Monthly Archive for July, 2021

COURT DENIES REMAND BASED ON POTENTIAL PUNITIVE DAMAGE AND ATTORNEY’S FEE AWARDS (Middle District)

Middle District Judge Mannion denied the insurer’s motion to remand this UIM bad faith case.  The plaintiff had $15,000 in UIM coverage, which was eventually paid in full, but continued to pursue a bad faith claim for a sum in excess of $50,000, including attorney’s fees and punitive damages.  The insured refused to stipulate that the claim was worth no more than $74,999.

Judge Mannion found that the punitive damages and attorney’s fees pursued under the bad faith statute could exceed the jurisdictional minimum, $75,000.  He looked to cases that had awarded punitive damages in 4:1 and 5:1 ratios, and a case upholding a 10:1 ratio. Moreover, “[s]ubstantial attorney’s fees awards, too, have been granted for insurance bad faith claims.”

Judge Mannion then states:

Because Plaintiff does not specifically limit his amended complaint to $75,000, and because no factual dispute is raised by the parties, the court proceeds to the legal certainty test. In light of the reasonable possibility that punitive damages and attorney’s fees may exceed $75,000, and considering Plaintiff’s refusal to cap damages at $75,000, the court finds that it does not appear to a legal certainty that Plaintiff’s claim is for less than the jurisdictional minimum. Therefore, Plaintiff’s Motion to Remand will be denied.

Date of Decision: July 19, 2021

Barbato v. Progressive Specialty Insurance Company, U.S. District Court Middle District of Pennsylvania No. CV 3:21-0732, 2021 WL 3033863 (M.D. Pa. July 19, 2021) (Mannion, J.)

COURT ADDRESSES (1) COMMON LAW VS. STATUTORY BAD FAITH STANDARDS; (2) LACK OF CLARITY IN THE LAW AND BAD FAITH; (3) DELAYS IN CLAIM HANDLING AND SETTLEMENT OFFERS; (4) APPLYING THE UNFAIR INSURANCE PRACTICES ACT IN BAD FAITH CASES; (5) AGGRESSIVE DISCOVERY/CLAIM HANDLING DURING LITIGATION; and (6) LOW RANGE SETTLEMENT OFFERS (Philadelphia Federal)

Eastern District Judge Tucker explains the similarities and differences between common law and statutory bad faith, in granting the insurer summary judgment on the statutory bad faith claim, but rejecting dismissal of the common law bad faith claims.  She observes both types of bad faith are subject to the clear and convincing evidence standard. However, common law bad faith only requires proof of negligent claim handling, while statutory bad faith requires a knowingly or recklessly unreasonable claim denial.

Judge Tucker cites Judge McLaughlin’s 2007 Dewalt case as authority on the negligence standard.  Judge Tucker does focus on the Cowden type of common law bad faith in discussing these standards, i.e., an insurer can avoid a common law bad faith claim for failure to settle within policy limits by showing “a bona fide belief … predicated on all the circumstances of the case, that it has a good possibility of winning the suit.”  This kind of third party insurance bad faith claim was not before the court.  Rather, the facts involved an underinsured motorist claim.

In an earlier decision, Judge Tucker entered judgment for the insurer on the basis the plaintiff did not qualify as an insured under the policy.  The Third Circuit reversed her decision.  While true the policy language did not provide the plaintiff UIM coverage, the Third Circuit found this limitation violated Pennsylvania’s Motor Vehicle Financial Responsibility Law (MVFRL).

On remand, the insured argued that the policy was issued in bad faith because it included language violating the MVFRL.  Judge Tucker rejected the common law bad faith claim on this point.  There was no precedent or binding authority on point before the Third Circuit’s decision, and the carrier’s position, while ultimately incorrect, was not unreasonable. “This matters because an insurer making a reasonable judgment as to coverage in a situation where the law is not clear cannot be liable for bad faith.”

This did not end the common law bad faith inquiry. Once the Third Circuit ruled, making the law applied to the policy crystal clear, this changed the measure of the insurer’s behavior, i.e., at that point the carrier knew it had an obligation to provide UIM coverage. In determining the common law bad faith claim, Judge Tucker stated:

  1. Conduct that postdates the start of litigation can form the basis for a proper bad faith claim.

  2. After the Third Circuit ruled that the Nationwide policy violated the MVFRL, Nationwide did not extend a settlement offer for ten months after the decision.

  3. When Nationwide did present an offer … it was for just $500,000 of the UIM benefits—in exchange for releasing the bad faith and class action claims.

  4. This offer was doubled a week later to $1 million, but it was contingent on a broader release of all disputes related to coverage.

  5. A failure to “promptly settle claims, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy” is considered an unfair insurance practice under Pennsylvania law. 40 Pa. Stat. Ann. § 1171.5(a)(10)(xiii).

  6. The [UIPA] also singles out a refusal to “effectuate prompt, fair and equitable settlements of claims in which the company’s liability under the policy has become reasonably clear” as a similarly unfair insurance practice.

  7. While a violation of the Unfair Insurance Practice Act (UIPA) does not constitute a per se violation of the bad faith statute, it does point to a material fact that could support a common law bad faith claim. [Judge Tucker observes apparently contrasting case law on this point, quoting some cases to the effect that UIPA violations are not bad faith per se, and another that “the rules of statutory construction permit a trial court to consider … the alleged conduct constituting violations of the UIPA or the regulations in determining whether an insurer, like Nationwide, acted in ‘bad faith.”]

  8. Again citing Dewalt, Judge Tucker states: The fact that Nationwide offered a settlement is also not a safe harbor from a bad faith claim. “Although most Pennsylvania cases finding bad faith do so in situations where an insurer refuses to settle, no case suggests that such a refusal is a pre-requisite for a bad faith claim.”

  9. Judge Tucker concludes that: Given the resolution of the disputed terms in the Nationwide policy by the Third Circuit, Defendant’s refusal to provide an unconditioned settlement for a claim under those terms is enough evidence that a reasonable jury could find in favor of Plaintiff on the common law bad faith claim.

Thus, the common law bad faith was allowed to proceed. The statutory bad faith claim was not.

The pre-suit conduct, i.e., drafting the policy with a clause violating the MVFRL, certainly could not be bad faith under the higher statutory standards if it did not constitute negligence under the common law standard.  Plaintiff could not show by clear and convincing evidence that the policy language and the carrier’s conduct in following that language was objectively unreasonable at the time, much less in knowing or reckless disregard of some unreasonable conduct.

As to litigation conduct after the Third Circuit had ruled, the insurer pursued aggressive discovery.  [This discovery was essentially the insurer’s claim handling at this point.]  Judge Tucker laid out the details of the insurer’s discovery/claim handling and specific events over the course of discovery/claim handling.  This included the insurer’s making a number of reasonable requests for information and the insured’s creating delays.  The carrier’s zealous, and maybe at times questionable, defense tactics did not equate to bad faith.

Judge Tucker also observed that offers on the low end of a settlement range for subjective damages such as pain and suffering do not constitute clear and convincing evidence that the insurer’s action were unreasonable, knowing or reckless.  These sorts of claims require investigation, and the carrier’s discovery on these issues amounted to standard claim handling.

Judge Tucker next stated that the insurer’s 10 month delay in making a settlement offer, absent other aggravating factors, was “well under periods of time that have been deemed acceptable for statutory bad faith purposes.”

Judge Tucker also found it significant that the insurer “communicated with Plaintiff during discovery, sending multiple document requests and communicating with Plaintiff’s counsel, which is arguably more responsive than the amount of communication Defendant received in response. This too weighs against whether a reasonable jury could rule that Nationwide had knowing or reckless disregard for the deficiency of its position.”

Thus, summary judgment was denied on the statutory bad faith claim.

Date of Decision:  July 14, 2021

Slupski v. Nationwide Mutual Insurance Company, U. S. District Court Eastern District Pennsylvania No. CV 18-3999, 2021 WL 2948829 (E.D. Pa. July 14, 2021) (Tucker, J.)

PLAINTIFF FAILS TO PLEAD FACTS SETTING OUT A PLAUSIBLE BAD FAITH CLAIM (Middle District)

This is a first party property damage breach of contract and bad faith case.  The insurer denied coverage on the basis that the loss was not covered under the policy.  The insurer moved to dismiss the bad faith claim only.

Middle District Judge Brann gives a lengthy history of the plausibility federal pleading standards announced via Twombly and Iqbal.  This is a prelude to his describing the flaws in plaintiff’s pleading, which Judge Brann ultimate gave leave to amend after granting a motion to dismiss, without prejudice.

Plaintiff’s pleading problems are two-fold: (1) conclusory allegations are meaningless under the federal pleading standards and (2) factual pleadings do not state a claim where the facts, even taken as true, do not make out a plausible bad faith case against the defendant insurer.

To quote Judge Brann:

“The claim [plaintiff] brings for bad faith cannot survive as pled. Almost half of the allegations in the complaint are conclusory and receive no pleading presumption of truthfulness. The other half do not establish any bad faith. The well-pled facts span from paragraphs 1-17. Those facts establish the breach of contract claim – which State Farm has not disputed – but the remaining facts are either irrelevant to the issue of bad faith, not well pled, or simply legal conclusions.”

Thus, the bad faith claim was dismissed without prejudice, and with leave to amend if plaintiff could meet these very clearly explained pleading standards.

Date of Decision:  July 16, 2021

Marks v. State Farm Fire and Casualty Company, U.S. District Court Middle District of Pennsylvania No. 4:21-CV-00307, 2021 WL 3022637 (M.D. Pa. July 16, 2021) (Brann, J.)

NO BAD FAITH CLAIM HANDLING OR DELAY IN UIM BAD FAITH CASE (C.C.P. Monroe)

The excellent, and important, TortTalk blog has posted a summary of Monroe County Judge Williamson’s decision in Sabajo v. Allstate, granting summary judgment to the insurer on a UIM bad faith claim.  After reviewing the record, Judge Williamson could not find clear and convincing evidence of bad faith conduct in claim handling, or any delay that amounted to bad faith.  A copy of the opinion can be found here, Sabajo v. Allstate Fire and Casualty Insurance Co., Court of Common Pleas Monroe County, No. 7703 Civil 2019 (June 22, 2021) (Williamson, J.)

Our thanks to Attorney Daniel Cummins for bringing this case to our attention.

TWO SHORT EASTERN DISTRICT SUMMARIES: TAKING CONTRARY POSITIONS IN SUBROGATION AND UIM CLAIMS NOT BAD FAITH; ESTATE HAS STANDING TO PURSUE BAD FAITH CLAIM (Philadelphia Federal)

Here are quick summaries of two recent Pennsylvania Eastern District bad faith cases.

TAKING CONTRARY POSITIONS IN SUBROGATION AND UNINSURED MOTORIST CASES ON INSURED’S CULPABILITY NOT BAD FAITH PER SE

The carrier denied the insured’s uninsured motorist claim on the basis that the insured was at fault.  However, the carrier brought a property damage subrogation action against the other driver, claiming the other driver was solely at fault.

The insured brought breach of contract and bad faith claims on the basis the carrier admitted or conceded via the subrogation action that the other driver was wholly at fault, and could not now argue its insured was at fault. The insured moved for summary judgment on this basis.  Eastern District Judge Younge denied the motion.

Judge Younge rejected the idea that either judicial estoppel or collateral estoppel applied to bind the carrier to its legal assertions in the subrogation action.  Absent their application, he found summary judgment inappropriate as the insured had not met the clear and convincing evidence standard of proof for bad faith.

Finally, Judge Younge rejected the argument that the carrier breached its contract or acted in bad faith by not making a partial payment. “Plaintiff also failed to establish that he is entitled to an advance of proceeds under policy provisions. Under Pennsylvania law, the Court is not aware of any duty on the part of an insurer to make a partial payment on a UIM claim in the absence of a contractual provision requiring a partial payment or an agreement between the parties as to the value of a UIM claim.”

Date of Decision:  June 29, 2021

Marrone v. Geico Insurance Company, U.S. District Court Eastern District of Pennsylvania No. 20-CV-4405-JMY, 2021 WL 2681388 (E.D. Pa. June 29, 2021) (Younge, J.)

ESTATE HAS STANDING TO PURSUE LIFE INSURANCE BAD FAITH CLAIM

In this life insurance bad faith case, Eastern District Judge Surrick held that the estate has standing to bring the bad faith claim, even though the decedent was not a beneficiary.

Date of Decision:  July 6, 2021

Hudson v. Columbia Life Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-5252, 2021 WL 2823074 (E.D. Pa. July 6, 2021) (Surrick, J.)

NO COVID-19 LOSS COVERAGE DUE, NO COMMON LAW BAD FAITH POSSIBLE (Philadelphia Federal)

The court found no coverage due for the insured’s business interruption losses resulting from the Covid-19 pandemic.  For those interested in the court’s reasoning on this hotly litigated issue, the opinion can be found here. Today, we limit ourselves to insurance bad faith law issues only.

The insured did not pursue a statutory bad faith claim, but only a common law claim for breach of the duty of good faith and fair dealing.  Having found no coverage due, Judge Gallagher, rejected the common law bad faith claim, stating:

‘[T]o recover under a claim of bad faith,’ the insured must show that the insurer ‘did not have a reasonable basis for denying benefits under the policy and that the insurer knew of or recklessly disregarded its lack of reasonable basis in denying the claim.’ ” Amica Mut. Ins. Co. v. Fogel, … (quoting Terletsky v. Prudential Prop. & Cas. Ins. Co., 649 A.2d 680, 688 (Pa. Super. Ct. 1994)); see also Treadways LLC v. Travelers Indem. Co., 467 F. App’x 143, 147 (3d Cir. 2012) (“Though we have held that bad faith may be found in circumstances other than an insured’s refusal to pay, ‘[a] reasonable basis is all that is required to defeat a claim of bad faith.’ ” (quoting J.C. Penney Life Ins. Co. v. Pilosi, 393 F.3d 356, 367 (3d Cir. 2004))).

“Pennsylvania courts have held that if the insurer properly denied a claim, the policyholder is unable to state a bad faith claim.” Kahn, … (citing Cresswell v. Pa. Nat’l Cas. Ins. Co., 820 A.2d 172, 179 (Pa. Super. Ct. 2003)). AGLIC properly denied Boscov’s insurance claims, so it did not act in bad faith. AGLIC’s alleged “failure to investigate” the matter also does not amount to bad faith. … Simply put, there was “nothing to investigate: coverage d[id] not exist on the face of [Boscov’s] claim[s].” Clear Hearing Sols., LLC v. Cont’l Cas. Co., … (rejecting bad faith claim premised on insurer’s denial of insurance coverage “without conducting any investigation”); Ultimate Hearing Sols. II, LLC v. Twin City Fire Ins. Co., … (same).

Date of Decision:  June 30, 2021

Boscov’s Department Store, Inc. v. American Guarantee and Liability Insurance Co., No. 5:20-CV-03672-JMG, 2021 WL 2681591 (E.D. Pa. June 30, 2021) (Gallagher, J.)

ASSIGNEE LACKS STANDING IF NOT THE INJURED PARTY; BAD FAITH BASED ON LACK OF COMMUNICATION POSSIBLE; 9-10 MONTH DELAY ALONE CANNOT CREATE BAD FAITH (Philadelphia Federal)

This first party fire loss case sets out some significant legal propositions:

  1. A plaintiff has no standing as a section 8371 assignee unless that plaintiff is both (a) a party injured by the insured and (b) a judgment creditor of the insured. In this case, the plaintiff lacked standing because he did not meet those two requirements.

  2. A bad faith claim can be based on the insurer’s failure to communicate with the insured. As we have repeatedly stated on this blog, see for example this January 2020 post and this August 2020 post, it is questionable whether a failure to communicate, or any other standalone claim handling failure, can be the basis for an independently cognizable bad faith claim; or whether poor claim handling is merely a matter of evidence that can be used to prove bad faith where a benefit actually has been denied.  This post from April 2021 has additional discussion on the issue of whether bad faith can exist if no coverage obligation is due, i.e., it addresses the idea that poor claims handling cannot create a statutory bad faith claim in the absence of any actual denial of benefits.

  1. Delay, standing alone, may not constitute bad faith. The court, as a matter of law, citing earlier case examples, found a 9-10 month claim handling delay in itself could not constitute bad faith. Thus, the court states: “Assuming arguendo that the entirety of this delay was attributable to [the insurer], a period of nine or ten months, without more, is insufficient to establish bad faith.”

Date of Decision:  June 29, 2021

Williams v. State Farm, No. 5:21-CV-00058, 2021 WL 2661615 (E.D. Pa. June 29, 2021) (Leeson, J.)

BAD FAITH CLAIMS STATED FOR (1) INVESTIGATION NOT WARRANTING COVERAGE DENIAL AND (2) REPORTING INSURED TO COUNTY PROSECUTORS UNDER INSURANCE FRAUD PREVENTION ACT (New Jersey Federal)

The carrier denied long-term health benefits to the insured, based on its investigation that revealed two facts indicating the insured was not as incapacitated as claimed.  The carrier additionally pursued insurance fraud claims with county prosecutors, who presented those fraud claims to a grand jury.  The grand jury dismissed the bill the same day the claims were presented.  The insured sued for coverage, bad faith, and violation of the Consumer Fraud Act (CFA).

The carrier moved to dismiss all claims.

First, the court found a breach of contract claim pleaded. The court then addressed bad faith, and allowed those claims to proceed.

Plaintiff argued two bases for bad faith: (1) knowing or reckless coverage denial after an improper investigation; and (2) reporting the insured to the county prosecutor for alleged violation of New Jersey’s Insurance Fraud Prevention Act (IFPA).

As to the bad faith investigation claim, the court emphasized it was bound by the pleadings at the motion to dismiss stage. While conceptually possible to rule on bad faith at that stage, the “fairly debatable” standard for bad faith often precludes granting a motion to dismiss because it must be determined whether there are disputes of material facts making the coverage denial fairly debatable.  This is more suited to determination at the summary judgment stage.

Here, the court looked at the facts alleged, and found that the insurer relied on two facts in denying coverage.  These two facts, however, did not create a fairly debatable reason for denying coverage.  Rather, standing alone, the denial on these facts alone could support a finding of bad faith.  Moreover, that the county prosecutor decided to bring those facts to a grand jury in pursuing an insurance fraud criminal claim did not create a fairly debatable basis to deny coverage; especially when the grand jury rejected those charges the same day they were presented.

The court likewise found a bad faith claim stated for the act of bringing the alleged IFPA violation to the county prosecutors. Having already held that plaintiffs adequately alleged the insurer did not have a good faith basis to deny benefits, this necessarily lead to the conclusion that the insurer “similarly did not have a good faith basis to report Plaintiffs for insurance fraud based on that claim.”

Finally, the court did dismiss plaintiffs’ Consumer Fraud Act claim based upon denial of insurance coverage, as beyond the CFA’s scope.  However, the court did permit the CFA claim to proceed for the insurer’s making an insurance fraud claim to the county prosecutors.

Date of Decision:  June 21, 2021

Spina v. Metropolitan Life Insurance Company, U. S. District Court District of New Jersey No. 1:20CV14129NLHKMW, 2021 WL 2525713 (D.N.J. June 21, 2021) (Hillman, J.)

NEW JERSEY FEDERAL COURT SEVERS AND STAYS BAD FAITH CLAIM (New Jersey Federal)

New Jersey Magistrate Judge Edward Kiehl recently severed and stay a bad faith claim, from the underlying coverage claim.

Quoting precedent, he applied the following principles:

  1. ““Given that the ‘fairly debatable’ standard necessitates a ruling on coverage prior to the adjudication of a bad faith claim, … it is ‘[n]o surprise, then, that severance and stay of bad faith claims has been called the ‘prevailing practice’ in both the state and federal courts of New Jersey.’”

  2. Whereas “‘breach of insurance contract claims concern policy coverage[,]’” claims for bad faith “‘concern the insurer’s general claims handling procedures, its claims conduct in the case at issue, and its knowledge and state of mind about the grounds for denial of coverage.’”

  3. “Because discovery on a bad faith claim would be rendered needless if the insurer prevails on the coverage claim, ‘proof [that] an insured is entitled to coverage as a matter of law is a necessary prerequisite to pursuing discovery regarding a bad faith claim.’”

  4. In other words, “the insured who alleges bad faith by the insurer must establish the merits of his or her claim for benefits.”

Magistrate Judge Kiehl’s detailed Rule 21 four-factor analysis, as applied to the facts, can be found in his opinion, linked here.

Date of Decision:  June 29, 2021

AIG Specialty Insurance Company v. Thermo Fisher Scientific, Inc., No. 20-CV-13046-CCC-ESK, 2021 WL 2680013 (D.N.J. June 29, 2021) (Kiehl, M.J.)

BAD FAITH NOT POSSIBLE WHERE NO COVERAGE DUE; INSURER CANNOT WAIVE POLICY EXCLUSION BY IMPLICATION (Western District)

In this case, the court found no coverage due.  In addressing whether the insured could still pursue a statutory bad faith claim, Magistrate Judge Eddy states:

In Pennsylvania, the law is clear that a bad faith claim fails where a court concludes there is no potential coverage under the policy. See USX Corp. v. Liberty Mut. Ins. Co., 444 F.3d 192, 202 (3d Cir. 2006) (granting “summary judgment in favor of Liberty Mutual on [bad faith] claim because USX’s bad faith claim necessarily fails in light of [the court’s] determination that Liberty Mutual correctly concluded that there was no potential coverage under the policy”). Thus, because this Court concludes that there is no coverage for [the injured party’s] claim [against the insured] under any of the three policies at issue, the bad faith claims … fail.

The Court also rejected the notion that the carrier could be estopped from denying coverage because it did not issue a reservation of rights letter, and waived policy exclusion by not pleading them.  Magistrate Judge Eddy rejected this argument, observing:

As the Superior Court of Pennsylvania has noted, [t]he rule is well established that conditions going to the coverage or scope of a policy of insurance may not be waived by implication from the conduct or action of the insurer….

Of equal importance, the Superior Court has held that [t]he doctrine of implied waiver is not available to bring within the coverage of an insurance policy, risks that are expressly excluded therefrom. In Pennsylvania, the doctrine of waiver or estoppel cannot create coverage where none existed. Thus, the doctrine of estoppel may not be used to affirmatively expand coverage under the insurance policies where none existed.

Date of Decision:  June 15, 2021

Stevanna Towing, Inc. v. Atlantic Specialty Insurance Company, U.S. District Court Western District of Pennsylvania No. 2:15-CV-01419-CRE, 2021 WL 2434589 (W.D. Pa. June 15, 2021) (Eddy, M.J.)