Archive for the 'PA – Coverage Issues' Category

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

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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.)

TWO EASTERN DISTRICT CASES ON INADEQUATE PLEADINGS - (1) BARE-BONES CLAIM WITH NO FACTUAL SUPPORT DISMISSED EVEN THOUGH CONTRACT CLAIM PROCEEDS; (2) COMPLAINT DEVOID OF FACTUAL SPECIFICITY CANNOT STAND

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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.)

 

WHERE POLICY DOES NOT COVER CLAIM, INSURER HAS A REASONABLE BASIS TO DENY BENEFITS AS A MATTER OF LAW (Philadelphia Federal)

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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.)

UIM JURY VERDICT NOT RELEVANT TO BAD FAITH CASE BECAUSE IT OCCURRED AFTER THE INSURER HAD COMPLETED ITS CLAIM EVALUATION (Philadelphia Federal)

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In this UIM bad faith case, the insureds demanded UIM policy limits which the insurer did not pay. The insureds took their case to trial, and the jury verdict far exceeded policy limits. The insureds pursued a claim for bad faith, arguing among other things that the jury verdict could be used as evidence of bad faith.

The court disagreed. Bad faith can only be determined based on the insurer’s conduct in evaluating the claim when it was submitted and on “the information available to the insurer during the claims processing”. The jury verdict was rendered after the insurer had done its claim evaluation. Thus, the jury verdict was not relevant to bad faith.

The central legal issue in the case was whether the insureds had executed some version of an enforceable UIM policy limit sign down, below their liability coverage. The court’s detailed analysis revealed that the insured’s application, which would otherwise have effected an enforceable sign down, was ineffective because it made that decision contingent on another required form that was only signed over one month later. The accident at issue occurred during the interim. The court found that there was no effective sign down, and the UIM limits defaulted to the liability limits, a difference between $300,000 and $750,000.

The insureds claimed that asking them to sign the second document constituted bad faith. The insurer consistently took the position that the second document was not necessary to succeed on the sign down argument; rather, the application controlled and the second document was basically redundant.

Magistrate Judge Rice disagreed with the carrier’s position on the application as stated above, but still found no bad faith:

“Nor does the failure to have [the insured] sign the UIM coverage selection form until [one month after the application] constitute bad faith. [The insurer] consistently maintained that the … application established the UIM policy limit, and the [insureds] had access to all relevant documents at all times. My post-trial disagreement with that determination fails to establish … bad faith.”

Date of Decision: February 18, 2020

Gibson v. State Farm Fire & Cas. Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 18-4919, 2020 U.S. Dist. LEXIS 27531 (E.D. Pa. Feb. 18, 2020) (Rice, M.J.)

INSURER’S RELIANCE ON ADVICE OF COUNSEL, AMONG MANY OTHER FACTORS FAVORING THE INSURER, DEFEATS BAD FAITH CLAIM (Philadelphia Federal)

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This case involves a head-spinning array of factual discrepancies between the insured’s claims to the carrier and the results of the insurer’s investigation. These range from whether the insured actually owned the property to whether the structure at issue collapsed from a sudden event or collapsed because of (uncovered) faulty construction. We leave you to the court’s lengthy and detailed narrative concerning these discrepancies, and the various coverage issues invoked by their presence. Of particular interest here is that in addition to involving an adjuster, SIU adjuster, supervisor and engineering expert, the insurer also puts its outside counsel’s coverage opinion on the record.  

The insured brought a bad faith claim, and the insurer moved for summary judgment after making a detailed record.  The insurer asserted various bases for why it was entitled to summary judgment. In granting summary judgment, the court stated that, at a minimum, there was a reasonable basis to deny coverage:

“The record indicates that [the insurer] conducted a thorough investigation of the claim and ultimately decided that coverage should be denied. Indeed, [a] property adjuster and an SIU adjuster inspected Plaintiff’s loss; the claim was reviewed by [a] supervisor; [the insurer] took the recorded statement of Plaintiff and reviewed relevant property documentation from the City of Philadelphia; [the insurer] obtained the services of a structural engineer; and [the insurer] then sent the structural engineer’s report, which opined on the cause of the loss, to independent legal counsel for an opinion on the coverage. Finally, relying upon independent legal counsel’s conclusion that coverage did not exist for Plaintiff’s loss, [the insurer] denied Plaintiff’s insurance claim. It cannot be said that [the insurer]’s investigation and decision-making process was ‘frivolous or unfounded,’ as required under Pennsylvania law to succeed on a bad faith claim.”

The court added, “the factual record is devoid of any ‘clear, direct, weighty and convincing’ evidence that would allow a factfinder to find ‘without hesitation’ that [the insurer] acted in bad faith in investigating and ultimately denying Plaintiff’s insurance claim.”

Moreover, even if the insured could make a case for unreasonableness, “the record is devoid of any evidence that [the insurer] either knew it had an unreasonable basis for denying coverage or recklessly disregarded its lack of a reasonable basis in denying Plaintiff’s claim or in the manner in which it investigated Plaintiff’s claimed loss.” The record shows the contrary. The insurer not only engaged a structural engineer, but also independent legal counsel to analyze coverage. It then “relied on the independent findings of both the expert and legal counsel in its ultimate decision to deny” the claim.

Date of Decision: February 14, 2020

Nguyen v. Allstate Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 18-5019, 2020 U.S. Dist. LEXIS 25789 (E.D. Pa. Feb. 14, 2020) (Kenney, J.)

 

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

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

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

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

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

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

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

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

Date of Decision: January 31, 2020

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

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

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

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

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

Thus, summary judgment was granted on all counts.

Date of Decision: January 30, 2020

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

BAD FAITH CLAIM CAN PROCEED TO TRIAL WHERE RECORD SHOWED A POTENTIAL BASIS FOR COVERAGE, EVEN THOUGH INSURER BELIEVED THAT BASIS WAS ONLY PUT FORWARD IN AN ATTEMPT TO EVADE A WAIVER (Middle District)

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In this bad faith case, one type of injury was specifically not covered under a disability policy, pursuant to a waiver, but other forms of injury might be covered. The insurer denied the claim on the basis that the uncovered injury was the only injury that could have caused the disability at issue. The insured two types of injury were at issue, and brought breach of contract and bad faith claims.

The insured moved for summary judgment on the bad faith claim.

Middle District Judge James Munley found the record showed evidence of both uncovered and covered injuries. The insurer argued that the covered injury type was merely put forward as a make weight to avoid the true, uncovered, injury being the only basis for the disability claim.

As this was a summary judgment motion, the court could not disregard record evidence of either injury. Taking the evidence in the non-movant’s favor, the court found that (1) because the insurer reviewed the record before denying coverage and (2) the record included a covered claim as well as an uncovered claim, then (3) “these facts may show that [the insurer] knew it lacked a reasonable basis for denying the plaintiff’s disability insurance claim, or it recklessly disregarded its lack of a reasonable basis for doing so.”

“Therefore, plaintiff has sufficient evidence, which if credited by the jury, would support his bad faith claim making summary judgment for the defendant inappropriate here.”

Date of Decision: January 13, 2020

Dileo v. Federated Life Ins. Co., U. S. District Court Middle District of Pennsylvania No. 3:18cv628, 2020 U.S. Dist. LEXIS 5003 (M.D. Pa. Jan. 13, 2020) (Munley, J.)

COMMON PLEAS JUDGE FINDS BAD FAITH FOR (1) RELYING ON UNWARRANTED RED FLAGS; (2) REACHING COVERAGE CONCLUSIONS UNSUPPORTED BY ACTUAL FACTS; (3) UNREASONABLE INTERPRETATION OF POLICY’S COVERAGE LANGUAGE; (4) DRAWING UNWARRANTED CONCLUSIONS FROM EXPERT REPORT; (5) FAILING TO INVESTIGATE FULLY; (6) VIOLATING UIPA (Common Pleas Lehigh)

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Today’s post summarizes Lehigh County Judge Melissa Pavlack’s Findings of Fact and Conclusions of Law in this breach of contract and bad faith case.

The Court’s Factual Findings

The insureds’ car was stolen. It was recovered, but with considerable damage. The insureds’ license plate was replaced with a stolen plate. The court found that the thieves never intended to return the vehicle. The insureds sought coverage based on the theft and vandalism, relying on policy language covering theft, larceny, vandalism, and malicious mischief.

The court found the insureds were not involved in any way with the theft or vandalism, nor was there any fraud on their part. The car was deemed a total loss, and valued at around $13,000. There were additional costs for hauling and storage, bringing the total claim to approximately $17,000.

The insurer denied the claim, citing insufficient evidence the car had been stolen. It refused to consider a separate vandalism claim because the damages arose out of an alleged theft. Thus, the insurer did not investigate the vandalism claim, and the denial letter never addressed the vandalism claim’s merits. The insurer never cited any policy exclusions applying to the vandalism claims. There was also no denial based on fraud.

The insurer’s investigation included a claim’s adjuster and supervisor, a fraud investigator, an appraiser, an appraisal report, an investigator and three investigator reports, an examination under oath over the telephone and in person, document requests, and a site visit to the loss location. At trial, the adjuster could not recall which of the insured’s statements under oath led to the claim denial.

The investigator reported to the carrier that one of the insureds was uncooperative because she did not bring unredacted tax returns and cell phone records to her examination under oath. Relying on this alleged lack of cooperation, the claims supervisor wrote to the insured that she had failed to cooperate by not bringing these tax returns and records, and failed to cooperate with the insurer’s investigation. However, the investigator was not aware that another of the insurer’s representatives had actually instructed the insured to bring redacted copies of the tax returns to the examination under oath, which she did.

As to other document issues allegedly evidencing a failure to cooperate, it was made clear during the examination under oath that the insured was a medical professional. She could not simply produce her phone records without violating HIPAA. She attempted to cooperate during the examination under oath by showing some messages in her phone from the days in question; but the adjuster was also concerned about HIPAA, and was hesitant to proceed with looking at her phone. Further, the court found the insured could not respond to the insurer’s request for the car purchase documents because these had been stolen from the glove compartment.

Moreover, in contrast to assertions that the insureds failed to cooperate, the court found that the insurer’s fraud investigator conceded the insureds had cooperated, and had provided documents requested in the manner requested.

As to the allegation there was insufficient evidence of theft, the insurer relied upon its expert report. The expert opined there was no forced entry, and that the car only could have been moved using a key. The court found (1) the insurance policy did not require forced entry as a condition precedent to establish theft, and (2) the car could be moved without a key. Further, the insurer’s fraud investigator testified that cars can be stolen without noticeable signs of forced entry, and there was other testimony to the same effect. The court also found that the fraud investigator never communicated with the claim adjuster that forced entry was not required to steal a car.

In sum, the court found these conclusions (forced entry and use of a key) were not reasonable bases to deny the very existence of a theft.

Most significantly, the expert only opined the car was not stolen by means of forced entry, and that a key had to have been used. Whether or not these conclusions were correct was irrelevant in the court’s view, because the expert never opined the car was not stolen. Thus, it was an error to make the leap that the car was not stolen, as it could have been stolen by some means other than forced entry, or could have been moved without a key.

There was Coverage for Theft, Vandalism, and Malicious Mischief

In addressing the breach of contract claim, the court looked at the policy’s plain language. The policy expressly covered theft, larceny, vandalism, and malicious mischief. There were no applicable exclusions in this case, so the court only had to interpret the coverage language.

The court looked at the dictionary definition of these terms, rather than any criminal statutes or case law defining vandalism, theft, etc. It concluded the facts of the case fell within these coverage terms, and the insureds claims were covered. As to bad faith, it was unreasonable to conclude the facts at hand did not fall within the policy’s plain and unambiguous language. Further, the court found the insurer’s conduct unreasonable in failing to consider coverage for vandalism and malicious mischief when denying the claims.

Court uses Unfair Insurance Practices Act and Unfair Claim Settlement Practices Regulations as Standards

The court cited (1) Unfair Claim Settlement Practice regulations (UCSP), 31 Pa. Code § 146.4, on obligations to fully disclose coverages and benefits; and (2) the Unfair Insurance Practices Act (UIPA), 40 Pa.S.A. § 1171.5(a)(10)(iv), on failing to reasonably explain a claim denial.

The court cited these UCSP and UIPA provisions in the context of the first bad faith prong, lack of a reasonable basis to deny benefits. The court then observed the insurer had completely failed to consider the vandalism and malicious mischief claims covered under the policy. This supported the existence of bad faith, though it is not wholly clear whether the UCSP and UIPA violations were evidence of bad faith conduct, or were bad faith per se.

[We have previously posted on how courts treat alleged violations of UCSP regulations and the UIPA in bad faith cases, ranging from (1) their being completely outside the scope of consideration in determining bad faith, (2) as constituting potential evidence of bad faith, or (3) as amounting to statutory bad faith. It is not quite clear in the present case which of the latter two standards applied. Even without citing the UCSP or UIPA, however, it would seem the court’s finding that the insurer gave no regard to plainly covered vandalism claims was a basis for bad faith, regardless of any UCSP or UIPA violations.]

Erroneous Red Flags

The insurer justified its conduct by identifying certain “red flags” that caused legitimate doubt in the insureds veracity. When scrutinized, however, the court found these red flags were based on factual errors or erroneous assumptions.

  1. The insured was deemed uncooperative for failing to attend a unilaterally scheduled examination under oath. In fact, however, the court found the insured gave sufficient notice she could not attend on that date, and cooperated in rescheduling the examination under oath on another date, at which she appeared. She also had agreed to, and participated in, an examination over the phone.

As to the original date for the in-person examination, the court observed that the insurer knew in advance the insured was not going to appear on the first scheduled date, but still had its representatives appear to make a record against the insured for failing to appear.

  1. The insurer also asserted the insured was uncooperative because she provided redacted tax returns. As stated above, the insurer’s own representative had informed the insured in writing that certain redactions could be made. Further, when the insurer later requested an unredacted return, the insureds provided it.

  2. As to the alleged lack of cooperation on cell phone records, this was fully addressed during the examination under oath. As stated above, the insured was a medical professional and there were certain items on her phone records that could not be produced under HIPAA. That being said, she still offered to let the insurer’s representative look at her cell phone during the examination under oath, regarding non-HIPAA messages from the date the car was stolen. The adjuster was concerned about violating HIPAA, and was hesitant to do so.

  3. The insurer also deemed it a red flag that the loss came shortly after the policy’s purchase. This turned out to be an error. The court found the policy was purchased at least six months earlier. Another suspicion surrounded alleged excessive mileage on the car, which the court found was likewise not factually the case.

Failure to Fully Investigate the Red Flags

The court observed that while the insurer took the insured’s examination under oath, and conducted various investigations based on these alleged red flags, it failed to contact the police. Nor did the insurer follow up on evidence that drugs reportedly were found in the glove compartment. Though not expressly stated in the conclusions of law, this implies that the presence of drugs, under all the facts, favored the idea that strangers had stolen the car for nefarious purposes.

The Insurer Relied on its Expert Report for the Wrong Conclusion

For the court, the coverage issue concerning the insurer’s expert was simple: Was the car stolen? The issue was not: How was the car stolen?

The expert opined on two means by which the car was not stolen. The court found the expert never opined, however, that the car was not stolen. Moreover, the insurer never argued that the insureds faked a theft or lied about it.

The court pointed out that other means could have been used to steal the car, including non-intrusive and non-mechanical means. For example, after the car was recovered it was towed twice. The court found this demonstrated the car could be moved without forced entry and/or without a key.

Thus, the insurer’s reliance on the expert report to deny the fundamental existence of theft was unreasonable. The court found relying on the expert report to reach a conclusion (no theft) on which the report did not render an opinion, amounted to a knowing or reckless unreasonable denial of benefits, i.e. bad faith.

After finding bad faith on all the foregoing grounds, the court stated it would schedule a hearing on attorney’s fees, interest, and punitive damages.

Date of Decision: December 27, 2019

Unterberg v. Mercury Insurance Company of Florida, Court of Common Pleas of Lehigh County Case No. 2016-C-806 (Dec. 27, 2019) (Pavlack, J.)

Thanks to Daniel Cummins of the excellent and extremely useful Tort Talk Blog for bringing this case to our attention.

NO BAD FAITH WHERE EXCLUSION APPLIES AND NO COVERAGE DUE (Western District)

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Plaintiff loaned her car to her boyfriend. Unknown to her, the boyfriend’s license was suspended. He got into an accident, and the carrier denied coverage based on an exclusion for drivers with suspended licenses. Plaintiff sued for bad faith and breach of contract. The parties filed cross motions for summary judgment. The court granted the insurer’s motion.

The dispute centered on the policy exclusion. The court analyzed the exclusion in detail based on the policy language and facts of the case, finding the exclusion applied. The court rejected the insured’s piecemeal policy reading as contrary to governing standards requiring the policy to be viewed “in its entirety, giving effect to all of its provisions,” with the policy’s words “construed in their natural, plain, and ordinary sense”.

Thus, the insured’s “attempts to read ambiguity into [policy] sections where none exist [] cannot demonstrate bad faith or breach of contract as a matter of law.”

Date of Decision: December 20, 2019

Lewandowski v. Nationwide Mutual Insurance Co., U.S. District Court Western District of Pennsylvania Civil Action No. 18-1441, 2019 U.S. Dist. LEXIS 218713, 2019 WL 7037587 (W.D. Pa. Dec. 20, 2019) (Bissoon, J.)