Archive for the 'PA – Experts' 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.)

NO BAD FAITH: (1) LOW BUT REASONABLE SETTLEMENT OFFER; (2) FAILURE TO PAY FULL RESERVES NOT BAD FAITH; (3) ADDITIONAL INVESTIGATION WOULD NOT HAVE CHANGED RESULT; (4) INSURED DELAYED CLAIMS HANDLING (Western District)

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In this UIM bad faith case, the court set out a detailed claims handling history. It shows an active claims handler, conflicting expert reports, and what appears to be a genuine dispute over the scope of the insured’s injury. The central discrepancy is between permanent disability vs. no medical record of serious injury.

The court granted summary judgment on bad faith, finding the insured could not meet the clear and convincing evidence standard. It specifically addressed four issues in reaching this conclusion.

  1. Was the Settlement Offer Unreasonably Low?

The insured claimed losses in excess of $2,000,000. The UIM insurer offered $25,000. As the tortfeasor’s carrier paid $100,000, this meant the UIM carrier valued the claim at $125,000.

The court set out the relevant law. Low but reasonable offers are not bad faith, but “low-ball offers which bear no reasonable relationship to an insured’s actual losses can constitute bad faith….” A carrier can reasonably rely on expert opinion when investigating claims. In this context, insurers “can rely on IMEs of qualified health professionals who examine claimants in a usual and customary manner.”

First, the court found the claims handler’s well documented file showed an IME was warranted. Next, the court examined the claims handler’s review of the insured’s economic expert’s report of over a $2,000,000. The court found that multiple medical reports provided the claims handler with a reasonable basis to question the economic expert’s critical assumption of permanent disabled. “Thus, with no other evidence to establish [the insured’s] economic losses other than [the economic expert’s] report that assumes total disability, no reasonable juror could find bad faith by clear and convincing evidence from [the] $25,000 settlement offer to [the insured].”

  1. Reserves

Reserves were set at $55,000. The insured asserted the insurer should have offered the $55,000, rather than $25,000. The court stated that an insurance company must set reserves aside when placed on notice of a possible loss arising under its policy. “However, the failure of a carrier to offer its full settlement authority does not constitute bad faith.” In the present case, “because the Court finds no sufficient evidence of bad faith as to the $25,000 settlement offer, there is likewise no bad faith in [the insurer’s] reserve for this UIM claim.”

  1. Adequacy of Investigation

To prove bad faith investigation, the insured “must show that the outcome of the case would have been different if the insurer had done what the insured wanted done.” The putative investigative failures here would not have changed the result.

Thus, even if the claims handler had reviewed the economic loss reports with her own economic experts, sought medical authorizations, or spoken to treating physicians or the tortfeasor’s lawyer, this additional investigation would not have altered the IME opinions that there was no permanent injury, and that any injuries had resolved. These IMEs provided a reasonable basis to contest value. “Therefore, [the insured] cannot meet his burden to show that a reasonable juror could find by clear and convincing evidence that [the insurer] would have evaluated [the] claim differently had it conducted an earlier or different investigation as argued by plaintiff’s counsel.”

  1. Unnecessary Delay in Investigation

“In order for an insured to recover for bad faith from delay, an insured must demonstrate that ‘the delay is attributable to the defendant, that the defendant had no reasonable basis for the actions it undertook which resulted in the delay, and that the defendant knew or recklessly disregarded the fact that it had no reasonable basis to deny payment.’”

The court first observed that much of the delay in this matter was caused by the insured. There were delays in providing information and producing documents to the insurer. The insured also changed his damage theory during the claims handling process, which led to insurer to require additional evaluations. Thus, “no reasonable juror could conclude by clear and convincing evidence that [the insurer] acted in bad faith in the timeline of its investigation….”

Date of Decision: February 19, 2020

Stewart v. GEICO Insurance, U.S. District Court Western District of Pennsylvania 2:18-CV-00791-MJH, 2020 U.S. Dist. LEXIS 28459 (W.D. Pa. Feb. 19, 2020) (Horan, J.)

Our thanks to Attorney Dan Cummins of the excellent Tort Talk Blog for bringing this case to our attention.

 

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.)

 

FAILURES TO COMMUNICATE WITH THE INSURED UNDERMINE INSURER’S SUMMARY JUDGMENT EFFORTS; INSURER MUST SHOW ACTUAL DISAGREEMENT OVER VALUE OCCURRED (Western District)

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The court denied the insurer’s motion for summary judgment on plaintiff’s UIM bad faith. Key issues were the insurer’s having failed to adduce evidence explaining the basis for its denial, and not sufficiently adducing facts contrary to the claims handling allegations in the insured’s complaint. The carrier focused on the fact that the insured did not take discovery, but this was not as detrimental to plaintiff’s case as the insurer believed.

The insured received $50,000 from the tortfeasor’s carrier, and had $250,000 in UIM coverage under his own policy. The complaint alleged detailed facts supporting the position that the insured was highly cooperative in producing information, both independently and upon the insurer’s request. Moreover, the insured submitted to an examination under oath and an independent medical examination, and follow up requests after both.

The claim/investigation process went on for eight months, with the insured’s counsel repeatedly making policy limits demands, with no counteroffer. Ultimately, the insurer offered no payment of any kind to the insured.

During the claim/investigation process, the insured filed a writ of summons. The insurer ultimately responded with a rule to file a complaint, and after the complaint was filed it removed the action to federal court. [Note: Among the various legal principles governing bad faith claims the court recites, is “[t]he Third Circuit has also recognized that ‘using litigation in a bad faith effort to evade a duty owed under a policy [is] actionable under [Pennsylvania’s bad faith statute].’” The court did not amplify on that principle in this case.]

The court observed the carrier did not develop a factual record refuting the detailed claims handling history in the complaint. Thus, “[w]hether the undisputed facts in the Complaint are sufficient for Plaintiff to prove by clear and convincing evidence that [the insurer] acted in bad faith is for the jury to determine.” Further, there was no evidence in the record as to how, or if, the insurer provided the basis for its claim denial to the insured. At most, the rule to file a complaint functioned as the notice of denial; but even then, the insurer never gave the insured “any information about the basis for its decision.”

The insurer did include a copy of its medical expert’s reports in moving for summary judgment. These reports concluded that the insured “required no further care, treatment or limitations as a result of his motor vehicle accident.” On the other hand, the court found that the insured had apparently produced his own medical expert report during the litigation, opining that significant medical issues resulted in a “no work” restriction.

The court stated: “It may well be that [the insurer] relied upon the results of the independent medical examination or other valid grounds, but the record does not reflect that [this] report was supplied to Plaintiff or that [the insurer] relied on this report in denying Plaintiff’s claim.”

Generally, the court accepted that there might a been a reasonable basis for evaluating the claim for eight months and then denying it, but that reasoning was not disclosed in the record. The insurer attempted to frame the issue as merely a disagreement over value (apparently $250,000+ on the insured’s end and $0 on the insurer’s end).

However, “to prevail on its motion on the ground that the parties had a legitimate value disagreement, it is [the insurer’s] burden, [1] initially, to point to evidence illustrating not only that there was indeed a disagreement over the value of Plaintiff’s claim (as opposed to an outright denial), but [2] also that [the insurer] communicated that disagreement to Plaintiff, for example, by making a counter-offer. [The insurer] has not done so.”

In sum, “[b]ecause there are genuine issues of material fact regarding Plaintiff’s bad faith claim based upon the current state of the record, [the insurer] is not entitled to judgment as matter of law.”

Date of Decision: February 10, 2020

Baldridge v. Geico Insurance Co., U.S. District Court Western District of Pennsylvania, Civil Action No. 18-1407, 2020 U.S. Dist. LEXIS 22311 (W.D. Pa. Feb. 10, 2020) (Dodge, M.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.)

BAD FAITH EXPERT PERMITTED TO TESTIFY, WITHIN CERTAIN LIMITATIONS (Western District)

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The court permitted plaintiff’s insurance bad faith expert to testify, within certain limitations as to what may be discussed or disclosed.

The case involved a first party property loss, arising out of fire damage to a commercial greenhouse sterilization system (the “ozone system”). The insured alleged the carrier (1) “wrongly denied coverage to replace the entire ozone system; (2) … wrongly denied coverage for crops that were damaged by ozone exposure caused by a mechanical breakdown of the ozone system; and (3) [the insured] was forced out of business as a result of the Defendant’s conduct.” The insured sued for breach of contract and bad faith.

The insured sought to use three experts, including a bad faith expert. The bad faith expert was an attorney and had over 20 years of experience as a claim adjuster. He was proffered “as a bad faith expert to offer opinions regarding: (1) insurance industry standards and practices; (2) Defendant’s handling of the insurance claim at issue; (3) Defendant’s compliance with insurance statutes and regulations; and (4) the interpretation of Defendant’s policy issued to Plaintiff.”

The insurer brought a Daubert motion to preclude the bad faith expert’s proposed testimony. The carrier argued that the expert attorney’s legal conclusions would not help a jury, and that at a minimum the expert “be precluded from testifying as to: (1) whether or not the Defendant violated statutes or regulations; and (2) the interpretation of Plaintiff’s insurance policy.”

The court observed “that the admissibility of expert testimony hinges on a ‘trilogy of restrictions’: qualification, reliability, and fit.” The testimony here hinged on fit. Federal Rule 702 the “expert testimony must ‘help the trier of fact to understand the evidence or to determine a fact in issue.’” “The standard for fit is ‘not that high,’ although it is ‘higher than bare relevance.’” The insurer argued that the bad faith expert’s “testimony does not ‘fit’ the claim at issue: bad faith is a legal concept of general application,  which does not require scientific, technical, or specialized knowledge to be presented to assist the jury.”

The Court thought otherwise. It found, with certain limitations, that the bad faith expert’s testimony would “assist the jury in determining what constitutes reasonable conduct when handling an insurance claim. In the Court’s estimation, [the expert’s] twenty-six (26) years of experience as a claims adjuster will be quintessentially helpful in providing the jury with guideposts as to what constitutes reasonable adjusting and claims handling conduct and will be substantially more useful than asking the jury to in essence ‘wing it’ as to reasonableness in this out-of-the-ordinary situation.”

This expert was “permitted to testify as to best practices in handling insurance claims of the type involved here. [He] may not discuss his legal training or experience. And he is not permitted to testify as to whether or not the Defendant violated statutes or regulations (but he is not barred from testifying as to what constitutes best practices regarding the handling of insurance claims, even if the genesis of such practices are statutes or regulations, which he cannot talk about).”

Date of Decision: January 27, 2020

Three Rivers Hydroponics, LLC v. Florists’ Mutual Insurance Co., U. S. District Court Western District of Pennsylvania No. 2:15-cv-809, 2020 U.S. Dist. LEXIS 12644 (W.D. Pa. Jan. 27, 2020) (Hornak, J.)

THERE IS NO CAUSE OF ACTION FOR “INSTITUTIONAL BAD FAITH” (Pennsylvania Superior Court) (Non-Precedential)

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In this unpublished opinion, Pennsylvania’s Superior Court addressed whether “institutional bad faith” states a private cause of action under Pennsylvania law. Much like yesterday’s post, the Superior Court emphasized that Pennsylvania bad faith law requires focusing on the case and parties at hand, and not the insurer’s conduct toward other parties or its alleged universal practices. The court also addressed other issues concerning statutory bad faith and Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (UTPCPL), among other matters. In this post, we only address all the bad faith and  UTPCPL claims against the insurer.

Factual Background and Trial Court Rulings

The case begins with a home remodeler’s attempt to destroy a bee’s nest in one small section of a house. This unfortunate effort only caused larger problems, contaminating and damaging the house. The chain of misfortune continued when remediation efforts led to more damage, with the home allegedly becoming uninhabitable. At a minimum, all sides agreed some level of reconstruction work was now needed.

The homeowners’ insurer engaged a contractor to fix the original problem. The homeowners eventually challenged the quality of that contractor’s work, which they contended added to the damage. They eventually refused to allow that contractor on site, and unilaterally hired a second contractor to take over. Both the insured and insurer retained their own engineers, who disagreed on the scope of the damage and reconstruction work required.

The second contractor was owned by the insured husband’s parents. The husband himself was the second company’s project manager on the job. The trial court stated that the husband agreed with the position that he “negotiated an oral contract on behalf of … himself and his wife… with himself, as project manager of and on behalf of [the second contractor]” for the reconstruction work. The insurer and first contractor disputed the necessity and cost of the work carried out by the second contractor, as well as other costs.

The trial court ruled for the insurer on breach of warranty, emotional distress, UTPCPL, and bad faith claims, but in favor of the insureds on their breach of contract claim.

There is no Cause of Action in Pennsylvania for Institutional Bad Faith

The insureds argued that institutional bad faith could be the basis for asserting statutory bad faith. Under this theory, a claim can be based solely on an insurer’s policies, practices, and procedures as applied universally to all insureds. The present plaintiffs wanted to introduce evidence to support such institutionalized bad faith conduct. Both the trial and appellate courts rejected this theory.

The Superior Court emphasized that a bad faith action is limited to “the company’s conduct toward the insured asserting the claim.” Thus, “’bad faith claims are fact specific and depend on the conduct of the insurer vis-à-vis the insured.’” The Superior Court agreed with the trial court “that there is no separate cause of action of institutional bad faith.” It stated, that the bad faith statute “authorizes specified actions by the trial court ‘if the court finds that the insurer has acted in bad faith toward the insured . . . ,’ not to the world at large.” (Court’s emphasis).

The Insurer did not Act in Bad Faith

  1. The policy and procedure manual/guideline arguments failed on the merits.

The Superior Court ruled that the trial court’s findings did not result in a refusal to consider evidence relating to the insurer’s conduct and practices. In fact, the insurer’s manuals, guidelines, and procedures were admitted as evidence, all of which were considered by the trial court. This evidence, however, was not considered as part of an institutional bad faith case. Rather, it was only relevant to determining if the insurer acted in bad faith toward the specific plaintiff-insureds, and not to the universe of all insureds.

In deciding the bad faith issue, when the trial court was presented with evidence of the insurer’s policies and procedures, it “did not find them to be improper when applied to the [insureds’] claim, although not a separate claim concerning ‘institutional bad faith.’” (Court’s emphasis) Thus, the actual plaintiffs could not make out a case for themselves on this evidence because they “failed to establish a nexus between [the insurer’s] business policies and the specific claims … asserted in support of bad faith.”

  1. The insureds could not meet the clear and convincing evidence standard.

The trial court found the insurer had not acted in bad faith on other facts of record, and the Superior Court found no abuse of discretion in this ruling. Both courts emphasized the insured’s burden of proof is clear and convincing evidence. Thus, the trial court stated, “[i]cannot be reasonably said, given the facts and evidence adduced at trial, that [the insurer] lacked a reasonable basis for denying benefits and/or that [it] knew or recklessly disregarded its lack of a reasonable basis to deny benefits…. Mere negligence or bad judgment in failing to pay a claim does not constitute bad faith. An insurer may always aggressively investigate and protect its interests. Particularly in light of the higher burden of proof, specifically the requirement that [insureds] must prove a bad faith claim by ‘clear and convincing’ evidence, the record in this case does not support the assertion of statutory bad faith….”

Specifically, the court focused on alleged (i) failures to pay engineering fees, (ii) delays in hiring engineers, (iii) unduly restricting the engineer’s ability to opine, and (iv) instructions that the first contractor and its engineer disregard building codes.

The insurer adduced evidence that (i) it paid engineering fees, (ii) its original decision not to hire an engineer was done based on information provided by the first contractor and a building code officer, (iii) it did agree to hire an engineer once the insureds provided their list of concerns, and (iv) the engineer opined the home was not uninhabitable. The insurer also put on evidence that its adjuster never told the first contractor to ignore the building code, but rather expected the contractor to comply with existing code requirements.

On these facts, the Superior Court found that the trial court did not abuse its discretion in finding the insureds failed to meet the clear and convincing evidence standard.

The UTPCPL does not Apply to Claim Handling

Both the trial court and Superior Court concluded that the UTPCPL does not apply to insurer claim handling cases.

Date of Decision: January 14, 2020

Wenk v. State Farm Fire & Cas. Co., Superior Court of Pennsylvania No. 1284 WDA 2018, No. 1287 WDA 2018, No. 1288 WDA 2018, 2020 Pa. Super. Unpub. LEXIS 178 (Pa. Super. Ct. Jan. 14, 2020) (Lazarus, Olson, Shogan, JJ.) (non-precedential)

The January 14, 2020 decision was not a final disposition, and a subsequent opinion was filed on February 7, 2020, attached here, which appears to be identical to the January 14, 2020 opinion.

Our thanks to Daniel Cummins of the excellent Tort Talk blog for brining this case to our attention.

THIRD CIRCUIT FINDS: (1) EXPERT PROPERLY EXCLUDED FROM TESTIFYING ABOUT OTHER CASES; (2) REPORT NEVER PROVIDED TO INSURER DURING CLAIM HANDLING CANNOT BE CONSIDERED DURING BAD FAITH CASE; (3) INSURED WAS FULLY ABLE TO PRESENT CLAIM HANDLING EVIDENCE THROUGH HERSELF AND ADJUSTER; (4) USING HAND GESTURES IN JURY INSTRUCTION ON CLEAR AND CONVINCING EVIDENCE NOT AN ERROR (Third Circuit – Pennsylvania Law)

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This is a post-verdict appeal after the jury found for the insurer in a UIM bad faith case. The insured challenged various pre-trial evidentiary rulings from the District Court Judge, and one of the judge’s jury instructions.

Before trial, the insurer moved to preclude plaintiff’s expert report and testimony, medical evidence that was not provided to the insurer during the UIM claim’s pendency, evidence of mental suffering and emotional distress, and evidence concerning non-recoverable damages. The insured also challenged the trial judge’s use of hand gestures during jury instructions to explain the clear and convincing evidence standard.

  1. Decision to Exclude Expert Upheld

The Third Circuit agreed there was no abuse of discretion by the trial judge in not holding a Daubert hearing. There was a sufficient record on the papers, making a hearing unnecessary. Further, the insured failed to explain how a hearing would have benefitted her or the court.

Next, the appellate court found no abuse of discretion in the trial court’s decision barring the expert’s testimony. Plaintiff wanted her expert to testify “for the very limited purpose of establishing a range of value for [her] underlying UIM claim.” However, this involved looking at other cases not before the court. The District Judge found that “’what other cases have paid is not relevant to this case, [and] what the value of this case is’ and [] the jury ‘will be instructed to use their common sense’ in compensating [the insured] should she prevail.”

The Third Circuit found no abuse of discretion in the District Court’s determination that the proposed expert testimony would not aid the jury, which had to rely on the facts in the case before it to determine bad faith.

  1. Medical Report Never Given to Insurer During Claim Handling Inadmissible

The insured wanted to introduce a medical report as evidence, addressing the extent of her injury and damages. However, she never provided that report to the insurer during the claim process. The Third Circuit found no abuse of discretion in the District Court excluding this evidence. “Because [the insurer] was not in possession of the report when it was evaluating [the] claim, it could not have considered the report’s findings when making its settlement offers. Therefore, the report had no relevance to the issue of whether [the insurer] acted in bad faith. Accordingly, we see no abuse of discretion in the District Court’s decision to exclude the report.”

  1. The Insured was Able to Present the Value of Her Case through Her Own Testimony and that of the Claim Adjuster

The insured argued the trial judge’s rulings prevented her from putting on a full case from which the jury could evaluate her claim. The Third Circuit found no abuse of discretion. Rather, the insured was able to put on her case directly through her own testimony, and to examine the claim adjuster at length on the relevant issues as to how the adjuster evaluated the claim.

  1. The District Judge’s Use of Hand Gestures to Explain the Clear and Convincing Evidence Standard was not an Error

The insured challenged the jury charge on the applicable burden of proof because the judge used “hand gestures demonstrating [the insured’s] burden in the ‘clear and convincing’ standard as a point midway between proof by preponderance of the evidence and proof beyond a reasonable doubt.” The Third Circuit found no plain error here that would merit relief for the insured.

“The District Court instructed the jury that clear and convincing evidence ‘means that the evidence is so clear, direct, substantial that you are convinced without hesitation that a fact is true.’ Language used by the District Court was substantially similar to language we have previously approved of. While [the insured] takes issue with the District Court’s use of ‘hand gestures’ during the jury charge, there is no reason to believe that those ‘hand gestures’ confused or in any way distracted the jury from the District Court’s correct instruction on clear and convincing evidence. Therefore, we find no error, much less plain error.”

In sum, the Third Circuit affirmed the District Court’s decisions.

Date of Decision: January 8, 2020

Antonio v. Progressive Insurance Co., U.S. Court of Appeals for the Third Circuit No. 19-1074, 2020 U.S. App. LEXIS 455 (3d Cir. Jan. 8, 2020) (Fuentes, Scirica, Shwartz, JJ.)

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.

DISAGREEMENT WITH AN EXPERT’S CONCLUSIONS, STANDING ALONE, IS NOT BAD FAITH (Philadelphia Federal)

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The insured claimed lost wages resulting from an auto accident that reduced his ability to work full time. The insurer’s examining physician concluded the insured could work full time. The insurer denied the claim.

The insured brought suit. The insurer moved to dismiss all claims. The court analyzed each of the potential claims in the complaint, including a bad faith claim.

The court observed the two elements of statutory bad faith, i.e., a knowing or reckless decision to unreasonably deny benefits. The court also apparently included a showing of self-interest or ill will as a third element. [Per the Pennsylvania Supreme Court’s 2017 Rancosky decision, however, a showing of self-interest or ill will may be evidence of the second bad faith element, but is not itself a third required element.]

The court found that the insured failed to set out a bad faith claim. The complaint alleged “the insurer relied on the findings of its own medical professional that [the insured] was able to return to work full time. While [the insured] might disagree with the doctor’s assessment, that does not mean his insurer acted without a reasonable basis when it denied [the] work loss benefits. Accordingly, the facts plead in the Complaint, without more, fail to show [the] insurer acted in bad faith when it denied his claim.”

The claims were dismissed without prejudice, with leave to amend.

Date of Decision: December 9, 2019

Elansari v. Liberty Mutual Insurance Co., U. S. District Court Eastern District of Pennsylvania Case No. 2:19-cv-03404-JDW, 2019 U.S. Dist. LEXIS 211369, 2019 WL 6698209 (E.D. Pa. Dec. 9, 2019) (Wolson, J.)