Archive for the 'PA – Litigation Conduct Claims' Category
Published on
July 29, 2021 in
PA - Claims Handling (reasonable), PA - Claims Handling (unreasonable), PA - Common Law Bad Faith (contractual or fiduciary basis), PA - Communication with insured, PA - Coverage Issues, PA - Delay (Insured), PA - Delay (Investigation/Claims handling), PA - Delay (Payment), PA - Discovery and Evidence, PA - Estimates, Valuation or Appraisal, PA - Insurer wrong, but reasonable, PA - Law unsettled, PA - Litigation Conduct Claims, PA - MVFRL, PA - Negligence not bad faith, PA - Release of bad faith claim, PA - Settlement related issues, PA - UIM/UM Cases and PA - UIPA & UCSP.
Eastern District Judge Tucker explains the similarities and differences between common law and statutory bad faith, in granting the insurer summary judgment on the statutory bad faith claim, but rejecting dismissal of the common law bad faith claims. She observes both types of bad faith are subject to the clear and convincing evidence standard. However, common law bad faith only requires proof of negligent claim handling, while statutory bad faith requires a knowingly or recklessly unreasonable claim denial.
Judge Tucker cites Judge McLaughlin’s 2007 Dewalt case as authority on the negligence standard. Judge Tucker does focus on the Cowden type of common law bad faith in discussing these standards, i.e., an insurer can avoid a common law bad faith claim for failure to settle within policy limits by showing “a bona fide belief … predicated on all the circumstances of the case, that it has a good possibility of winning the suit.” This kind of third party insurance bad faith claim was not before the court. Rather, the facts involved an underinsured motorist claim.
In an earlier decision, Judge Tucker entered judgment for the insurer on the basis the plaintiff did not qualify as an insured under the policy. The Third Circuit reversed her decision. While true the policy language did not provide the plaintiff UIM coverage, the Third Circuit found this limitation violated Pennsylvania’s Motor Vehicle Financial Responsibility Law (MVFRL).
On remand, the insured argued that the policy was issued in bad faith because it included language violating the MVFRL. Judge Tucker rejected the common law bad faith claim on this point. There was no precedent or binding authority on point before the Third Circuit’s decision, and the carrier’s position, while ultimately incorrect, was not unreasonable. “This matters because an insurer making a reasonable judgment as to coverage in a situation where the law is not clear cannot be liable for bad faith.”
This did not end the common law bad faith inquiry. Once the Third Circuit ruled, making the law applied to the policy crystal clear, this changed the measure of the insurer’s behavior, i.e., at that point the carrier knew it had an obligation to provide UIM coverage. In determining the common law bad faith claim, Judge Tucker stated:
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Conduct that postdates the start of litigation can form the basis for a proper bad faith claim.
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After the Third Circuit ruled that the Nationwide policy violated the MVFRL, Nationwide did not extend a settlement offer for ten months after the decision.
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When Nationwide did present an offer … it was for just $500,000 of the UIM benefits—in exchange for releasing the bad faith and class action claims.
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This offer was doubled a week later to $1 million, but it was contingent on a broader release of all disputes related to coverage.
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A failure to “promptly settle claims, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy” is considered an unfair insurance practice under Pennsylvania law. 40 Pa. Stat. Ann. § 1171.5(a)(10)(xiii).
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The [UIPA] also singles out a refusal to “effectuate prompt, fair and equitable settlements of claims in which the company’s liability under the policy has become reasonably clear” as a similarly unfair insurance practice.
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While a violation of the Unfair Insurance Practice Act (UIPA) does not constitute a per se violation of the bad faith statute, it does point to a material fact that could support a common law bad faith claim. [Judge Tucker observes apparently contrasting case law on this point, quoting some cases to the effect that UIPA violations are not bad faith per se, and another that “the rules of statutory construction permit a trial court to consider … the alleged conduct constituting violations of the UIPA or the regulations in determining whether an insurer, like Nationwide, acted in ‘bad faith.”]
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Again citing Dewalt, Judge Tucker states: The fact that Nationwide offered a settlement is also not a safe harbor from a bad faith claim. “Although most Pennsylvania cases finding bad faith do so in situations where an insurer refuses to settle, no case suggests that such a refusal is a pre-requisite for a bad faith claim.”
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Judge Tucker concludes that: Given the resolution of the disputed terms in the Nationwide policy by the Third Circuit, Defendant’s refusal to provide an unconditioned settlement for a claim under those terms is enough evidence that a reasonable jury could find in favor of Plaintiff on the common law bad faith claim.
Thus, the common law bad faith was allowed to proceed. The statutory bad faith claim was not.
The pre-suit conduct, i.e., drafting the policy with a clause violating the MVFRL, certainly could not be bad faith under the higher statutory standards if it did not constitute negligence under the common law standard. Plaintiff could not show by clear and convincing evidence that the policy language and the carrier’s conduct in following that language was objectively unreasonable at the time, much less in knowing or reckless disregard of some unreasonable conduct.
As to litigation conduct after the Third Circuit had ruled, the insurer pursued aggressive discovery. [This discovery was essentially the insurer’s claim handling at this point.] Judge Tucker laid out the details of the insurer’s discovery/claim handling and specific events over the course of discovery/claim handling. This included the insurer’s making a number of reasonable requests for information and the insured’s creating delays. The carrier’s zealous, and maybe at times questionable, defense tactics did not equate to bad faith.
Judge Tucker also observed that offers on the low end of a settlement range for subjective damages such as pain and suffering do not constitute clear and convincing evidence that the insurer’s action were unreasonable, knowing or reckless. These sorts of claims require investigation, and the carrier’s discovery on these issues amounted to standard claim handling.
Judge Tucker next stated that the insurer’s 10 month delay in making a settlement offer, absent other aggravating factors, was “well under periods of time that have been deemed acceptable for statutory bad faith purposes.”
Judge Tucker also found it significant that the insurer “communicated with Plaintiff during discovery, sending multiple document requests and communicating with Plaintiff’s counsel, which is arguably more responsive than the amount of communication Defendant received in response. This too weighs against whether a reasonable jury could rule that Nationwide had knowing or reckless disregard for the deficiency of its position.”
Thus, summary judgment was denied on the statutory bad faith claim.
Date of Decision: July 14, 2021
Slupski v. Nationwide Mutual Insurance Company, U. S. District Court Eastern District Pennsylvania No. CV 18-3999, 2021 WL 2948829 (E.D. Pa. July 14, 2021) (Tucker, J.)
The instant dispute involves the depositions of the claims handler and a corporate designee, as well as the scope of document discovery. The insurer made extensive objections to document requests accompanying the notices of deposition, and the any deposition of a corporate designee. These are described in detail below.
This UIM bad faith case survived an earlier motion to dismiss, and was now proceeding on the merits before Magistrate Judge Perkin. (Judge Leeson’s 2020 decision allowing the case to proceed is summarized here.)
General Discovery Principles
Magistrate Judge Perkin set out the basic principles guiding his decision:
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Rule 26 allows parties to “obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case[.]”
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“Relevance is a broad concept that encompass[es] any matter that bears on, or that reasonably could lead to other matter that could bear on, any issue that is or may be in the case.”
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“As an initial matter, therefore, all relevant material is discoverable unless an applicable evidentiary privilege is asserted. The presumption that such matter is discoverable, however, is defeasible.”
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“While the discovery rules are meant to be construed liberally, the responses sought [by a party] must comport with the traditional notions of relevancy and must not impose an undue burden on the responding party.”
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“To determine the scope of discoverable information under Rule 26(b)(1), the Court looks initially to the pleadings.”
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“In deciding which materials are discoverable and which are not, a district court must further distinguish between requests that ‘appear[ ] reasonably calculated to lead to the discovery of admissible evidence’ … and demands that are ‘overly broad and unduly burdensome.’”
Documents Requested in Connection with the Claim Handler’s Deposition
The insured did not object to the claim handler’s deposition, but did make multiple objections to the document requests accompanying the notice of deposition.
Manuals and Training Documents Subject to Limited Discovery
Plaintiff’s first request was for “[a]ny and all documents, policies, procedures, rules, regulations, manuals, training documents, or other documents or things relevant to the handling and/or evaluation of Underinsured Motorists claims during the period of 2015-2020.”
Plaintiff’s second request was for “[a] true and correct copy of the complete “Claims Manual/Claims Office Manual” or other such similar document(s) by whatever name or title used by Defendants for the handling of Underinsured Motorists benefits for the years 2015 through and including 2020.”
Plaintiff’s third request was for “[a] true and correct copy of the complete “Training Manual” or other such similar document(s) by whatever name or title used by Defendant for the purpose of training its employees in the handling of Underinsured Motorists benefits claims for the years 2015 through and including 2020.”
Plaintiff’s fourth request was for “[t]rue and correct copies of any and all claims bulletins, internal memoranda, letters, notices, or similar documents sent by management to the claims staff relating to the handling of Underinsured Motorists benefits claims for the years 2015 through and including 2020.”
The court found the first request relevant to both the breach of contract and bad faith claims, specifically ruling that manuals and other training materials are relevant to bad faith claims “where they contain instructions concerning procedures used by employees in processing claims.” Magistrate Judge Perkin added that “[t]raining materials ‘relevant to processing the claim in question’ are discoverable, as they may show, inter alia, ‘that agents of an insurance company recklessly disregarded standard interpretations of a particular contractual provision in denying coverage or deliberatively omitted certain investigatory steps.’”
However, Magistrate Judge Perkin agreed with the insurer that plaintiff’s requests were “overly broad in time, and should be limited to the period from when Defendant was first on notice of a UIM claim through the present.” First notice was when the insurer received correspondence from Plaintiff’s counsel informing Defendant of an anticipated underinsured motorist claim.
Magistrate Judge Perkin limited the geographic scope as well, “to those documents and materials governing underinsured motorist claims in Pennsylvania,” where the underlying accident occurred, where plaintiff resided, and the policy provided for UIM benefits under Pennsylvania law.
Magistrate Judge Perkin rejected the argument that the materials were trade secrets or proprietary in nature, pointing out there was no showing made to this effect but only “bare allegations that the information requested falls under this definition” which were insufficient “to protect such information from discovery.”
The court used the same analysis to address document requests 2-4.
Court Permits Discovery, with Limitations, of Claim Handling and Investigation Files
Plaintiff requested “[t]rue and correct copies of any and all letters, correspondence, documents, reports, or other records which relate to review, evaluation, and/or assessment of the causation or lack thereof of Plaintiff’s injuries following the underlying motor vehicle accident which was relied upon in the handling, assessment, investigation, and/or evaluation of Plaintiff’s UIM claim.”
Plaintiff also requested “[a]ny and all claims, notes, correspondence, records, recordings, documents, letters, phone logs, emails, or other communication writings or things pertaining to [the claim] from October 12, 2016 through present.”
Magistrate Judge Perkin observed that “an insurer, is not permitted to shield the discovery of its entire claims handling and investigation under the attorney-client privilege and work-product doctrine by hiring an attorney to perform its services. As Plaintiff noted in her brief, a bad faith claim may include “evidence of the insurer’s bad faith that occurred after the filing of the complaint.” The court reviewed the insurer’s privilege log and redacted documents, but could not determine whether the attorney-client privilege or work product doctrine actually applied. Thus, Magistrate Judge Perkin ordered the insurer to make the full documents available for in camera review, including “internal file notes regarding communications with legal counsel … ; UIM strategy and evaluation; claim handling[;] Amount of reserves and legal expenses on the UIM and Medical Payment claims[;] … Evaluation Report for Plaintiff’s UIM claim [;] … internal emails regarding receipt of this lawsuit, and assignment to legal counsel … [;] ISO Claim Search report[; and] Asset report regarding [the tortfeasor driver], for consent to settle/waiver of UIM subrogation purposes[.]”
The second request quoted above was also subject to in camera review for the same reasons. The court added that “[t]o the extent that Defendant maintains any of the requested material outside of the web-based system, it shall produce such information immediately to Plaintiff unless it is appropriately protected by a privilege.”
These were limited to the time period from the date the insurer first had notice, as described above.
The insurer also requested “[a]ny and all claim files concerning Plaintiff’s claim for underinsured motorist benefits, in paper, electronic, and/or other available format.” Magistrate Judge Perkin ruled that “[a]s with the previous two requests, this Court will conduct an in camera review to determine if Defendant properly withheld documents related to this request. Defendant is not required to perform forensic investigation into its computing devices or systems to locate information – existing prior to when Defendant’s duty to preserve evidence arose – which is no longer accessible. Similarly, Defendant does not need to produce the same ESI in more than one form. Fed. R. Civ. P. 34(b)(2)(E)(iii). If Defendant maintains any information responsive to the above request in non-electronic forms, it shall produce such information immediately to Plaintiff unless it duplicative of what has already been produced or properly protected by a privilege.” [Emphasis in original]
Insurer not Compelled to Produce Personnel Files
The insured requested “[p]ersonnel file, including applications for employment, evaluations, awards, commendations, complaints, reprimands, resumes, attendance records for the period of 2016-2018, tests, performance appraisals, documents reflecting job performance and/or employee conduct, letters of commendation, reprimands, letters of termination, personnel action notices, investigative files and reports concerning or substantially concerning [the specific] Claims Specialist, only.”
Magistrate Judge Perkin ruled “[t]he request for personnel information implicates the strong public policy against disclosure of such materials.” Thus, “[w]hile information relating to [the claim handler’s] employment and job performance may be relevant to Plaintiff’s bad faith claim, Plaintiff may learn this information through less invasive means, such as by deposition or interrogatory. … Accordingly, while Plaintiff may obtain the employment information it seeks by deposing [the claim handler], or through interrogatories, Defendant is not compelled to produce the materials relating to the above request.”
Deposition of Corporate Designee Permitted
The court observed that corporate designees are called to testify about their personal knowledge only, but also to speak for the corporation “about matters to which the corporation has reasonable access.” In this case, the insured’s bad faith claim included allegations beyond valuation, “but also claims that defendant mishandled, failed to properly investigate and evaluate the claim and otherwise acted in bad faith.” Plaintiff wanted the 30(b)(6) designee “to represent the collective knowledge of the corporation and to present its positions on certain topics [,] including … “the manner and method of how Defendant instructs, advises, directs, and incentivizes its employees to handle claims is directly related to what, if anything, the adjuster(s) did in handling this claim and why.”
Magistrate Judge Perkin refused to quash the corporate designee’s deposition, finding the insured was “entitled to depose the corporate representative and obtain an official explanation of the claims-handling policies used by” the insurer.
He did not, however, stop there. Rather, Magistrate Judge Perkin addressed objections to individual matters designated for examination and individual document requests accompanying the subpoena.
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“1st Matter for Examination: The thoughts, analysis, evaluation(s), rationale(s), investigation, actions, research, review, and reasoning of the handling adjuster’s supervisor at Defendant insurance company who personally participated in the decision to offer $6,000 on or about October 25, 2019, to resolve Plaintiff’s claim. (The term “participated” as used in this paragraph includes, without limitation, reviewed any documents, analyzed and/or discussed the matter with anyone, approved the offer of compromise or provided any information or input whatsoever into the decision).”
Magistrate Judge Perkin reserved ruling on this area of examination until after he had conducted the in camera review described above.
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“2nd Matter for Examination: The existence and content of any writings, files, procedures, claims-handling procedures, guidelines, claims manuals, or documents of any kind including any material contained in any computer which existed at any time from 2015 to the present, applicable to the handling and adjustment of Plaintiff’s claim.”
Magistrate Judge Pekin permitted this area of examination, to allow for questioning on “[t]he existence and content of any writings, files, procedures, claims-handling procedures, guidelines, claims manuals, or documents of any kind which existed from March 16, 2017 through 2020, applicable to the handling and adjustment of Plaintiff’s claim.”
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“3rd Matter for Examination: Defendant’s claims handling manuals, guidelines, or any other documents used to instruct personnel on the claims handling and/or adjustment practice used by State Farm to instruct/train/educate/direct or otherwise teach its claims adjusters to adjust first-party Underinsured Motorists (“UIM”) claims as of October 1, 2015.”
The court found this area of questioning relevant, within time and geographic limits, stating “[d]efendant’s claims handling manuals, guidelines, or any other documents used to instruct personnel on the claims handling and/or adjustment practice used by [the insurer] to instruct/train/educate/direct or otherwise teach its claims adjusters to adjust first-party Underinsured Motorists (“UIM”) claims in Pennsylvania from March 16, 2017 through 2020.”
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“4th Matter for Examination: State Farm’s policy, practice and procedure for promotion of claims representatives and/or adjusters within State Farm as of October 1, 2015 through the present.”
The court found the insurer’s “policies, practices, and procedures for promotions of claims representatives and adjusters is relevant to its claim of bad faith. To the extent that there are employee incentives to close out insureds’ claims, or handle claims in a particular manner, such information could reveal facts relevant to the motivations of the employees who handled Plaintiff’s claim.” Discovery was thus allowed, within a limited time frame.
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“5th Matter for Examination: Defendant’s training materials, practices, and procedures for claims adjusters handling UIM claims as of October 1, 2015 through the present.”
The court permitted discovery within time and geographic limits, “Defendant’s training materials, practices, and procedures for claims adjusters handling UIM claims in Pennsylvania as of March 16, 2017 through 2020.”
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“6th Matter for Examination: Defendant’s methods, policies, procedures, and practices used to calculate the value of damages in a UIM claim as of October 1, 2015 through the present.”
Again, the court permitted discovery within time and geographic limits, “Defendant’s methods, policies, procedures, and practices used to calculate the value of damages in a UIM claim in Pennsylvania as of March 16, 2017 through 2020.”
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“7th Matter for Examination: Any and all materials provided to claims adjusters handling UIM claims for the purpose of training claims adjusters and/or representatives as to calculating, evaluation, assessing, and determining value of damages as of October 1, 2015 through the present.”
Again, the court permitted discovery within time and geographic limits, “Any and all materials provided to claims adjusters handling UIM claims in Pennsylvania for the purpose of training claims adjusters and/or representatives as to calculating, evaluation, assessing, and determining value of damages as of March 16, 2017 through 2020.”
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“8th Matter for Examination: The policies and procedures for evaluating, assessing, and investigating personal injuries to an insured in a UIM claim as of October 1, 2015 through the present.”
Again, the court permitted discovery within time and geographic limits, “The policies and procedures for evaluating, assessing, and investigating personal injuries to an insured in a UIM claim in Pennsylvania as of March 16, 2017 through 2020.”
The court next addressed the document requests accompanying the corporate designee’s notice of deposition.
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“Request 1: Any and all claims manuals, reference materials, training manuals, and/or guidelines for interpretation of the relevant insurance policy.”
Following his analysis in addressing the document requests accompanying the claim handler’s notice of deposition, Magistrate Judge Perkin found the request relevant to the bad faith claim, within the limited time period. To the extent the response would be identical to the other request, however, he would not require a separate production; rather, the defendant could cross reference that earlier production to bates numbers.
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“Request 2: Any and all documents, materials, manuals, guides, claims manuals, handbooks, training materials or other items relating to the topics set forth above.”
Again following the same request to the claim handler, the documents were relevant to the bad faith claim within a limited time period, and the same process of cross-referencing to bates numbers could be followed.
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“Request 3: The personnel files of all company employees who worked on Plaintiff’s UIM claim.”
Again following the earlier analysis, the insurer was not required to produce written materials, leaving the insured to pursue that employment information through the deposition or interrogatories.
Date of Decision: January 22, 2021
SOLANO-SANCHEZ v. STATE FARM MUTUAL AUTO INSURANCE COMPANY, U.S. District Court Eastern District of Pennsylvania No. CV 19-4016, 2021 WL 229400 (E.D. Pa. Jan. 22, 2021) (Perkin, M.J.)
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.)
On April 1, 2020, Magistrate Judge Dodge denied the insurer’s motion for reconsideration. A copy of her opinion can be found here.
The court reiterates here that (1) bad faith claims must be pleaded with supporting factual allegations, (2) there is no private cause of action for UIPA or Unfair Claims Settlement Practices regulation violations, and (3) attorney’s fees are not recoverable under a breach of contract claim.
This is a UIM case for breach of contract and bad faith, as well as unfair claim settlement practices violations. The insurer moved to dismiss the bad faith claim as improperly pleaded. It moved to dismiss the unfair claim settlement count on the basis that the Unfair Insurance Practices Act (UIPA) and Unfair Claim Settlement Practices regulations do not provide for a private cause of action. Finally, the insurer moved to dismiss the attorney’s fee claims in the breach of contract count.
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Bare-bones bad faith claims dismissed without prejudice
The court dismissed the bad faith claim, without prejudice, because the insureds only pleaded conclusory bare-bones allegations. The complaint did not include any factual allegations supporting the conclusory pleadings.
These inadequate bare-bones allegations were as follows:
Delay. Even after determining that Plaintiffs had a right to the insurance proceeds claimed, the Defendant has delayed paying Plaintiffs their policy proceeds for unknown reasons.
Forcing Insured to Seek Legal Redress. By delaying payment of Plaintiffs’ claim, Defendant Progressive Corporation, knowing that it had no legal justification for doing so, purposefully forced Plaintiffs to file this Complaint in order to obtain the insurance proceeds to which they are entitled. Defendant, Progressive Corporation, forced Plaintiffs to seek legal redress for unknown reasons.
Deception. Defendant realizing that it had no legal grounds for denying or delaying payment of Plaintiffs’ claim, and/or engaged [sic] in deceptive acts relating to Plaintiffs’ policy for the purposes of creating an apparent reason for denying the Plaintiffs’ claim where no such reason existed.
False Accusations. Defendant realizing that it had no legal grounds for denying or delaying payment of Plaintiffs’ claim, made false statements to the Plaintiffs’ representatives and/or other persons for the purposes of creating an apparent reason for denying the Plaintiffs’ claim where no such reason existed.
Oppressive Demands. In the course of adjusting Plaintiffs’ claim, Defendant made oppressive demands of the Plaintiffs for the purposes of delaying payment of Plaintiffs’ claim.
The court looked to the following decisions in supporting this result: Myers, Peters, Sowinski, Moran, and Grustas.
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There is no private cause of action under the UIPA or under Pennsylvania’s Unfair Claim Settlement Practices Regulations
The insureds relied upon the Supreme Court’s 1981 D’Ambrosio decision in asserting causes of action for UIPA and Unfair Claim Settlement Practices violations. They contended the Supreme Court’s 2017 Rancosky decision superseded D’Ambrosio, and created these private causes of action. The court rejected this argument, observing that Rancosky simply observed that the 1989 bad faith statute superseded D’Ambrosio to the extent it created a new statutory bad faith cause of action years after D’Ambrosio was decided. Rancosky, however, still recognized D’Ambrosio’s holding there is no private UIPA cause of action.
The insurer “therefore did not err in relying on D’Ambrosio for the proposition that there is no private cause of action under UIPA. It remains the case that neither UIPA nor the regulations governing unfair claim settlement practices allow a plaintiff to bring a private cause of action.” The “unfair claim settlement practices claim will accordingly be dismissed with prejudice because there is no private cause of action for unfair claim settlement practices under Pennsylvania law.”
The court looked to the recent Excel and Neri cases in reaching this decision.
3. Attorney’s fees cannot be recovered under a breach of contract theory
Litigants are responsible for their own attorney’s fees and legal costs absent a statute authorizing fees, a contractual provision for fees, or some other recognized exception to the general rule. None of these circumstances applied to the insureds’ breach of contract claim. The court rejected the argument that fees were allowed because attorney’s fees may be permitted during the pendency of litigation for dilatory, obdurate, vexatious or bad faith conduct in the course of litigation. This was irrelevant as neither party filed a sanctions motion, and such behavior was not part of the actual case pleaded.
Date of Decision: December 17, 2019
Kline v. Progressive Corp., U.S. District Court Middle District of Pennsylvania Civil No. 1:19-CV-00676, 2019 U.S. Dist. LEXIS 216258 (M.D. Pa. Dec. 17, 2019) (Wilson, J.)
This UIM case involved two policies, a garage/auto policy and an umbrella policy. The crux of the issue was the insureds’ position that a UIM exclusion in the umbrella policy should not apply.
The same carrier issued both policies. After an accident in 2010, it paid $1 million under the garage policy, but nothing under the umbrella policy. (There is some discussion about the garage policy no longer providing UIM benefits at the time of the accident, though it appears the carrier did pay $1 million under this garage policy.)
The insured brought claims for negligence, fraud, breach of contract, bad faith and claims under the Unfair Trade Practices and Consumer Protection Law. The contract, bad faith, and UTPCPL claims were dismissed with prejudice on preliminary objections. Summary judgment was granted on the fraud claim, and the insured was non-suited on the negligence claim at trial.
The court found the umbrella policy’s UIM exclusion applied. As no coverage was due under the umbrella policy, there could be no bad faith in denying benefits under the policy. (There could be no UTPCPL claim because the policy was not issued to a consumer for personal, household or family use).
The court also addressed the insured’s claims of bad faith conduct during litigation. The alleged bad faith conduct during litigation consisted of the insurer filing a summary judgment motion to frighten the insured, making ethical claims against the insured’s counsel, acting in a dilatory manner by threatening a Dragonetti action, and slandering the insured’s counsel.
As stated above, the bad faith claims had been dismissed on preliminary objections, and the trial court never addressed these assertions. In upholding the trial court’s dismissal, the Superior Court noted that the summary judgment claim was partially successful, and that the trial court later dismissed all claims against the insurer.
Date of Decision: August 21, 2019
Lewis v. Erie Insurance Exchange, Superior Court of Pennsylvania No. 2115 EDA 2018, 2019 Pa. Super. Unpub. LEXIS 3209 (Pa. Super. Ct. Aug. 21, 2019) (Murray, Nichols, Shogan, JJ.)
Sometimes, lengthy litigation is described as an odyssey, warranted or not. In the Berg v. Nationwide case, the litigation has gone on as long as the times covered in both the Odyssey and the Iliad; and this most recent decision may not be the final word in its history.
In this 2-1 decision, the Superior Court reversed the trials judge’s $21 Million bad faith award against the insurer, and directed judgment for the insurer.
The essence of the majority opinion is in its final paragraph: “The trial court engaged in a limited and highly selective analysis of the facts and drew the most malignant possible inferences from the facts it chose to consider. We do not believe our appellate standard of review, circumscribed as it is, requires or even permits us to affirm the trial court’s decision in this case. This is especially so given Plaintiffs’ burden of proving their case by clear and convincing evidence.”
By contrast, the dissenting opinion begins: “Because it is not this Court’s role to usurp the fact-finding power of the trial court by its own interpretation of the factual and testimonial evidence, I respectfully dissent from the Majority’s decision to remand this matter for judgment notwithstanding the verdict.”
Court History
This case started with damage to plaintiffs’ car in September of 1996. The first step on this long road was between treating the car as a total loss vs. repairing it. The expenses at issue were $25,000 for a total loss and approximately half that for repairs. Under the insurance contract at issue, the carrier had significant control over the repair process itself. The insurer chose repairs, and the struggle begins in earnest with the beleaguered history of those repairs, and the litigation born from it.
Suit was filed in January 1998. The matter was bifurcated for trial purposes. In 2004, the first phase went to a jury, on fraud, conspiracy, and consumer protection law claims (UTPCPL). The jury found for plaintiffs on the UTPCPL claim, and awarded $1,925 against the auto repair shop and $295 against the insurer. The second trial phase was before the judge only, on the issues of treble damages, and statutory bad faith, both non-jury decisions. In 2007, the trial judge ruled for the insurer on the Bergs’ bad faith claim.
They appealed, but in 2008, the Superior Court ruled that they had waived all issues on appeal by failing to serve the trial court with a copy of their Rule 1925(b) statement. In 2010, the Supreme Court reversed that ruling and remanded to the Superior Court.
In 2012, reviewing the appeal on the merits, the Superior Court reversed and remanded the 2007 trial court decision. As discussed in our May 2012 blog posting, among other things, the Superior Court concluded that the trial court failed to consider various claims handling issues during the course of repairs and thereafter, as well as failing to consider the violation of other statutes in determining bad faith. Moreover, while the trial court would not consider the $900,000 spent to date by the carrier in defending the action, the Superior Court said this could be considered as evidence of bad faithfocusing on the concept of claims handling, and tying the amount to the claims handling.
After remand, a non-jury trial was held in 2014, and the trial judge found substantial evidence of bad faith in the carrier’s conduct, awarding $18,000,000 in punitive damages and $3,000,000 in attorneys’ fees. Again, this decision is discussed in our 2014 blog post.
On April 9, 2018, a 2-1 majority reversed that judgment, and entered judgment for the insurer. The dissenter would have affirmed. We discuss the highlights below, and commend the reader to the attached opinions for the lengthy drill-down detail the majority exercised in reaching its decision, with some of the same in the dissent.
Highlights of the 2018 Majority Opinion
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An appellate court can closely scrutinize the facts of record.
The most significant aspect of the majority opinion is its willingness to drill down into the factual record, and to put the trial judge’s factual findings and conclusions under very close analysis. The majority recognized that deference is due the trial court as trier of fact, but would not give deference where findings of fact were not supported in the record, and where conclusions about the factual record did not have the support of actual facts in the record. For the majority, hand-in-glove with the necessity for this oversight function is the heightened burden of proof in statutory bad faith cases, i.e., proof by clear and convincing evidence.
Specifically, the majority stated: “This Court will reverse a finding of bad faith where the trial court’s ‘critical factual findings are either unsupported by the record or do not rise to the level of bad faith.’” (emphasis in original). The majority added that the “[factfinder] may not be permitted to reach its verdict merely on the basis of speculation and conjecture, but there must be evidence upon which logically its conclusion may be based. Therefore, when a party who has the burden of proof relies upon circumstantial evidence and inferences reasonably deducible therefrom, such evidence, in order to prevail, must be adequate to establish the conclusion sought and must so preponderate in favor of that conclusion as to outweigh in the mind of the fact-finder any other evidence and reasonable inferences therefrom which are inconsistent therewith.”
After doing its own analysis of the same trial court findings of fact, the dissent replied that: “The majority vacates the judgment ‘because the record does not support many of the trial court’s critical findings of fact.’ …. In doing so, however, the Majority tacitly admits that other critical findings of the trial court are supported by clear and convincing evidence.” (Emphasis in original).
Again, we commend the reader to the attached majority opinion for its fact analysis, and the dissent’s analysis of the facts it concludes support affirming the trial court.
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Discovery violations do not constitute bad faith litigation conduct.
As stated by the majority: “The trial court found that Appellant hid and refused to give discoverable material to Plaintiffs, never produced photographs of the Jeep taken during the appraisal process, and refused to produce [a] report until ordered to do so during discovery. To the extent the trial court based its finding of bad faith upon discovery violations, it committed clear error. While it is true that a finding of bad faith under section 8371 may be premised upon an insurer’s conduct occurring before, during or after litigation, … we have refused to recognize that an insurer’s discovery practices constitute grounds for a bad faith claim under section 8371, absent the use of discovery to conduct an improper investigation.”
The Bad Faith statute “is designed to provide a remedy for bad faith conduct by an insurer in its capacity as an insurer for breach of its fiduciary duty to an insured by virtue of the parties’ insurance policy and not as a legal adversary in a lawsuit filed against it by an insured. Discovery violations are governed under the exclusive provisions of the Pennsylvania Rules of Civil Procedure. Nonetheless, even when considering these issues, we still find no merit to them supporting a bad faith claim under section 8371 by clear and convincing evidence.”
The majority recognized, among other things, that while there was an unwarranted refusal to produce an unredacted claims log, because the redacted material included no “smoking gun” this did not go beyond a discovery dispute subject to sanctions under rules governing discovery. Thus, it could not be used as actionable bad faith conduct subject to statutory relief under section 8371.
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There was no clear and convincing evidence of bad faith via a scorched earth policy, and the length of litigation alone is not evidence of bad faith.
The majority characterized the trial judge’s decision as improperly relying on an earlier Superior Court Opinion to establish a fact in the present case. The prior Opinion involved a ruling against the same insurer, but involved another party with a different dispute. That prior Opinion found the existence of a claim manual, in evidence in that case, material to its finding of bad faith because the manual directed bad faith practices. The Berg trial judge used that earlier Superior Court Opinion as a basis to include the same manual as part of the bad faith evidence in the Berg case.
On appeal, the Berg majority refused to permit this factual assumption about the existence of an internal manual directing bad faith coverage practices. Under the clear and convincing evidence standard, there had to be actual facts adduced in this case establishing the manual’s existence.
The majority further rejected the trial court’s using the length of the Berg litigation as evidence of bad faith. The majority had done some analysis rebutting that notion during its review of the record, and declined “further to conduct a detailed analysis of nearly two decades of highly contentious litigation and we note that the trial court did not do so in its findings. Plaintiffs had the right to prosecute their case zealously within the bounds of the law, just as Appellant had the right to defend itself if it believed its personnel did not act in bad faith. We cannot arbitrarily impose a limit on the time and resources an insurer spends in defending a bad faith action.”
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Matters, and thoughts, not of record cannot be considered.
The majority observed the trial court opinion was over 100 pages, and “devoted substantial portions … to matters not of record.” The majority was “troubled by [the] failure to limit … analysis to the facts of this case and applicable law.” The majority gave a number of examples of passages that concerned them. Excerpts of these non-record conclusions, which the majority describes as the trial court having “offered its thoughts”, concerning the insurance industry are quoted from the trial court’s opinion.
We quote just the first example of these conclusions/thoughts that the majority found to be outside the record. “[W]hat [p]laintiff, and more importantly, what lawyer in his right mind will compete with a conglomerate insurance company if the insurance company can drag the case out 18 years and is willing to spend $3 million in defense expenses to keep the policyholder from getting just compensation under the contract. Its message is 1) that it is a defense minded carrier, 2) do not mess with us if you know what is good for you, 3) you cannot run with the big dogs, 4) there is no level playing field to be had in your case, 5) you cannot afford it and what client will pay thousands of dollars to fight the battle, 6) so we can get away with anything we want to, and 7) you cannot stop us.” The majority clearly found such language out of bounds.
The majority’s conclusion.
In its conclusion, the majority states, among other things: “We disagree with the Dissent’s assertion that we are substituting our own findings for those of the trial court. Rather, our review of the extensive record in this matter convinces us that the trial court’s findings are not supported by the facts of record and our citations to the certified record belie any assertion that we have improperly substituted our findings for the trial court’s. The law permits a finding of bad faith only on clear and convincing evidence. Clear and convincing evidence is evidence that is “so clear, direct, weighty, and convincing as to enable either a judge or jury to come to a clear conviction, without hesitancy, of the truth of the precise facts in issue.’ ….The trial court’s highly selective citation to a voluminous record plainly failed to meet that standard. Respectfully, we believe the Dissent, under the guise of strict adherence to the standard of review, makes the same error.”
Date of Decision: April 9, 2018
Berg v. Nationwide Mutual Insurance Company, Pennsylvania Superior Court, No. 713 MDA 2015, 2018 Pa. Super. LEXIS 317 (Pa. Super. Ct. April 9, 2018) (Stabile and Ott, JJ., with Stevens, J., dissenting)
The parties entered a high/low settlement agreement during the course of a jury trial, i.e., if the insured won he could get up to $300,000, but no less than $100,000 if he lost. The jury awarded $1.6 Million, but that sum was molded to $300,000. The agreement released all bad faith claims existing up to the date of the agreement, but did not release post-agreement bad faith claims.
The insurer relied upon two experts’ reports and testimony before the jury. The insured later brought a bad faith action based upon the insurer’s use of its expert reports and testimony during the trial process and after the date of the high/low agreement. He alleged that the insurer acted in bad faith by introducing and relying upon the biased testimony of its experts; by “failing to make an honest, intelligent settlement offer”; and by “seeking to have the bad faith claim dismissed with prejudice.”
The Third Circuit observed that bad faith is based upon the frivolous or unfounded refusal to pay proceeds under a policy, under a two criteria test: (1) that it was unreasonable to deny benefits; and (2) that the insurer knew or recklessly disregarded the absence of a reasonable basis to deny benefits. The big issue addressed at the District Court level was how to evaluate litigation conduct under the Bad Faith Statute. The Third Circuit found it did not have to reach that issue because the complaint’s allegations (including expert reports and depositions as exhibits) did “not identify any misconduct, much less bad faith” conduct.
It was alleged contradictions in the experts’ testimony that formed the basis of the bad faith claim. The Court found no inconsistencies in the first expert’s report and testimony, and found that the report was more limited in scope than the insured asserted. Similarly, the Court found no contradictions in the second expert’s report. Thus, “[b]ecause the statements made by [the medical experts] are not contradictory, [the insurer’s] introduction of and reliance on their testimony cannot rise to the level of bad faith, even under [insured’s] suggested legal standard.”
And again, after noting the absence of Pennsylvania Supreme Court precedent on when litigation conduct could be subject to the Bad Faith Statute — though it had been addressed to some degree in the Superior Court and the Third Circuit — the Court stated that it “need not reach this question because the facts alleged clearly do not amount to knowing presentation of biased expert testimony.”
Date of Decision: February 27, 2018
Homer v. Nationwide Mutual Insurance Co., U. S. Court of Appeals Third Circuit No. 16-3686, 2018 U.S. App. LEXIS 4859 (3d Cir. Feb. 27, 2018) (Fishman, Hardiman, Roth, JJ.)
As to the particulars, this case involved title insurance. The insured believed she purchased two parcels, but the deed and title insurance policy only set out the legal description for one parcel. When she attempted to sell the properties years after her initial purchase, the potential buyer withdrew from the agreement and sued for damages because she had promised to convey both properties, but could not. She brought a third party action against the title insurer.
The Court found that the error in describing only one parcel in the original deed was in no way the insured’s fault. The insured alleged “that she … entered into a contract under which [the insurer] agreed to provide ‘real estate transactional services’ — including title searches and the drafting and filing of a deed — for her purchase of the property, and to issue a policy insuring title to the property.” The insured alleged that the title insurer was liable to her because the erroneous description on the deed and “in the Policy resulted from [the insurer’s] failure to conduct a proper title search and to provide a policy covering all of 4 Mill Street and the entire premises covered by her Agreement of Sale.”
In terms of insurance coverage, the Court looked at case law on reasonable expectations and estoppel. It cited numerous cases where mistakes in property descriptions could not be used to avoid coverage.
It also looked to general case law on reasonable expectations, where the insurer could not evade the consequences of promises or conduct of its own agents in leading the insured to believe that certain coverage was being provided. (The Court cited the seminal Tonkovic case. It also cited Pressley v. Travelers, 817 A.2d 1131 (Pa. Super. Ct. 2003), where the agent at issue had authority to bind the insurer as its agent, but apparently was the insured’s agent as well).
Thus, the court reversed the trial court’s finding that no coverage was due as a matter of law based on the policy language.
As to the bad faith claim, the finding of potential coverage undermined much of the insurer’s argument that it could not have acted in bad faith.
In addition, the court found there could be distinct claims for “claims handling conduct which occurred over a six month period before finally advising” that coverage was denied. This would need to be addressed on remand.
The Court further stated that the insured made bad faith allegations that the insurer improperly raised defenses alleging that the insured failed to cooperate and that the insured’s own actions, or that of her counsel, were the proximate cause of her own losses. The Court instructed the trial court to review these claims for bad faith on remand.
Finally, the Court remanded the bad faith claim on the insured’s argument that the insurer failed in its duty to defend the insured from the buyer’s claims for breach of the sales agreement.
Date of Decision: April 11, 2017
Michael v. Stock, No. 1229 EDA 2017, Pa. Super. LEXIS 245 (Pa. Super. Ct. Apr. 11, 2017) (Fitzgerald, Olson, Solano, JJ.)
The insured, as an administrator of the estate of his son, filed suit against the insurer. His son was injured by a drunk driver, and later died of an accidental heroin overdose. The father alleged that the injuries suffered in the accident led his son into a downward spiral, eventually resulting in the son’s death.
Initially, the insured settled for the $10,000 limit of his medical payments coverage, and submitted a claim for underinsured motorist (“UIM”) coverage. The insurer set reserves at $30,000. During the lengthy claim process, the insured sought to settle for the $400,000 policy limit, relying on his son’s history of medical treatment, and the effect of the accident on the insured’s mental and physical health. The insurer never made a settlement offer.
The court went through the detailed history of the claim process in its 77 page opinion, reciting the back and forth between the insured’s counsel and the insurer’s agents and various counsel, identifying gaps in insurance activity, among other things, and identifying questions concerning communications among the insurer’s agents and counsel. The court also considered the conduct of the litigation at hand when eventually evaluating the bad faith claims.
The matter did not resolve, and the insured brought breach of contract and bad faith claims. The insurer asserted an affirmative defense that the claims were barred because the son intentionally misrepresented or concealed material facts concerning his illegal drug use during the claim investigation.
The insured filed for summary judgement on its breach of contract claim and bad faith claims. The insurer filed a cross motion for summary judgment: claiming the son violated the policy’s fraud provision, failure to cooperate, heroin use should bar recovery as a matter of public policy, death was not proximately caused by the accident, and the record did not reach the clear and convincing evidence standard on bad faith.
In addressing the insurer’s claim that the son violated the concealment or fraud provision, the court stated that “in the context of an insurer’s post-loss investigation, the materiality requirement is satisfied if the false statement concerns a subject relevant and germane to the insurer’s investigation as it was then proceeding.”
However, even though the son misrepresented his drug use and criminal record, at the time of the misrepresentations drug use was not part of the UIM claim. Thus, it “could not have been germane to the investigation as it was then proceeding.”
The court also rejected the duty to cooperate argument, and that heroin use should bar recovery as a matter of public policy. Additionally, the court held proximate cause was an issue for trial.
In addressing the insured’s bad faith claims, the court relied on Terletsky, and the current state of the law that self-interest and ill-will are not elements of the claim (a matter now pending before Pennsylvania’s Supreme Court). Under the applicable standards, genuine issues of fact existed precluding summary judgment for either side, which the court went through seriatim.
Among other issues, the fact-finder had to determine the reasonableness of the insurer’s refraining from making a settlement offer, and whether there was an intent to delay the claim process. In addition, there was an issue concerning the level of investigation of the son’s living situation in relation to the insured father as to whether the policy extended to the son, and the propriety of the carrier’s determining he was not covered.
Further, there was an issue as to whether simply mailing a copy of the policy to the insured’s attorney qualified as meeting the carrier’s obligation to inform the insured about available coverage under a policy. The court also left open the possibility that the insurer’s pursuing the concealment and fraud defense was unreasonable and done in bad faith.
Moreover, the court discussed the investigation conduct of the insurer’s attorneys and agents in the claim handling process, including both conduct toward the insured and his attorney, and communications internally among each other.
Date of Decision: September 28, 2016
Paul v. State Farm Mut. Auto. Ins. Co., No. CV 14-1382, 2016 U.S. Dist. LEXIS 133699 (W.D. Pa. Sept. 28, 2016) (Conti, J.)
