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

THERE IS NO CAUSE OF ACTION FOR “INSTITUTIONAL BAD FAITH” (Pennsylvania Superior Court) (Non-Precedential)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In this unpublished opinion, Pennsylvania’s Superior Court addressed whether “institutional bad faith” states a private cause of action under Pennsylvania law.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)

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.

 

BAD FAITH BLOG UPGRADED FOR EASIER USE

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We have posted nearly 1,500 bad faith case summaries over the last 12 years. During October and November 2018, we significantly upgraded the Pennsylvania and New Jersey Insurance Bad Faith Case Law Blog and all of those posts, making them easier to search and read. Many hours and thousands of edits have gone into this process.

New Searchable Categories

We have added tens of new search categories, grouping cases by topic into distinct, searchable, subsets. These categories can be found on the far left of the home page, and are broken down into New Jersey (NJ) post categories, and Pennsylvania (PA) post categories.  You can click on the category to pull up the posts tagged under that category.

By way of only a few examples, we have identified case categories for: delays by insureds, claims handling delay, federal pleading adequacy and inadequacy, negligence distinguished from bad faith, removal, bifurcation (severance) and stays, who is an insurer for statutory bad faith purposes, when a finding of no duty under an insurance policy cuts off potential bad faith claims, the role state insurance statutes and regulations play in bad faith cases, and cases involving the insured’s own bad faith conduct. There are many more categories we invite you to explore.

General Searches and Opinion Links

You can also search using words you choose yourself. In the upper left of the home page, under the calendar, is a search box where users can enter search terms and get a set of posts with those terms.

We include the names of the judges making the decisions summarized in our posts so you can search posted case summaries by an individual judge’s name. We similarly include the court names in each summary’s caption so you can search by court name as well. (Our shorthand for courts names can be found here.)

We have added hundreds of links to the opinions themselves for many of the summaries that previously had no links (though we do not have an opinion link for all 1,500 posts).

Finally, some trends appear when organizing the cases by topic. Among other things, it is interesting to see where the balance falls between decisions finding claims handling reasonable or unreasonable, or between courts addressing whether bad faith can or cannot exist if there is no contractual duty to provide a benefit of indemnification or defense. And while it is not surprising that many cases originate in the uninsured/underinsured motorist context, it still leaps out that nearly 20% of our posts come from UM/UIM cases, indicating the impact this case type has in shaping bad faith law generally.

Again, we invite you to explore the site.

If you have a Pennsylvania or New Jersey bad faith judicial opinion or jury verdict of interest, please feel free to email us the case for posting. You can email us at lapplebaum@finemanlawfirm.com.

 

SEPTEMBER 2018 BAD FAITH CASES: BAD FAITH LAW DOES NOT APPLY TO CLAIM THAT INSURER TOOK EXCESSIVE PREMIUMS; BAD FAITH MUST BE PREDICATED ON CLAIM UNDER THE POLICY (Philadelphia Federal)

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The insureds alleged the insurer took excessive premiums. The court found such claims were not subject to Pennsylvania’s Bad Faith Statute since there was no denial of any benefit, a prerequisite to any bad faith claim. The court stated its legal reasoning as follows:

“Defendants argue that Plaintiffs’ claims do not arise from an insurer’s failure to pay a claim pursuant to the terms of an insurance policy, and therefore, Plaintiffs have not stated a claim for bad faith. Courts have interpreted “bad faith” to include an insurer’s conduct other than an unreasonable denial of benefits. See, e.g., Davis v. Fid. Nat. Title Ins. Co., 120 A.3d 1058, 2015 WL 7356286, at *15 (Pa. Super. 2015) (recognizing that bad faith claim can arise from a delay in making payment); O’Donnell ex rel. Mitro v. Allstate Ins. Co., 1999 PA Super 161, 734 A.2d 901, 906 (Pa. Super. Ct. 1999) (holding that an action for bad faith may also extend to the insurer’s investigative practices and misconduct during litigation).”

“However, the insured must have made a claim under the policy to state a claim for bad faith. In Toy v. Metro Life Ins. Co., the Pennsylvania Supreme Court evaluated whether the plaintiff insured stated a bad faith claim based on allegations that an insurer resorted to unfair or deceptive practices to convince the insured to purchase a policy. 593 Pa. 20, 928 A.2d 186, 199-200 (Pa. 2007). Interpreting the meaning of ‘bad faith,’ the court determined that “the term captured those actions an insurer took when called upon to perform its contractual obligations of defense and indemnification or payment of a loss that failed to satisfy the duty of good faith and fair dealing implied in the parties’ insurance contract.”

The court concluded that the legislature intended not to give relief under the bad faith statute to an insured who alleges that his insurer solicited the purchase of the policy unfairly. It cited Ash v. Cont’l Ins. Co., 593 Pa. 523, 932 A.2d 877, 882 (Pa. 2007) (“[Section 8371] applies only in limited circumstances—i.e., where the insured first has filed ‘an action arising under an insurance policy’ against his insurer.”); and Aquila v. Nationwide Mut. Ins. Co., No. CIV.A. 07-2696, 2008 U.S. Dist. LEXIS 93823, 2008 WL 4899359, at *6 (E.D. Pa. Nov. 13, 2008) (holding that a plaintiff who did not bring claim under insurance policy could not state a bad faith claim because § 8371 presupposes a claim made of the insurer) (citing Toy and Ash).

Date of Decision: August 31, 2018

Yandrisovitz v. Ohio State Life Ins. Co., U. S. District Court Eastern District of Pennsylvania No. 5:18-cv-1036, 2018 U.S. Dist. LEXIS 149673 (E.D. Pa. Aug. 31, 2018) (Leeson, J.)

JUNE 2018 BAD FAITH CASES: BERG BAD FAITH DECISION RE-CONFIRMED SIX DAYS AFTER ITS WITHDRAWAL (Pennsylvania Superior Court)

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On May 31, 2018, the Superior Court’s April 9, 2018, 2-1 decision reversing the trial court’s $21 Million award in Berg v. Nationwide was withdrawn, after the Court granted reconsideration. Just a few days later, on June 5, 2018, the Court issued another 2-1 decision along the same lines as the first decision, with the majority again vacating and directing entry of judgment for the insurer, and former Justice Stevens dissenting.

The analysis of the April 9th majority and dissent can be found here.

As noted in the Court’s May 31st Order, the plaintiffs are not precluded from seeking en banc reconsideration of the panel’s June 5th Opinion.

 

MAY 2018 BAD FAITH CASES: OPINION REVERSING $21 MILLION BAD FAITH JUDGMENT WITHDRAWN, RECONSIDERATION GRANTED, BUT ORIGINAL OPINION ON BAD FAITH RE-AFFIRMED A FEW DAYS LATER (Pennsylvania Superior Court)

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On May 31, 2018, the Superior Court’s April 9, 2018, 2-1 decision reversing the trial court’s $21 Million award in Berg v. Nationwide was withdrawn, after the Court granted reconsideration. Just a few days later, on June 5, 2018, the Court issued another 2-1 decision along the same lines as the first decision, with the majority again vacating and directing entry of judgment for the insurer, and former Justice Stevens dissenting.

The May 31st Order had stated:

IT IS HEREBY ORDERED:

THAT upon consideration of the application for reargument filed April 30, 2018, in this appeal, the Court hereby grants panel reconsideration;

THAT the decisions of this Court filed April 9, 2018, are hereby withdrawn; and

THAT the parties need not file any additional briefs.

This Order is entered without prejudice for the parties to file or refile an application for reconsideration or reargument following the filing of this Court’s reconsidered decision.

Our thanks to Daniel E. Cummins of the excellent Tort Talk Blog for bringing this Order to our attention.

 

UPDATED: PENNSYLVANIA SUPREME COURT RULES MOTIVE OF SELF-INTEREST OR ILL-WILL NOT AN ELEMENT OF STATUTORY BAD FAITH CASE (Pennsylvania Supreme Court)

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Since 2007, Pennsylvania’s Superior Court has taken the position that proving statutory bad faith includes two elements: (1) the absence of a reasonable basis to deny a benefit and (2) knowledge or reckless disregard of the fact there was no reasonable basis to deny coverage. The elements were originally stated in Terletsky v. Prudential Property & Cas. Ins. Co., 649 A.2d 680 (Pa. Super. Ct. 1994). The Terletsky Court had also discussed the concepts of a carrier’s “motive of self-interest or ill-will,” and some courts concluded this was a third element of proof. The Superior Court rejected that position in 2007, holding that self-interest or ill-will (sometimes generically referred to as malice) can be evidence used to prove the second element, but was not an element of proof in itself. However, the position that self-interest or ill-will was a required third element of proof has continued in some Pennsylvania Federal District Court opinions.

Today, in Rancosky v. Washington National Ins. Co., Pennsylvania’s Supreme Court adopted the Superior Court’s position.

The Supreme Court stated:

we adopt the two-part test articulated by the Superior Court in Terletsky v. Prudential Property & Cas. Ins. Co., 649 A.2d 680 (Pa. Super. 1994), which provides that, in order to recover in a bad faith action, the plaintiff must present clear and convincing evidence (1) that the insurer did not have a reasonable basis for denying benefits under the policy and (2) that the insurer knew of or recklessly disregarded its lack of a reasonable basis. Additionally, we hold that proof of an insurance company’s motive of self-interest or ill-will is not a prerequisite to prevailing in a bad faith claim under Section 8371, as argued by Appellant. While such evidence is probative of the second Terletsky prong, we hold that evidence of the insurer’s knowledge or recklessness as to its lack of a reasonable basis in denying policy benefits is sufficient.

The Court instructed the Superior Court to remand the action to the Trial Court for factual findings. “However, because it is unclear to what extent the trial court’s findings on the reasonable basis prong of Terletsky were intertwined with its erroneous belief that proof of Conseco’s motive of self-interest or ill-will was required, upon remand the trial court should consider both prongs of the Terletsky test anew.”

Some of the other key points in the opinion include:

  1. Punitive Damages. The Bad Faith Statute provides for attorneys’ fees, super-interest, and punitive damages. There is no higher standard of proof for plaintiffs seeking to prove bad faith with punitive damages, i.e., self-interest or ill-will do not become elements of proof where the plaintiff demands punitive damages as part of the statutory bad faith claim. The Court stated, “we find no basis for concluding that the General Assembly intended to impose a higher standard of proof for bad faith claims seeking punitive damages when it created the right of action.”

  2. No Effect of Prior Supreme Court Precedent. In footnote 10, the Court cites to three of its bad faith opinions: Toy, Birth Center and Mishoe. The Court makes clear that these “prior decisions interpreting Section 8371 do not directly control our disposition of the instant matter. Moreover, nothing we say here should be read as casting doubt on the validity of the holdings in those cases. As we have stated over the years on this blog, Toy can be interpreted to limit cognizable bad faith claims to those cases where there has been a denial of benefits in a first party case, or denial of a defense or coverage in third party cases. That issue was not addressed in Rancosky.

  3. Statutory Interpretation. The Court offers general instruction on how to apply principles of statutory construction under Pennsylvania law. In this case, the focus was on the history of bad faith law leading up to the 1990 adoption of the 42 Pa.C.S. § 8371, and the contemporaneous meanings of bad faith at the time of its adoption. The driving factor was the universal understanding that the legislation was in response to the Pennsylvania Supreme Court’s 1981 D’Ambrosio decision, and how the issue of what constitutes bad faith was framed in that case.

  4. Interesting Comments in Justice Wecht’s Concurrence. Justice Wecht’s concurrence focuses of how inclusion of ill-will/self-interest as an element would functionally swallow the Terletsky test. In describing this flaw, he makes an interesting point about the relationship between poor claims handling being tied into the denial of benefits to make out a bad faith claim: “Knowing or reckless claims-handling leading to objectively unreasonable denial of benefits, if proven by clear and convincing evidence, embodies the principle that a patent absence of good faith is tantamount to the presence of bad faith.”

    Date of Decision:  September 28, 2017

    Rancosky v. Washington National Insurance Company, Pennsylvania Supreme Court, 28 WAP 2016 (Pa. Sept. 28, 2017)