Monthly Archive for January, 2021

NO BREACH OR BAD FAITH WHEN INSURER REFUSES TO PAY REPLACEMENT VALUE ON BASIS THAT INSURED HAS TO PAY TO HAVE THAT WORK DONE IN THE FIRST INSTANCE (New Jersey Appellate Division)

The insured suffered property damage. Under the policy, the insurer would initially pay actual cash value for the loss, and would subsequently pay replacement value if the insured first had the replacement work carried out at the insured’s own expense.  The insured raised various arguments, including a central argument that she could not afford to pay for the repairs in advance of receiving payments for those repairs from the insurer, i.e., she was in a Catch-22. (She alleged the repair costs were over $170,000 greater than the ACV payment.)

The insured sued for breach of contract, breach of the duty of good faith and fair dealing, and under the Consumer Fraud Act.  The insurer obtained summary judgment at the trial level, and the Appellate Division affirmed on the basis of the trial court’s reasoning.

Although the policy created this Catch-22, the trial court judge “recognized ‘a party to a contract may not avail itself of a condition precedent where its own conduct rendered compliance with the condition impossible.’” The trial judge did note his own “concern that defendant ‘appears to have no mechanism to provide payment of RCV value until the repairs or replacements are completed[,]’ thereby requiring the insured to ‘front’ the money and seek reimbursement later.’ But the [trial] judge nonetheless found ‘the plain language of the contract provides for a process whether RCV can only occur after the acceptance of a settlement amount or rejection thereof.’”

The trial judge rejected an impossibility of performance argument, and observed that the insured accepted the actual cash value payment and did not put on any expert evidence that the actual cash value sum the insurer paid was incorrect.

Date of Decision: December 31, 2020

Lanier v. Farmers Mutual Fire Insurance Company of Salem County, New Jersey Superior Court Appellate Division No. A-1398-19T2, 2020 WL 7822353 (N.J. Super. Ct. App. Div. Dec. 31, 2020) (Firko, Rose, Whipple, JJ.)

FAILURE TO PROVIDE UNDERWRITING FILE CANNOT CONSTITUTE BAD FAITH ABSENT MORE SPECIFIC FACTS SUPPORTING IT WAS WITHHELD IN BAD FAITH (Philadelphia Federal)

Judge Baylson had previously dismissed in this matter, summarized here, but allowed the insured leave to amend.  The insured filed an amended complaint, and the carrier moved again to dismiss the bad faith claim.

The carrier had taken the position that there was no stacking available to the insured. Before suit, the insured asked the carrier for its underwriting file to confirm there were no UIM stacking benefits.  The insurer refused to produce that file absent a court order.

The insured argued his bad faith claims were not premised on UIM coverage disputes, “but rather upon Defendant’s misrepresentation of that coverage and refusal to disclose the underwriting agreement.” The insured alleged the carrier refused to produce the underwriting file “because it contained information that would demonstrate Defendant falsely represented the coverage amount.” This alleged “concealment and misrepresentation by the Defendant constitute[d] an act of bad faith.” Judge Baylson disagreed and dismissed the bad faith claim with prejudice.

A bad faith claim requires plaintiff showing by clear and convincing evidence that a benefit denial was unreasonable, and that the insurer knew it was unreasonable or recklessly disregarded that fact. A bad faith claim cannot meet the plausible pleading standard, however, by simply pleading the insurer denied a coverage request. Rather, an insured-plaintiff must plead “factual specifics as to the ‘who, what, where, when, and how’ of the denial,” to make a cases for reckless indifference.

Judge Baylson found the insured plaintiff here alleged “no factual content indicating that Defendant (1) lacked a reasonable basis to deny coverage or (2) that Defendant knew or recklessly disregarded the lack of reasonable basis. Rather, Plaintiff essentially asks the Court to infer—without providing any supporting facts—that Defendant’s sole motivation in withholding the underwriting file was to deceive Plaintiff.”

In Judge Baylson’s first decision, he had “addressed reasons other than bad faith that might explain why Defendant refused to provide the underwriting document.” Specifically, he observes that “underwriting files often contain an insurer’s evaluation of the risks along with other confidential business information, to be in line with a wide swath of rational and competitive business strategy.” (Internal quotation marks omitted.) The amended complaint fails to allege “any facts that plausibly suggest Defendant had no reasonable basis to deny Plaintiff stacked coverage, nor that Defendant knew or disregarded the lack of any such basis.”

Date of Decision: December 30, 2020

Dietz v. Liberty Mutual Insurance Company, U.S. District Court Eastern District of Pennsylvania No. 20-1239, 2020 WL 7769933 (E.D. Pa. Dec. 30, 2020) (Baylson, J.)

BAD FAITH CLAIMS TIME-BARRED WHEN RAISED 12 YEARS AFTER INSUREDS ON NOTICE OF ALLEGED BAD FAITH (Philadelphia Federal)

The insureds allege they wanted a joint annuity policy, rather than an individual annuity policy.  The carrier was fully aware of the insureds’ intent and request, but only issued them an individual annuity policy. They first received the annuity policy in 2008, but allege they only learned for the first time in 2020 that it was an individual annuity policy.

The carrier refused to treat the policy as a joint annuity, and the insured brought claims for breach of contract and bad faith, among others. The insurer successfully moved to dismiss the complaint on statute of limitations grounds.

The court found the breach of contract claim time-barred, as well beyond the four-year statute of limitations. The claim could not be salvaged by the discovery rule as the insureds did not act with reasonable diligence in discovering and pursuing their claims.  The information alerting them to the alleged breach had been in front of them for 12 years, but they did not act.

Similarly, the bad faith claims were time-barred.  The statutory bad faith claim has a two-year limitations period, which had long run. Further, any contract based bad faith claim was time-barred for the same reasons as the breach of contract claim.  The court only assumed for the sake of argument that the discovery rule could even apply to bad faith claims, which again failed for lack of reasonable diligence.

The court also observed that the insureds failed to allege bad faith in accord with federal pleading standards, averring nothing more than a breach of contract accompanied by conclusory allegations of bad faith.

Date of Decision: January 7, 2021

Smith v. Pruco Life Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-04098, 2021 WL 63266 (E.D. Pa. Jan. 7, 2021) (McHugh, J.)

BAD FAITH CLAIM CAN ONLY BE ASSIGNED TO UNDERLYING PLAINTIFF OR JUDGMENT CREDITOR (Third Circuit - Pennsylvania Law)

In this case, the Third Circuit upheld the principle that a statutory bad faith claim can only be assigned to the underlying plaintiff or a judgment creditor. As the bad faith plaintiff in this case was neither, the case was dismissed.

Date of Decision: December 24, 2020

Feingold v. Palmer & Barr, U.S. Court of Appeals for the Third Circuit No. 19-2621, 2020 WL 7663209 (3d Cir. Dec. 24, 2020) (Ambro, Matey, Roth, JJ.)

INSURER REQUIRED TO PRODUCE MASTER AGREEMENT WITH THIRD PARTY ADMINISTRATOR, SUBJECT TO ATTORNEYS’ EYES ONLY DESIGNATION (New Jersey Federal)

New Jersey District Court Judge Waldor ordered the insurer to produce its Master Services Agreement (MSA) with its third party administrator (TPA).

The insured brought a breach of contract and bad faith suit for failure to pay long-term care benefits.  The insurer and its TPA were defendants. As part of the claim handling, the TPA was delegated powers to evaluate the insured’s claim.

In discovery, the insured sought the master agreement between the insurer and the TPA, and the insurer objected to this production. The insured moved to compel production of the MSA, arguing “the MSA is relevant because [the TPA] may have a financial incentive to delay or deny benefit payments to Plaintiff[,] which Plaintiff believes supports her bad faith claim.” (Internal quotation marks omitted.)  The carrier opposed “the production of the MSA because it is a confidential and proprietary business arrangement and is irrelevant to Plaintiff’s allegations in the Complaint.”

The court required production, subject to an attorneys’ eyes only production limitation.

  1. “First, the specific terms of the MSA are relevant to the facts surrounding the handling of Plaintiff’s claim for long term care benefits by [the TPA] instead of [the insurer], the claims process and eligibility review, and Plaintiff’s appeals, all of which were delegated by [the insurer] to [the TPA] through the MSA.”

  2. “Second, the MSA is relevant … because it is the agreement that governs [the insurer’s] relationship with another Defendant in this action that effectively denied Plaintiff’s claim for benefits, which Plaintiff alleges includes terms that incentivized the denial of Plaintiff’s claims for coverage.”

  3. “Finally, the Court does not find that providing the MSA will be unnecessarily cumulative as suggested by [the insurer], the fact that Plaintiff will have an opportunity to conduct depositions of [the TPA’s and insurer’s] employees concerning the delegation of duties does not obviate [the insurer’s] duty to produce relevant information, including the MSA.”

  4. In granting the motion to compel, however, the court added “given [the insurer’s] concerns regarding the confidential and proprietary nature of the MSA, the MSA shall be produced with an Attorneys’ Eyes Only designation.”

Date of Decision: December 23, 2020

Jaffe v. The Prudential Insurance Company of America, U.S. District Court for the District of New Jersey No. 219CV18067KSHCLW, 2020 WL 7640884 (D.N.J. Dec. 23, 2020) (Waldor, J.)

COURT BIFURCATES AND STAYS DISCOVERY ON BAD FAITH WHERE THAT CLAIM CENTERS ON COVERAGE DENIAL RATHER THAN CLAIM HANDLING (Philadelphia Federal)

The insured denied coverage in this UIM case, and the insured sued for breach of contract and bad faith. The case centered on whether the household exclusion barred coverage. The insurer took the position the household exclusion applied and the insured disputed the insurer’s interpretation of Gallagher v. GEICO in taking that position. [Note: This 2019 Pennsylvania Supreme Court case held the household exclusion was void as a matter of law. The breadth of Gallagher’s application to other factual contexts is hotly debated in courts across Pennsylvania.]

The insurer successfully moved to bifurcate and stay discovery on the bad faith claim.

The court distinguished between bad faith actions based on claim handling failures and those based on coverage denials.  In this case, most of the bad faith allegations went to coverage, not claim handling. The court observed that “[t]hese allegations will become moot if it is determined that the Household Vehicle Exclusion applies and [the insurer] was not required to provide coverage to [the insured] under the Policy.”

Magistrate Judge Rice cited Magistrate Judge Carlson’s recent Dunleavy decision for the proposition “if an insurer properly denies coverage in accordance with the policy, then it could not have acted in bad faith by denying coverage,” and Judge Wolson’s decision in Live Face on Web, LLC for the principle that once the court concludes there is no contractual obligations to pay benefits under an insurance policy, the refusal to provide coverage “cannot have been unreasonable”.

In the same way, “if it is determined that the Household Vehicle Exclusion did not apply and [the insurer] breached the Policy by failing to provide coverage, the trier of fact on the bad faith claims can focus solely on [the insurer’s] motivations and intent in denying coverage. Thus, trying the breach of contract count first will narrow the issues to be decided in the bad faith count and result in efficiency and judicial economy.”

Magistrate Judge Rice also observed that the breach of contract claim centers on coverage and an exclusion that “will depend primarily on the terms of the policy, Pennsylvania law, causation, and … damages.” By contrast, “the bad faith claim concerns ‘more elusive concepts’ such as [the insurer’s] evaluation and investigation of the claim, motive, and response to [the insured]. … This evidence is irrelevant to the breach of contract count.” He observed that “’information concerning how an insurer investigated and evaluated a claim is simply immaterial to the issue of whether coverage is required under the policy.’”

In addition, “[b]ecause bad faith involves allegations of unreasonable and reckless behavior and requires a higher burden of proof, it also could confuse the jury and cause prejudice to [the insurer].”

Date of Decision: December 22, 2020

Gramaglia-Parent v. Travelers Home and Marine Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-3480, 2020 WL 7624836 (E.D. Pa. Dec. 22, 2020) (Rice, M.J.)

CASE REMANDED WHERE (1) INSURED CONCEDED VALUE WAS BELOW $75,000 AND (2) INSURER COULD NOT MEET LEGAL CERTAINTY BURDEN BY BRIDGING THE GAP WITH BALD ALLEGATIONS OF ATTORNEY’S FEES AND PUNITIVE DAMAGES (Western District)

The insured moved to remand this bad faith case to the Court of Common Pleas of Allegheny County, on the basis her claim fell below the $75,000 jurisdictional minimum amount in controversy.

“In determining whether the amount in controversy exceeds $75,000, district courts must apply the ‘legal certainty’ test …. Under this standard, [t]he case will be dismissed only if from the face of the pleadings, it is apparent, to a legal certainty, that the plaintiff cannot recover the amount claimed, or if, from the proofs, the court is satisfied to a like certainty that the plaintiff never was entitled to recover that amount.” (internal quotation marks omitted) “While a post-removal stipulation that the case is worth less than the jurisdictional threshold is not dispositive, it remains Defendant’s burden to show by a preponderance of the evidence that the operative complaint filed against it seeks an amount in excess of $75,000.”

The court disagreed there was any post-removal stipulation to the amount in controversy. Judge Barry Fisher observed that the plaintiff’s counsel, “as an officer of the court, advises that Plaintiff intends to move the matter from the General Docket of the Court of Common Pleas to the Arbitration Division, which has a jurisdictional limit of $35,000.” This amounted to a concession that the case was “valued well below the jurisdictional threshold of $75,000 necessary to invoke the diversity jurisdiction in this Court.”

Further, the complaint’s sole allegation concerning damages was that her claim was worth in excess of $5,000 based on her losses. In addition, the underlying tort claim was brought as an arbitration matter in the Court of Common Pleas, the arbitrators ruled for the tortfeasor defendant, and the case then settled.

Moreover, the insurer did “not put forth any evidence to support its bare allegation of the jurisdictional amount beyond pointing out that Plaintiff seeks attorney’s fees and punitive damages on its bad faith count.”  Following earlier precedent, the court was unwilling to accept “bare allegations that plaintiffs’ bad faith claims bridged the gap between” the coverage limits provided under the policy and the $75,000 jurisdictional minimum.

In sum, the insurer “failed to meet its burden to show that this case was worth more than $75,000 when it removed the case … and it appears to a legal certainty that Plaintiff cannot recover the jurisdictional amount in this case.”

Date of Decision: December 18, 2020

Dendy v. Geico, Inc., U.S. District Court Western District of Pennsylvania No. CV 20-1945, 2020 WL 7424970 (W.D. Pa. Dec. 18, 2020) (Barry Fisher, J.)

NO SECOND BITE AT THE APPLE IN RECONSIDERING BAD FAITH DISMISSAL; MVFRL TREBLE DAMAGES CLAIM STRICKEN (Philadelphia Federal)

Eastern District Judge Pappert previously dismissed the insured’s UIM bad faith claim.  A summary of that decision can be found here.

Presently, Judge Pappert denied the insured’s motion for reconsideration. He cited case law making clear that motions for reconsideration are not second bites at the apple, but must show either: “(1) an intervening change in the controlling law; (2) the availability of new evidence that was not available when the court granted the motion … or (3) the need to correct a clear error of law or fact or to prevent manifest injustice.”

None of these factors existed. Thus, while the insured “may disagree with the Court’s determination, nothing in her motion shows that her bad faith claim was dismissed because of a clear error of law or that its dismissal amounts to manifest injustice.”

In his earlier decision, Judge Pappert also dismissed plaintiff’s claims for treble damages under the Motor Vehicle Financial Responsibility Law (MVFRL), on the basis the insured did not allege wanton conduct against the insurer. That dismissal, however, was without prejudice. The insured raised the same claim in its second amended complaint, but Judge Pappert found this amendment “still lacks sufficient allegations of wanton conduct, as she has not alleged ‘any new facts at all.’”

Rather than dismissing the claim under Rule 12(b)(6), consistent with the insurer’s motion Judge Pappert struck the treble damages claim per Rule 12(f).

Date of Decision:  December 18, 2020

Canfield v. Amica Mut. Ins. Co., U.S. District Court Eastern District of Pennsylvania No. CV 20-2794, 2020 WL 7479615 (E.D. Pa. Dec. 18, 2020) (Pappert, J.)

COURT FINDS LOW OFFER IN FACE OF VERIFIED LOSSES SUFFICIENT TO STATE A BAD FAITH CLAIM (Middle District)

Middle District Magistrate Judge Carlson’s Report and Recommendation, adopted by Judge Mariani, provides a lucid and detailed overview of the case law governing pleading standards in statutory bad faith cases. A copy of that R&R can be found here.

In this UIM case, Magistrate Judge Carlson found the insured pleaded enough to survive a motion to dismiss the bad faith claim, though it was a close case. He states:

“In reaching this conclusion, we find that [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 describes a scenario in which the plaintiff … suffered injuries that led to a confirmed and verifiable wage loss and out-of-pocket medical expense totaling $31,773.70. [The insured] recovered $30,000 from the under-insured motorist’s insurance carrier, but when he submitted proof of his losses to his own insurer … he was offered only $1,500, a sum which, when combined with the $30,000 payment from the tortfeasor’s insurance company, still fell below his verified wage and out-of-pocket medical expenses.”

[Note:  Although the discrepancy between the fixed damage claim and total insurance payments received and offered is only $223.70, in addition to the wage loss and medical expenses the insured pleaded “significant injuries to multiple levels of his neck and back which caused or aggravated herniated discs and required multiple pain injections.”]

Magistrate Judge Carlson continues:

“In our view, these averments, while spare, go beyond the type of mere boilerplate allegations that courts have found to be too conclusory to sustain a bad faith claim. Rather, they allege a failure to pay the full, verified value of the insured’s claim. On this score, we recognize that a bad faith denial of an insurance claim may constitute a violation of § 8371, but in this setting, [i]n order to show bad faith, a claimant must ultimately establish by clear and convincing evidence both that: 1) the insurer lacked a reasonable basis for denying benefits; and 2) the insurer knew or recklessly disregarded its lack of reasonable basis.” (Internal quotation marks omitted)

“While this is an exacting burden of proof, these bad faith determinations are often fact-bound decisions that are not amenable to resolution on the pleadings alone. Instead, [i]n deciding whether an insurer had a reasonable basis for denying benefits, a court should examine what factors the insurer considered in evaluating a claim. ‘Bad faith claims are fact specific and depend on the conduct of the insurer vis à vis the insured.” (Internal quotation marks omitted)

“Thus, while [the insurer] vigorously disputes these averments of bad faith and argues that the facts alleged by the plaintiffs support a prudent effort on its part to thoroughly examine and resolve a potentially meritless claim, this argument invites us to go beyond the pleadings themselves and resolve essentially factual questions. This is a task which, in our view, may not be performed on consideration of a motion to dismiss, where we must simply assess the adequacy of the pleadings. Accordingly, we should decline this invitation to resolve this bad faith claim as a matter of law on the pleadings but deny this motion without prejudice to renewal of any summary judgment motion at the close of discovery.”

Dates of Decision: December 8, 2020 (Report and Recommendation), December 23, 2020 (Order Adopting Report and Recommendation)

Mertz v. Mid-Century Insurance Company, U.S. District Court for the Middle District of Pennsylvania No. 3:20-CV-690, 2020 WL 7647959 (M.D. Pa. Dec. 8, 2020) (Carlson, M.J.) (Report and Recommendation), adopted on December 23, 2020 (Mariani, J.)