include the Third Circuit’s Smith decision, and the Eastern District decisions in McDonough and Atiyeh.
Date of Decision: March 4, 2020
Park v. Evanston Ins. Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 19-4753, 2020 U.S. Dist. LEXIS 37778 (E.D. Pa. Mar. 4, 2020) (Schiller, J.)
Case 2
In Shetayh v. State Farm Fire & Casualty Company, the insureds alleged the insurer fraudulently denied coverage, falsely alleging a property was used for business purposes. They sued for breach of contract and bad faith.
The insureds alleged that the insurer knew the business purpose allegation “was false, fraudulent and misleading and made solely for the purpose of denying coverage and preventing Plaintiffs from obtaining the benefits owed under their policy of insurance.” The insureds remaining bad faith averments were generic in nature, e.g., the insurer was unreasonable in withholding benefits, conducted an unfair investigation, failed to keep the insureds adequately advised, etc.
As the insurer stated in moving to dismiss the bad faith count, “these generic averments … could fit any category of insurance claim….” In response, the insureds simply repeated the allegation that the insurer’s agent knew his statement about business purposes was false, as adequately underpinning the entire bad faith claim.
The court agreed with the insurer.
Bad faith plaintiffs “must plead specific facts as evidence of bad faith and cannot rely on conclusory statements.” Judge Leeson cited the Third Circuit’s Smith decision, just as Judge Schiller did in Park. Judge Leeson found the complaint “devoid of factual specificity”, relying solely on conclusory allegations. Thus, the complaint could not survive a motion to dismiss.
As in Park, dismissal was without prejudice and with leave to amend. The court made clear, however, that “any amended complaint must specifically include facts to address who, what, where, when, and how the alleged bad faith conduct occurred.”
Among other cases, Judge Leeson relied on the following decisions in reaching his conclusion: MBMJ (which had virtually identical paragraphs in the bad faith count); Rosenberg; Fasano; and Alidjani.
Date of Decision: March 6, 2020
Shetayh v. State Farm Fire & Casualty Co., U.S. District Court Eastern District of Pennsylvania No. 5:20-cv-00693, 2020 U.S. Dist. LEXIS 39036 (E.D. Pa. Mar. 6, 2020) (Leeson, J.)
The case involved a policy interpretation dispute, specifically focusing on an exception to an exclusion. The carrier denied coverage, and the insured sued for a declaratory judgment, breach of contract, and bad faith.
The exclusion at issue plainly applied to condominiums, but also included an exception for single-family dwellings that were not tract homes, condominiums, or townhouse projects. The insured argued that the exception encompassed three types of structures: single family homes that are not tract homes, and condominiums, and townhouse projects. The insurer argued that the exception only applied to single family dwellings that were not part of tract homes, condominiums or townhouse projects.
The court agreed with the insurer. It would be unreasonable to read the policy as excluding coverage for condominiums, and then excepting condominiums from the exclusion in the next breath. Otherwise, this would make the exclusion language surplussage.
After making this finding, the court determined that there was no breach of contract, and that the insurer should be granted a declaratory judgment in its favor.
The court then granted judgment to the insurer on the bad faith claim. “Given that the policy does not cover the … claim, [the insurer] did not, as a matter of law, lack a reasonable basis for denying benefits under the policy.”
Date of Decision: February 25, 2020
Elite Restoration, Inc. v. First Mercury Ins. Co., U.S. Dist. Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-2215, 2020 U.S. Dist. LEXIS 31611 (E.D. Pa. Feb. 25, 2020) (Joyner, J.)
This bad faith case involved a first party property damage dispute. The insured alleged he fully cooperated in the insurer’s investigation, but the insurer wrongly denied his claim. He brought a breach of contract, common law bad faith, and statutory bad faith action. The insurer moved to dismiss both bad faith claims. The court found the insured’s bare bones and conclusory allegations did not meet federal pleading standards, and dismissed the complaint.
On the statutory bad faith claim, the insured did “nothing more than set forth a threadbare recital of the elements of this cause of action, alleging [the] denial of his claim ‘was unreasonable, baseless, without foundation, made in bad faith, and made without any basis in fact whatsoever.’”
The following alleged facts failed to make out a statutory bad faith claim:
-
The insured had a policy with the insurer;
-
His car was stolen, stripped and destroyed;
-
He submitted a proof of loss, other documentation, and sat for a lengthy statement under oath;
-
He was truthful throughout the investigation and engaged in no fraudulent commissions or omissions;
-
He demanded an actual cash value payment; and
-
The insurer denied the claim.
These allegations, however, allowed for no plausible inference that (1) the insurer lacked a reasonable basis to deny benefits or (2) the insurer knew or recklessly disregarded its lack of a reasonable basis.
Next, the court observed that there is no common law bad faith cause of action in Pennsylvania for refusing to pay benefits or as to claims handling. The insured did not oppose the motion to dismiss on this basis, and the common law count was dismissed as well. [Note: There is no discussion of any distinction between a tort-based common law claim, as rejected in D’Ambrosio, and the type of contractual common law bad faith claims permitted in cases like Cowden or Birth Center.]
Date of Decision: February 21, 2020
Diaz v. Progressive Advanced Ins. Co., U. S. District Court Eastern District of Pennsylvania Case No. 5:19-cv-06052-JDW, 2020 U.S. Dist. LEXIS 29708 (E.D. Pa. Feb. 21, 2020) (Wolson, J.)
