Archive for the 'PA – General Bad Faith and Litigation Issues' Category

How has Covid-19 affected the number of bad faith opinions issued?

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From April through August 2020, we’ve posted 51 times on the Bad Faith Blog. Subtracting four posts during that time focusing solely on covid-19 issues without mentioning bad faith, there are 47 posts over this five month period.  During the same five month time-period in 2019, we had 49 posts.  In 2018 it was 54 posts, and in 2017 it was 55 posts.  In short, as of yet, we have not seen a significant decline in opinion writing on bad faith insurance claims during the Covid-19 pandemic.

We also note that the Pennsylvania and New Jersey Insurance Bad Faith Case Law Blog reached 1,700 posts this month, since our first post in June 2006.

THE BERG ODYSSEY HAS ENDED

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After 24 years, 22 in litigation, it appears Berg v. Nationwide finally reached an end yesterday when the Supreme Court, in a split decision, dismissed plaintiffs’ appeal.  To quote:

“PER CURIAM

AND NOW, this 25th day of August, 2020, the Court being divided in a fashion which prevents a majority disposition, the appeal is DISMISSED. The application to file a post-argument submission is DISMISSED as moot.

Justice Donohue did not participate in the consideration or decision of this matter.”

A copy of the Supreme Court’s Per Curiam Order can be found here.

Justice Wecht wrote a 60-page opinion in favor of reversal, a copy of which can be found here.  Justice Saylor wrote a 24-page opinion in favor of affirmance, a copy of which can be found here.

A summary of the Superior Court’s 2018 decision is posted here, and amendment thereto is posted here.  These are now the final rulings in this case.

A summary of Judge Sprecher’s 2014 trial court decision awarding $21,000,000, reversed by the Superior Court in its now final decision, can be found here.

Judge Sprecher’s ruling followed an earlier 2012 Superior Court decision in Berg (44 A.3d 1164), summarized here. This 2012 opinion has proven influential. A quick search shows it being cited over 70 times by courts, and tens of times in secondary materials.  The 2012 Berg opinion was authored by then Superior Court Judge Donohue, who, as Justice Donahue, did not participate in this Supreme Court decision dismissing the appeal.

If you want to get an overview on the law of removal and remand in bad faith cases, this is the case for you.

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Eastern District Judge Marston reviews three lines of U.S. Supreme Court and Third Circuit precedent in determining when, and whether, the burden of proof in establishing the jurisdictional minimum for removal purposes is “legal certainty” versus “preponderance of the evidence.”  She concludes that in cases where the insured specifically pleads compensatory damages are less than $50,000, a “legal certainty” test still applies until the Third Circuit says otherwise. This is so even if the plaintiff additionally demands punitive damages, attorney’s fees and super-interest under the bad faith statute.

In this context, a removing defendant’s allegation that punitive damages and attorneys’ fees could result in overall damages exceeding $75,000, fails to meet the legal certainty test.

[Comment: The upshot appears to be that if a plaintiff specifically alleges compensatory damages will not exceed $75,000 (typically not to exceed $50,000 in Pennsylvania state pleadings), even while additionally seeking statutory punitive damages and attorney’s fees, removal is not going to be possible.  Under Rule 11, the removing party would have difficulty averring to a certainty that punitive damages and attorney’s fees will be awarded to a legal certainty, and will use qualifying language such as “court be awarded” or “if awarded”.  Moreover, it is unlikely a defendant insurer will want to establish legal certainty by making a detailed argument against itself as to why it should be encumbered with punitive damages for its own reckless or intentional conduct.

Among the questions that arise: Why is a bad faith claim for punitive damages any less a legal certainty than a contested claim for compensatory damages? Put another way, doesn’t a contested claim for punitive damages or attorney’s fees have as much reality as a contested claim for compensatory damages?

Bad faith claims only allow for three types of damages: super-interest, punitive damages, and attorney’s fees.  There is no statutory bad faith claim for compensatory or incidental damages. Thus, to even plead a bad faith claim meeting Rule 11 standards, the plaintiff must believe that punitive damages, attorney’s fees, or super-interest are warranted, as this is the only possible form of relief provided under section 8371.

Just as a plaintiff believes and pleads it is entitled to $49,312.25 in compensatory damages — and this number is treated as an undisputed fact for jurisdictional purposes even if a defendant insurer completely rejects that sum — so too must the plaintiff believe that it is entitled to punitive damages, attorney’s fees and/or super-interest in bringing the bad faith claim.  Yet this distinct damage claim, under a separate legal theory, may come to be treated as a nullity for purposes of calculating the jurisdictional minimum.

One possibility here could be the potential damages available under section 8371 are discretionary and not mandatory. Thus, it might be that the trier of fact may not award any of these damages at the end of the day, or may make a minimal award.  It also might be the case, however, that the trier of fact will find at the end of the day that the same plaintiff’s compensatory damage claim is meritless or only a fraction of the sum requested. Yet, that number as pleaded is treated as truth.]

The Facts of the Case

Plaintiffs brought breach of contract and bad faith claims in this water damage case.  Their contract claim’s ad damnum clause sought “judgment against Defendant in an amount not in excess of $50,000 together with interest and court costs.” In the bad faith count’s ad damnum clause, Plaintiffs requested “statutory damages including interest…, court costs, attorneys’ fees, punitive damages, and such other compensatory and/or consequential damages as are permitted by law.”

The carrier removed the case from Philadelphia’s Court of Common Pleas to federal court, and Plaintiffs moved to remand.  The District Court remanded.

The court observed “’[i]t is now settled in this Court that the party asserting federal jurisdiction in a removal case bears the burden of showing, at all stages of the litigation, that the case is properly before the federal court.’”  As set out above, the issue was whether the court should set the burden at “legal certainty” or “preponderance of the evidence.”  After doing a lengthy and detailed historical analysis of each strand of case law, the court concluded that, in a case such as this where the insured specifically pleaded the compensatory damage claims were less than $50,000, the “legal certainty” test applied.

The court observed it could aggregate the demands against a single defendant in determining jurisdiction. Further, punitive damages could be considered, so long as the estimates were realistic, with all doubts construed in favor of remand.  Such an analysis must be objective and not “pie-in-the-sky”.

The compensatory damages were a little over $24,000. The insurer argued that it was “not unreasonable to expect that a punitive damage award three or four times the amount in controversy, or beyond, could be rendered by the trier of fact.” It suggested, however, that the court should apply a 2-1 ratio ($48,000) and a measure of attorney’s fees at $30,000, as that “would not be unreasonable to expect that [fee sum] over the course of an approximate ten-month litigation…” This would place the claim at over $100,000, sufficient for jurisdiction.  The court rejected the argument.

The court looked at earlier case law finding such arguments failed to reach the level of “legal certainty.” In those cases, the qualifying language presented the fatal flaw, e.g., “claims for punitive damages and attorney fees, amongst other relief…could exceed $75,000.”; “it is ‘certainly possible for the damages to meet or exceed the jurisdictional limit of $75,000.’” A “suggestion of possible future events,” however, is not enough.

In one case relied upon to support remand, the compensatory damages were $11,000 and the punitive damages needed to be six times that amount to obtain jurisdiction. The court remanded for two reasons: (1) there was no certainty the plaintiff would “recover punitive damages at all, as she has not alleged any particular facts suggesting bad faith on the part of [the insurance company], other than her assertion that she was entitled to benefits but has not received them.”; (2) the carrier “supplied no basis for the Court to find that [the plaintiff] will recover the necessary amount of punitive damages.”

[Comment: This analysis implies a number of considerations, akin to the comment above. In determining remand, the court is looking to the merits of the plaintiff’s case in evaluating whether defendant met its burden.  The court basically determined on a motion to remand that the plaintiff’s bad faith claim, as pleaded, could not withstand a federal motion to dismiss.  The court then put the burden on the defendant to make the case against itself as to why punitive damages should be awarded against it.]

Judge Marston found the instant case akin to these earlier cases. In the present case, the carrier only alleged “that it is not ‘unreasonable’ to find that punitive damages ‘could’ amount to three or four times the amount in controversy, and that it would ‘not be unreasonable’ to find that attorney’s fees ‘could’ approach $30,000.This did not “satisfy [the defendant’s] burden by pointing to the mere possibility that the [insureds] ‘could’ be awarded punitive damages and attorney’s fees above the amount in controversy threshold.” “Moreover … [the insureds] are ‘not certain to recover punitive damages at all,’ because the complaint does not allege ‘any particular facts suggesting bad faith on the part of [the insurance company], other than [the] assertion that [they were] entitled to benefits but ha[ve] not received them.’”

The court held: “Without more, we cannot find that [the insurer] has carried its burden of showing to a legal certainty that the amount in controversy exceeds $75,000, and we must remand the case. However, if on remand, [the insurer] uncovers new evidence which shows that the amount in controversy exceeds $75,000, it may again seek removal to this Court.”

Date of Decision:  August 4, 2020

Sciarrino v. State Farm Fire and Casualty Company, U.S. District Court Eastern District of Pennsylvania No. 2:20-CV-2930-KSM, 2020 WL 4470611 (E.D. Pa. Aug. 4, 2020) (Marston, J.)

BAD FAITH BLOG REACHES 14TH ANNIVERSARY

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The Pennsylvania and New Jersey Insurance Bad Faith Case Law Blog is celebrating its 14th anniversary.

We’ve posted nearly 1,700 case summaries since June of 2006, with hundreds of thousands of views.  We have taken a matter of fact approach, with our focus on presenting judges’ opinions as explained by the judges themselves, only occasionally with editorial comment.

Our view is that seeing and understanding what the courts are actually saying is vital not only for attorneys pursuing or defending bad faith actions, but essential for parties to understand how the courts will interpret their conduct.  This allows, e.g., for insurers to get a handle on the parameters of good faith claim management in Pennsylvania and New Jersey to avoid bad faith claims before they arise. It also provides an understanding to insureds that bad faith will not be measured solely from an insured’s viewpoint, which may be subject to the frustration, fear or anger naturally arising from a loss or being sued, but objectively from the totality of the circumstances, including the insurer’s perspective as well as the insured’s.

We certainly expect to see bad faith case law developing around Covid-19 coverage claims in the coming months and next few years, and will be reporting on those cases as they arise.

But most of all, we wish safety and good health for all of you.

Fineman, Krekstein & Harris

 

 

Courts Use of Telephones and Videoconferencing to Reduce Risk from the Covid-19 Virus

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The Business Courts Blog has provided an updated list of Courts across the United States directing or encouraging the use of remote teleconferencing and videoconferencing in lieu of appearing in-person for conferences and hearings, to limit health risks.  You can find that post here.

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.

BAD FAITH BLOG REACHES 1,600 POST MILESTONE

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It has been over thirteen years since we started the Pennsylvania and New Jersey Insurance Bad Faith Case Law Blog.  This week we uploaded our 1600th post.

We believe that persistence in posting summaries of current opinions as they are issued has been a useful addition to the Pennsylvania and New Jersey insurance coverage and bad faith universe.

Though we often see repeat issues in bad faith decisions forming clear patterns over time, there is occasionally that new twist, or application of law to a new set of facts, that keeps things fresh. And for those not regularly living in the bad faith universe, discovering patterns in a daunting sea of bad faith case law may be quite a relief when trying to navigate a wise course.

We have set out tens of categories on the left hand side of our home page to easily organize cases by topic with a single click. You can also use the search box under the calendar, in the upper left side of the home page, to collate your own set of case summaries by search terms of interest.  For example, we list each judge and court issuing an opinion. The search function can organize summaries by judge or court, as well as by substantive or procedural search terms.

We have not noticed any significant change in the number of bad faith opinions issued each year.  For example, we posted on 122 days between October 16, 2018 and October 16, 2019, with multiple posts on a few of those days.  From October 16, 2017 through October 16, 2018, we posted on 124 days, again with a few multiple postings on individual days. From October 16, 2016 through October 16, 2017 we posted on 134 days.

That being said, in recent years we have posted more summaries of Pennsylvania Superior Court non-precedential decisions.

If you have a bad faith opinion from Pennsylvania or New Jersey you think would fit with this Blog, please feel free to email a copy to lapplebaum@finemanlawfirm.com, and we will certainly give you credit for alerting us to the case.

 

PENNSYLVANIA AND NEW JERSEY BAD FAITH CASE LAW BLOG LISTED AMONG TOP INSURANCE LAW BLOGS

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In Feedspot’s recent list of “Top 50 Insurance Law Blogs, News Websites and Newsletters To Follow in 2019”, the Pennsylvania and New Jersey Insurance Bad Faith Case Law Blog was listed number 4.  This list included “the Best Insurance Law Blogs from thousands of Insurance Law blogs on the web using search and social metrics.”

“SWEEPING” CONCLUSORY ALLEGATIONS CANNOT SUPPORT A BAD FAITH CLAIM (Middle District)

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This case involved the issue of whether the insureds resided at a property when a fire loss occurred. The insurer denied coverage, concluding they did not, and that certain misrepresentations were made by the insureds in connection with the fire loss claim. The insureds sued for breach of contract and bad faith.

In their complaint, the insureds asserted “that the property was in fact occupied at the time of the fire as the Plaintiffs were making ongoing and continuous repairs and renovations to the dwelling.” Judge Caputo agreed with the insurer that because “Plaintiffs allege not that they resided at the property, but only that they ‘occupied’ the property at the time of the loss as a result of ‘ongoing and continuous repairs and renovations to the dwelling’ … that Plaintiffs have failed to state a breach of contract claim.”

As to the bad faith claim, Plaintiffs allegations were conclusory and they offered no “factual averments supporting these sweeping allegations of bad faith.” The conclusory, sweeping, allegations included:

“(1) Defendant has ‘undertaken this course of action and unilaterally, without justification, deprived Plaintiffs of their rightful payment for damages to their property [] . . . all in the financial interest of [the insurer] and in disregard of the interest of their insureds . . .’”

“(2) Defendant’s ‘actions constitute a pattern in practice, not only in this claim, but in the handling of other claims in which totally unfair and unethical negotiation and settlement tactics are not only employed but encouraged by Defendant . . .’” and

“(3) Defendant ‘has acted with obvious bad faith and/or reckless disregard to the rights of their insured in failing to pay the Plaintiffs’ claim pursuant to the terms and conditions of the above mentioned homeowners insurance policy.’”

Judge Caputo did give the plaintiffs leave to file an amended complaint as to both the breach of contract and bad faith claims.

Date of Decision: May 2, 2019

Bloxham v. Allstate Insurance Co., U. S. District Court Middle District of Pennsylvania NO. 3:19-CV-0481, 2019 U.S. Dist. LEXIS 74139 (M.D. Pa. May 2, 2019) (Caputo, J.)

BAD FAITH BLOG NOMINATED FOR BEST NICHE BLOG AWARD

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The Pennsylvania and New Jersey Insurance Bad Faith Case Law Blog Has Been Nominated for The Expert Institute’s Best Legal Blog Contest, in the Niche and Specialty Blog category.

From a field of hundreds of potential nominees, our blog has received enough nominations to join the one of the largest competitions for legal blog writing online today.

Please consider voting for us. If you choose to vote for our blog, you can go to this voting page.

The competition will run from November 5th until the close of voting at 12:00 AM on December 17th, at which point the votes will be tallied and the winners announced.