Search Results for 'metropolitan'

DOES TOY V. METROPOLITAN LIFE PROVIDE BINDING PRECEDENT REQUIRING A DENIAL OF BENEFITS FOR COURTS APPLYING PENNSYLVANIA LAW ON THE SCOPE OF STATUTORY BAD FAITH (Western District)

Like the recent Middle District Ferguson decision, the opinion in this case involves good news and bad news. First, the court addresses head on whether statutory bad faith must be predicated on a denial of benefits, or can be independently sustained based upon a variety of poor claims handling practices. That’s good for those seeking clarity on this issue. The bad news is that, like Ferguson, this opinion never addresses head on the 2007 Pennsylvania Supreme Court decision in Toy v. Metropolitan Life Insurance Company.

As we have set forth many times on this Blog, the Toy decision strongly appears to require the denial of a benefit as a predicate to bringing a statutory bad faith claim, meaning a refusal to pay proceeds due under the policy, unreasonably delaying payment of proceeds due under the policy, or refusing to pay for a defense due under the policy. Under Toy, other types of poor conduct in claims handling go to evidence of statutory bad faith, without being actionable bad faith standing alone. See this 2014 article for a more detailed discussion.

In the present case, an excess carrier paid $19,000,000 to settle a malpractice suit, contingent on its right to recoup that payment. The insured objected. The insurer brought suit to recover the money, and the insured counterclaimed for breach of contract, common law contractual bad faith, statutory bad faith, and for a declaratory judgment.

The court denied the insurer’s motion to dismiss the counterclaims, and the insurer brought a motion for reconsideration on whether the bad faith claim was adequately pleaded, and whether the damage claims were too speculative and contingent to stand. Both motions were unsuccessful. [We only address the bad faith claim.]

The court focused on the Pennsylvania Supreme Court’s 2017 Rancosky decision to address the issue of whether an actionable statutory bad faith claims requires “the plaintiff must allege that the insurer has denied benefits under the policy. … [and] that only either a refusal to pay benefits or a delay in paying benefits that becomes an effective denial can constitute a denial of benefits sufficient to state a claim under § 8371.” The court points out that the Rancosky majority did not address that issue, but Justice Wecht’s Rancosky concurrence “listed several types of conduct, including poor claims-handling, a failure to respond to the insured, and other similar conduct, which could give rise to a § 8371 claim and that list is broader than a refusal or delay in paying benefits.” Although the majority had not adopted that concurrence, because the majority did not expressly refute the concurrence, the District Court “remain[ed] convinced that the Pennsylvania Supreme Court, if confronted with the issue … would hold that [the insured] had stated a claim.”

[Note: Per the above comment, however, it strongly appears that the Pennsylvania Supreme Court did address the issue in 2007. A review of the carrier’s brief indicates that it argued Toy stood for the proposition “that ‘bad faith’ under § 8371 is strictly limited to ‘those actions an insurer took when called upon to perform its contractual obligations of defense and indemnification or payment of a loss.’” The carrier further argued that Rancosky did not overrule or limit this principle, and if anything reaffirmed it. The District Court clearly rejected the notion that Rancosky limited statutory bad faith claims to the denial of benefits, but never addressed whether Toy did so.]

Thus, the motion for reconsideration was denied. The court held that the insured stated a claim by alleging “poor claims-handling, a failure to respond to the insured, and other similar conduct, which could give rise to a § 8371 claim,” wholly independent of any refusal to pay or delay in paying benefits.

Date of Decision: January 23, 2020

Ironshore Specialty Insurance Co. v. Conemaugh Health System, U. S. District Court Western District of Pennsylvania CASE NO. 3:18-cv-153, 2020 U.S. Dist. LEXIS 11060 (W.D. Pa. Jan. 23, 2020) (Gibson, J.)

Two recent examples of cases finding that statutory bad faith claims must be based upon a denial of benefits are Judge Dubois’ 2019 Buck decision, and Judge Kearney’s 2019 Boring decision. In her 2019 Purvi decision, Judge Beetlestone states that, with limited exceptions, “the essence of a bad faith claim must be the unreasonable and intentional (or reckless) denial of benefits….” (Emphasis in original).

THERE IS NO PRIVATE CAUSE OF ACTION UNDER THE UIPA OR UCSP REGULATIONS (Philadelphia Federal)

Last week, we summarized Judge Jones decision in this case regarding whether the insured adequately pleaded bad faith. In this post, we address his ruling on whether violations of Pennsylvania’s Unfair Claims Settlement Practices (UCSP) regulations and Unfair Insurance Practices Act (UIPA) can state a private cause of action.

Judge Jones found the applicable case law clear that there is no private right of action under the UIPA or UCSP regulations. Rather, these laws and regulations can only be enforced by the insurance commissioner.

The court cites numerous opinions supporting this conclusion, including, e.g., the Third Circuit’s Leach opinion, Judge Dalzell’s opinion in Upper Pottsgrove v. International Fidelity, Judge Tucker’s decision in Weinberg v. Nationwide, and Judge Kosik’s decision in Oehlhmann v. Metropolitan Life, among the many cases cited.

The court did appear to recognize, however, that under some circumstances a bad faith claim could be premised on a UIPA or UCSP violation, citing Judge Conaboy’s Aldsworth decision, and Judge Rambo’s 2014 Militello decision.

[Note:  Last May, we posted a breakdown of how various courts have addressed the extent of the relationship between the UIPA and UCSP regulations and statutory bad faith claims.]

Finally, the court dismissed the insured’s Unfair Trade Practices and Consumer Protection Law claim, solely under the economic loss doctrine.

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.)

 

(1) NO BAD FAITH WHERE COVERAGE LAW UNCERTAIN (2) BAD FAITH POSSIBLE FOR DELAY AND DENIAL OF ALLEGEDLY UNADDRESSED CLAIM (Philadelphia Federal)

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.)

STATUTORY BAD FAITH CLAIM BARRED BY TWO-YEAR STATUTE OF LIMITATIONS; PUTATIVE COMMON LAW BAD FAITH BARRED BY TWO-YEAR CONTRACTUAL LIMITATION; NO COMMON LAW BAD FAITH IN FIRST PARTY CASES (Middle District)

The insurer denied coverage on November 3, 2015. The insured sued for breach of contract and bad faith on September 20, 2019. The insurer moved to dismiss the contract claim based on a contractual two-year limitation period, and the bad faith claim under the controlling two-year statute of limitations. The relevant facts were evident on the face of the complaint. Therefore, the court could decide the issues on a motion to dismiss.

As to the contract claim, because the “policy had a 2-year suit limitation, there is no merit to plaintiff’s contention that Pennsylvania’s 4-year statute of limitations for contract claims under 42 Pa.C.S.A. §5501 should control in this case.” The insured nowhere alleged the insurer “led her to believe the two-year limitations period would not be enforced or that [the insurer] committed any actions that induced her to file her complaint after the two year deadline.” The contract claim was dismissed with prejudice.

As to the bad faith claim, “since ‘Plaintiff’s claim of bad faith is … based on Defendant’s denial of benefits to Plaintiff under the Policy, [the] Court can therefore consider the [November 3, 2015 denial of coverage letter] attached by Defendant to its Motion to Dismiss.” The court would not let the plaintiff escape the timing issue by simply leaving out the denial date and not attaching a document on which it relied in its complaint in pleading its case, where the defendant then attaches to its motion.

Further, the court found “[no] doubt that the two year statute of limitations for a bad faith suit begins to run when insured first learned that the insurance company was denying coverage.” Thus, the statutory bad faith claim was time barred.

[Note on statute of limitations triggers and the scope of the bad faith statute. The court observes that the two year bad faith statute of limitations begins to run at the time coverage is denied, and cites case law for this proposition, also phrased as when claims for benefits are denied. As noted previously on this blog, there are cases holding that the bad faith statute applies not only to coverage denial, but distinctly to various claims handling misconduct. Under this theory, the statute of limitations cannot begin to run at the time coverage is denied, because, e.g., no coverage may be due and bad faith is based solely on egregious claims handling failures. Does this mean that the statute of limitations case law makes clear that statutory bad faith must be based on a benefit denial, see one example here, and these bad faith claims handling cases are wrongly decided; or that there are other triggers for the two-year statute beginning to run wholly independent of a coverage denial?

The governing case on the statutory bad faith statute of limitations is the Pennsylvania Supreme Court’s decision in Ash v. Continental Ins. Co., 932 A.2d 877 (Pa. 2007). In Ash, a clear majority of Pennsylvania’s Supreme Court followed Chief Justice Cappy’s Toy v. Metropolitan Life Ins. Co. opinion. The Ash majority 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.” See Toy v. Metropolitan Life Ins. Co., 928 A.2d 186, 199 (Pa. 2007). It applies only in limited circumstances–i.e., where the insured first has filed ‘an action arising under an insurance policy’ against his insurer, see 42 Pa.C.S. § 8371–and it only permits a narrow class of plaintiffs to pursue the bad faith claim against a narrow class of defendants.” An article discussing Toy and Ash can be found here.]

The insured attempted to claim there was somehow a common law bad faith claim, subject to the four-year contract statute of limitations. Aside from the fact that the complaint alleged statutory bad faith, common law bad faith is solely contract based in Pennsylvania, and merges with the breach of contract claim. Thus, it would be subject to the same two-year contractual limitations period.

Finally, the court stated that in any event, common law bad faith did not apply to first party property damage claims, as were at issue in this case. The court relied on Judge Munley’s 2009 Bukofski decision on this point.

Date of Decision: February 13, 2020

Mazzoni v. Travelers Home & Mutual Insurance Co., U.S. District Court Middle District of Pennsylvania CIVIL ACTION NO. 3:19-2169, 2020 U.S. Dist. LEXIS 25513 (M.D. Pa. Feb. 13, 2020) (Mannion, J.)

1. GOOD NEWS AND BAD NEWS IN DEFINING SCOPE OF STATUTORY BAD FAITH; 2. MOTION TO SEVER AND STAY DENIED; 3. COURT OUTLINES PROPER PRIVILEGE LOG AND CHALLENGE PROCESS (Middle District)

The good news: The court in Ferguson v. USAA General Indemnity takes on the issue of whether a statutory bad faith claim can survive if the insured’s breach of contract claim fails, and does an historical analysis of the statute and case law to reach a conclusion.

The bad news: The court does not address the Pennsylvania Supreme Court’s decision in Toy v. Metropolitan Life. As we have observed over the years, Toy requires the denial of a benefit as a necessary predicate for statutory bad faith claims. Yet, numerous courts have applied pre-Toy case law, or cases rooted in pre-Toy case law, in holding that bad faith might exist outside of that context, e.g., solely for unfair claims handling or unreasonable failures to communicate. These courts have not directly addressed the argument that Toy apparently rejected that possibility, and that poor conduct may be evidence of bad faith, but not cognizable bad faith in itself where no benefit is denied.

We are not speaking of the situation where there is a contractually due benefit that the insurer belatedly pays. As Toy itself makes clear, there is little dispute that delay in paying a benefit can still support a bad faith case on the basis that this denies a benefit. Rather, we are speaking of the situation where there is no indemnity or defense of any kind contractually due, and the insurer prevails on the breach of contract count. Attached here is an article addressing Toy’s distinction between bad faith conduct that is necessary to make out a cognizable cause of action, and bad faith conduct that is only evidentiary in nature.

The Ferguson court, and similar cases, are concerned with dishonest claims handling and unreasonable delay even in cases where no coverage was ultimately due. They may want to inhibit poor conduct on the claims handling end that is driven by a presently unsubstantiated hope that there will be no coverage at the end of the day. In the court’s words, statutory bad faith exists to “generally regulate dishonest conduct by insurers….” This dishonest conduct still can be punished even if no coverage is due because “[h]olding otherwise could potentially result in insurers taking the gamble that a denial based on a cursory review will be rescued by a clever trial lawyer.”

Arguably, this interpretation runs counter to the Supreme Court’s decision in Toy, which concludes that there must be a denial of a benefit accompanying such poor claims handling. This reading of Toy implies that dishonest conduct where no coverage is due and no benefit denied is left to regulation by the Insurance Commissioner, not the courts.

In one of the few cases addressing this aspect of Toy, previously summarized on this Blog, another district court states:

Even assuming that the bad faith denial of the benefits claimed by plaintiff was properly alleged in the Complaint, plaintiff’s argument fails because plaintiff does not allege the denial of any benefits within the meaning of the statute. “‘[B]ad faith’ as it concern[s] allegations made by an insured against his insurer ha[s] acquired a particular meaning in the law.” Toy v. Metro. Life Ins. Co., 593 Pa. 20, 928 A.2d 186, 199 (Pa. 2007). Courts in Pennsylvania and the Third Circuit have consistently held that “[a] plaintiff bringing a claim under [§ 8371] must demonstrate that an insurer has acted in bad faith toward the insured through ‘any frivolous or unfounded refusal to pay proceeds of a policy.'” Wise v. Am. Gen. Life Ins. Co., 459 F.3d 443, 452 (3d Cir. 2006) (emphasis added); see also Nw. Mut. Life Ins. Co. v. Babayan, 430 F.3d 121, 137 (3d Cir. 2005); Toy, 593 Pa. at 41. None of the “benefits” that defendant allegedly denied plaintiff concern the refusal to pay proceeds under an insurance policy. To the contrary, plaintiff concedes that he “does not allege bad faith for refusal to pay benefits.”

Motion to sever claims and stay discovery denied

As stated, the Ferguson court determined a bad faith claim could proceed independently of the breach of contract claim, even if the breach of contract claim failed. The court reached this conclusion in the context of a motion to stay discovery and sever the breach of contract and bad faith claims. After reaching this conclusion, the court reviewed and denied the motion to sever and stay.

Even if conceptually distinct, the breach of contract and bad faith claims are “significantly intertwined from a practical perspective.” By way of example, the court states that both claims will involve discovery on “the nature of Plaintiffs’ injuries; and … what efforts did the insurer make to investigate Plaintiffs’ injuries.”

Trying to separate the two claims and stay discovery “would potentially create a discovery mess, requiring truncated depositions, interrogatories, and requests for production, only to have them all re-started following the conclusion of the first leg. This risk of judicial inefficiency warrants denial of Defendant’s request.” In sum, “Defendant’s request is, at root, asking the court to manipulate this case’s procedural framework in a way that will make litigation convenient for insurers, which the court will not do.”

This is how to handle the privilege and work product process

The court did observe there might still be legitimate attorney client privilege or work product issues. The court outlined how the parties should address this issue:

“This issue, however, is not properly before the court at this time. Defendant has not filed a protective order, nor has Plaintiff yet moved to compel. While Plaintiffs have requested the court conduct an in camera review of Defendant’s claims file, it will only do so if Plaintiffs show which parts of the claims file they may legally be entitled to. While Plaintiffs’ brief fails to do as much, they were unable to in part because Defendant has not provided an adequate privilege log.”

An adequate privilege log requires the party asserting the privilege to set forth sufficient facts as to each document at issue, and is further required to “establish each element of the privilege or immunity that is claimed. The focus is on the specific descriptive portion of the log, and not on conclusory invocations of the privilege or work-product rule.”

The court instructed the insurer “to provide an amended privilege log supplying some of the underlying factual bases for its privilege and work product claims—but not so much that it effectively discloses any such privileged information—so that Plaintiffs may raise, by brief, the parts of the privilege log they believe Defendant has failed to show are privileged.” After these steps are taken, the “court can then decide whether to conduct an in camera inspection of certain portions of the insurer’s claim file.”

Date of Decision: December 5, 2019

Ferguson v. USAA General Indemnity Co., U. S. District Court Middle District of Pennsylvania Civil No. 1:19-cv-401, 2019 U.S. Dist. LEXIS 209579 (M.D. Pa. Dec. 5, 2019) (Rambo, J.)

STATUTORY BAD FAITH CLAIMS REQUIRE DENIAL OF A BENEFIT, AND THERE IS NO CAUSE OF ACTION SOLELY FOR POOR CLAIMS HANDLING ABSENT A DENIAL (Philadelphia Federal)

This is one of the few cases directly to take on the issue of whether statutory bad faith can exist where the insurer has not denied a benefit.

As observed numerous times in this Blog over the years, the Pennsylvania Supreme Court’s Toy v. Metropolitan decision requires the denial of a benefit as a predicate for making a statutory bad faith claim. Yet, numerous courts have repeated language from older case law that bad faith might exist outside of that context, e.g., solely for poor claims handling or failures to communicate. These courts have not directly addressed the argument that Toy rejected this concept, and that such conduct may be evidence of bad faith, but not bad faith in itself where no benefit is denied. [There is little dispute that a delay in paying a benefit due may be deemed a denial of a benefit, so it is assumed in the foregoing discussion that there has been no delay that could constitute a statutory denial.]

In this case, the insured argued “that § 8371 does not require a denial of benefits in order to state a cause of action and contends that [the insurer’s] investigative practices and faulty conclusions based on egregious investigative inaction provide a cause of action under § 8371.”

In rejecting this position, Judge DuBois states:

The Court concludes plaintiff misstates the law. Plaintiff relies exclusively on O’Donnell ex rel. Mitro v. Allstate Ins. Co, which states that “[S]ection 8371 is not restricted to an insurer’s bad faith in denying a claim. An action for bad faith may also extend to the insurer’s investigative practices.” 1999 PA Super 161, 734 A.2d 901, 904 (Pa. Super. Ct. 1999). As the Third Circuit subsequently explained, O’Donnell merely clarified that “the alleged bad faith need not be limited to the literal act of denying a claim.” UPMC Health Sys. v. Metro. Life Ins. Co., 391 F.3d 497, 506 (3d Cir. 2004). However, “the essence of a bad faith claim must be the unreasonable and intentional (or reckless) denial of benefits.” Id.; see also Duda v. Standard Ins. Co., No. 12-1082, 2015 U.S. Dist. LEXIS 56606, 2015 WL 1961170, at *26 (E.D. Pa. Apr. 30, 2015), aff’d, 649 F. App’x 230 (3d Cir. 2016) (“Pennsylvania law makes clear that claim denial is essential to a bad faith claim.” (internal citations omitted)). Thus, plaintiff must allege the denial of benefits to state a claim under § 8371.”

The insured attempted to argue that benefit denial includes failure to provide fair and reasonable treatment after submitting a claim, the insurance company’s failing to stand behind the insured in his time of need, and failing to pursue deductibles from the party at fault. Again rejecting these arguments, Judge DuBois found that:

Even assuming that the bad faith denial of the benefits claimed by plaintiff was properly alleged in the Complaint, plaintiff’s argument fails because plaintiff does not allege the denial of any benefits within the meaning of the statute. “‘[B]ad faith’ as it concern[s] allegations made by an insured against his insurer ha[s] acquired a particular meaning in the law.” Toy v. Metro. Life Ins. Co., 593 Pa. 20, 928 A.2d 186, 199 (Pa. 2007). Courts in Pennsylvania and the Third Circuit have consistently held that “[a] plaintiff bringing a claim under [§ 8371] must demonstrate that an insurer has acted in bad faith toward the insured through ‘any frivolous or unfounded refusal to pay proceeds of a policy.'” Wise v. Am. Gen. Life Ins. Co., 459 F.3d 443, 452 (3d Cir. 2006) (emphasis added); see also Nw. Mut. Life Ins. Co. v. Babayan, 430 F.3d 121, 137 (3d Cir. 2005); Toy, 593 Pa. at 41. None of the “benefits” that defendant allegedly denied plaintiff concern the refusal to pay proceeds under an insurance policy.  To the contrary, plaintiff concedes that he “does not allege bad faith for refusal to pay benefits.”

Date of Decision: January 23, 2019

Buck v. Geico Advantage Insurance Company, U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 18-5148, 2019 U.S. Dist. LEXIS 11968 (E.D. Pa. Jan. 23, 2019) (DuBois, J.)

By contrast, e.g., this 2018 case finds statutory bad faith may still exist even when no coverage is due, meaning the court believed there could be bad faith even if no benefit was withheld or even due.

 

OCTOBER 2018 BAD FAITH CASES: COURT FINDS BAD FAITH POSSIBLE EVEN WHEN NO COVERAGE IS DUE (BUT OVERALL, THE LAW ON THIS ISSUE REMAINS UNCLEAR) (Philadelphia Federal)

This case may provide the clearest statement of the view that Pennsylvania permits statutory insurance bad faith claims to proceed where no benefit is due under the policy. As we have observed previously on this Blog, there is an argument that the Supreme Court’s Metropolitan v. Toy case requires that a benefit be denied as a predicate to bringing a statutory bad faith claim. There are some rare cases where no benefit is due for a purely procedural reason and bad faith claims were permitted to proceed, e.g., the contract claim was time barred. However, the principle set forth in this case, and others like it, appears to go beyond that narrow proposition.

Specifically, the court in this case did a choice of law analysis between Pennsylvania and Wisconsin law. It found a conflict because Wisconsin law requires that “first-party bad faith cannot exist without some wrongful denial of benefit under the insurance contract.” Looking at Pennsylvania law, the court stated, “On the other hand, Pennsylvania’s bad faith statute, 42 Pa. C.S.A. § 8371, has been interpreted to provide that when ‘bad faith is asserted as to conduct beyond a denial of coverage, the bad faith claim is actionable as to that conduct regardless of whether the contract claim survives.’”

The court summed up: “So, while a party may bring a viable bad faith claim under Pennsylvania law based on the insurer’s lack of investigation or failure to communicate even when the purported insured is not covered by the policy see Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 751 n.9 (3d Cir. 1999), such a claim is not viable under Wisconsin law ….” By contrast, in another recent district court case finding no breach of the insurance contract, the court found no bad faith possible, likewise citing Frog Switch: “Count II of Plaintiff’s Amended Complaint … for Insurance Bad Faith is hereby dismissed. In light of the dismissal of the Breach of Contract claim, the Bad Faith claim cannot survive. Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 751 n.9 (3d Cir. 1999) (‘[W]here there was no duty to defend, there was good cause to refuse to defend against a suit.’).”

Under the categories “No coverage due, bad faith still possible” and “No coverage duty, no bad faith”, we list summaries of cases addressing the split on this issue, and a few general comments concerning that split.

In the present case, the court determined Wisconsin law applied, and that there could be no bad faith because no coverage was due under the contract.

Date of Decision: October 22, 2018

Achenbach v. Atlantic Specialty Insurance Co., U. S. District Court for the Eastern District of Pennsylvania CIVIL ACTION NO. 17-534, 2018 U.S. Dist. LEXIS 181146 (E.D. Pa. Oct. 22, 2018) (Beetlestone, J.)

NOVEMBER 2017 BAD FAITH CASES: NO BAD FAITH WHERE NO COVERAGE DUE; AND INDEPENDENTLY, NO BAD FAITH FOR FAILURE TO INVESTIGATE (Third Circuit)

In this case, the Third Circuit affirmed the trial court’s grant of summary judgment on coverage and bad faith claims. Quoting the relevant language on bad faith:

“[The insured] argues that [the carrier] acted in bad faith by refusing to cover the claim and by failing to adequately investigate it. We agree with the District Court that this claim has no merit. Generally, there can be no bad faith claim for denial of coverage if the insurer was correct as a matter of law in denying coverage. Frog, Switch & Mfg. Co., Inc. v. Travelers Ins. Co.,193 F.3d 742, 751 n.9 (3d Cir. 1999). Thus, as we agree with the District Court that [the] breach of contract claim was meritless, so too was his bad faith claim.”

Even though the court stated the forgoing, it still addressed the issue of whether bad faith could be based solely upon a failure to investigate. As has been raised numerous times in this blog, there is an issue of whether section 8371 bad faith is cognizable for poor investigation practices in the absence of the denial (or delay in providing) of  a benefit.

“Nor can [the] bad faith claim stand independently based on [the] failure to investigate the claim before denying it. Rancosky v. Wash. Nat’l Ins. Co., 2015 PA Super 264, 130 A.3d 79, 94 (Pa. Super. 2015) (“Bad faith conduct includes lack of good faith investigation into the facts”). The record evidence clearly establishes that [the carrier] appropriately investigated [the] claim before determining that it was not covered under the Policy, inter alia, by hiring a private investigator to investigate the claim and to interview [the insured] and [the insured’s lessee], by sending a … field adjuster, and by setting forth the reasons for denial in a formal coverage opinion.”

Date of Decision: November 15, 2017

Wehrenberg v. Metropolitan Property & Casualty Insurance Co., U. S. Court of Appeals for the Third Circuit, No. 17-1327, 2017 U.S. App. LEXIS 22887 (3d Cir. Nov. 15, 2017) (Ambro, Krause, Rendell, JJ.)

MAY 2017 BAD FAITH CASES: DECEPTIVE CONDUCT AFTER POLICY IS ISSUED MAY BE SUBJECT TO SECTION 8371 RELIEF (Philadelphia Federal)

This case involves a dispute over the number of premium payments the insured was required to make. The insured thought it only had to make 6 payments each on two life insurance policies, and investment income would cover the rest. The income was insufficient and more premiums were sought. A number of misrepresentation theories were pleaded along with a statutory bad faith claim, which the insurer moved to dismiss. The bad faith claim was based on allegations that the insurer “intentionally reduced its investment return projections in order to conceal the risks associated with its vanishing premium scheme and to secure additional premium payments on the Policies.

In addressing the bad faith claim, the court observed that the Pennsylvania Supreme Court’s decision in Metropolitan Life Insurance Co. v. Toy found that the bad faith statute “does not give relief to an insured who alleges that his insurer engaged in unfair or deceptive practices in soliciting the purchase of a policy.” The court went on to state that “despite the Pennsylvania Supreme Court’s holding in Toy, which appeared to narrowly limit the circumstances under which a § 8371 claim of bad faith can arise, a number of courts have allowed bad faith claims in contexts beyond an insurer’s failure to indemnify or pay the insured.”

The court distinguished Toy, noting here that the bad faith claims not only included representations to induce sale of the insurance policies, but the insured also pleaded “deceptive practices occurring after the execution of the Policies,” i.e., the alleged manipulation of investment returns on the premiums paid.

The court found that these allegations fell within the realm of “conduct in connection with [the] discharge of … obligations … after purchase” (emphasis in original) and so were actionable bad faith claims. Thus, the motion to dismiss was denied, and “[w]hether the deceptive conduct alleged … arose in the context of [the insurer’s] discharge of its obligations under the Policies will become more apparent through fact discovery.”

Date of Decision: April 13, 2017

West Chester University Foundation v. Metlife Insurance Co., No. 15-3627, 2017 U.S. Dist. LEXIS 56547 (E.D. Pa. April 13, 2017) (C. Darnell Jones, II, J.)

 

APRIL 2017 BAD FAITH CASES: ON REMAND TRIAL COURT MUST REVIEW POTENTIAL BAD FAITH CLAIMS FOR: (1) DENIAL OF COVERAGE, (2) INDEPENDENT CLAIMS HANDLING ALLEGATIONS, (3) PLEADING DEFENSES IN BAD FAITH, AND (4) DENIAL OF DUTY TO DEFEND (Pennsylvania Superior Court)

In this case, among other things, the Superior Court stated the principle that statutory bad faith can exist independently of the insurer’s denying a benefit under the policy. The Court relied upon its earlier decisions in Condio (2006) and Nealy (1997). It did not address what effect, if any, that the Supreme Court’s 2007 decision in Toy v. Metropolitan Life Insurance Company had on those opinions, or to what extent Toy might limit the scope of cognizable claims for statutory bad faith to denial of benefits or conduct that is intertwined with a denial of benefits.

As to the particulars, this case involved title insurance. The insured believed she purchased two parcels, but the deed and title insurance policy only set out the legal description for one parcel. When she attempted to sell the properties years after her initial purchase, the potential buyer withdrew from the agreement and sued for damages because she had promised to convey both properties, but could not. She brought a third party action against the title insurer.

The Court found that the error in describing only one parcel in the original deed was in no way the insured’s fault. The insured alleged “that she … entered into a contract under which [the insurer] agreed to provide ‘real estate transactional services’ — including title searches and the drafting and filing of a deed — for her purchase of the property, and to issue a policy insuring title to the property.” The insured alleged that the title insurer was liable to her because the erroneous description on the deed and “in the Policy resulted from [the insurer’s] failure to conduct a proper title search and to provide a policy covering all of 4 Mill Street and the entire premises covered by her Agreement of Sale.”

In terms of insurance coverage, the Court looked at case law on reasonable expectations and estoppel. It cited numerous cases where mistakes in property descriptions could not be used to avoid coverage.

It also looked to general case law on reasonable expectations, where the insurer could not evade the consequences of promises or conduct of its own agents in leading the insured to believe that certain coverage was being provided. (The Court cited the seminal Tonkovic case. It also cited Pressley v. Travelers, 817 A.2d 1131 (Pa. Super. Ct. 2003), where the agent at issue had authority to bind the insurer as its agent, but apparently was the insured’s agent as well).

Thus, the court reversed the trial court’s finding that no coverage was due as a matter of law based on the policy language.

As to the bad faith claim, the finding of potential coverage undermined much of the insurer’s argument that it could not have acted in bad faith.

In addition, the court found there could be distinct claims for “claims handling conduct which occurred over a six month period before finally advising” that coverage was denied. This would need to be addressed on remand.

The Court further stated that the insured made bad faith allegations that the insurer improperly raised defenses alleging that the insured failed to cooperate and that the insured’s own actions, or that of her counsel, were the proximate cause of her own losses. The Court instructed the trial court to review these claims for bad faith on remand.

Finally, the Court remanded the bad faith claim on the insured’s argument that the insurer failed in its duty to defend the insured from the buyer’s claims for breach of the sales agreement.

Date of Decision: April 11, 2017

Michael v. Stock, No. 1229 EDA 2017, Pa. Super. LEXIS 245 (Pa. Super. Ct. Apr. 11, 2017) (Fitzgerald, Olson, Solano, JJ.)