Archive for the 'PA – Litigation Conduct Claims' Category

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

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

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

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

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

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

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

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

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

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

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

Date of Decision: February 10, 2020

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

On April 1, 2020, Magistrate Judge Dodge denied the insurer’s motion for reconsideration. A copy of her opinion can be found here.

BAD FAITH NOT ADEQUATELY PLEADED; NO PRIVATE ACTION FOR UIPA VIOLATIONS; ATTORNEY’S FEES NOT AVAILABLE FOR BREACH OF CONTRACT CLAIM (Middle District)

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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.

  1. 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.

  1. 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.)

PENNSYLVANIA SUPERIOR COURT FINDS NO BAD FAITH WHERE NO BREACH OF CONTRACT (Pennsylvania Superior Court) (Not Precedential)

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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.)

APRIL 2018 BAD FAITH CASES: $21 MILLION BAD FAITH JUDGMENT REVERSED BECAUSE 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” (Pennsylvania Superior Court)

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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

  1. 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.

  1. 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.

  1. 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.”

  1. 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)

An order granting reconsideration and withdrawing this opinion was entered on May 31, 2018, and new opinions were issued on June 5, 2018 along the same lines, consistent with the foregoing majority and dissent.

 

MARCH 2018 BAD FAITH CASES: THIRD CIRCUIT DID NOT HAVE TO REACH ISSUE OF WHAT LITIGATION CONDUCT COULD CONSTITUTE BAD FAITH, BECAUSE CONDUCT AT ISSUE WAS NOT BAD FAITH CONDUCT IN THE FIRST INSTANCE (Third Circuit, Pennsylvania law)

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The insured alleged bad faith based on the insurer’s introduction and reliance on allegedly biased expert testimony in this underinsured motorist case. The District Court had dismissed the claim, after an extensive analysis on when litigation conduct might constitute bad faith. The Third Circuit affirmed, but without addressing that issue.

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.)

APRIL 2017 BAD FAITH CASES: NO ACTIONABLE BAD FAITH CLAIM FOR NORMAL LITIGATION CONDUCT (Centre County Common Pleas)

APRIL 2017 BAD FAITH CASES: ON REMAND TRIAL COURT MUST REVIEW POTENTIAL BAD FAITH CLAIMS FOR: (1) DENIAL OF COVERAGE, (2) INDEPENDENT CLAIMS HANDLING ALLEGATIONS, (3) PLEADING DEFENSES IN BAD FAITH, AND (4) DENIAL OF DUTY TO DEFEND (Pennsylvania Superior Court)

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In this case, among other things, the Superior Court stated the principle that statutory bad faith can exist independently of the insurer’s denying a benefit under the policy. The Court relied upon its earlier decisions in Condio (2006) and Nealy (1997). It did not address what effect, if any, that the Supreme Court’s 2007 decision in Toy v. Metropolitan Life Insurance Company had on those opinions, or to what extent Toy might limit the scope of cognizable claims for statutory bad faith to denial of benefits or conduct that is intertwined with a denial of benefits.

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.)

MARCH 2017 BAD FAITH CASES: COURT DENIES CARRIER SUMMARY JUDGMENT ON VOIDING POLICY FOR FRAUD, AND DENIES BOTH PARTIES’ MOTIONS ON BAD FAITH CLAIM BECAUSE NUMEROUS ISSUES REMAINED OPEN FOR FACT-FINDERS, INCLUDING LITIGATION CONDUCT CLAIMS (Western District)

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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.)

 

JANUAY 2017 BAD FAITH CASES: INSURER’S LITIGATION CONDUCT CAN ONLY PROVIDE BASIS FOR BAD FAITH CLAIM WHERE CONDUCT IS EXTRAORDINARY OR EGREGIOUS – WHICH DID NOT OCCUR IN THIS CASE (Western District).

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The court predicted, and held, that evidence of litigation conduct is admissible as evidence of bad faith only “in the rare cases involving extraordinary facts.”

The insured was injured in a motor vehicle accident. There were underinsured policy limits of $500,000, which the insured demanded. The carrier rejected the policy limits demand, and the case went to trial. During trial, the parties signed a “Binding High-Low Settlement Agreement” that contained a provision dismissing all claims for bad faith occurring “prior to” the execution of the Agreement, but preserving all claims for bad faith occurring “after the date” of the Agreement’s execution.

On the same day the parties executed the Agreement, during trial, the insurer introduced videotaped testimony of two medical experts. During closing arguments, the insurer referenced their testimony. The jury returned a verdict in favor of the insured. The insurer filed a motion to mold the verdict to the “high” set forth in the Agreement, and further sought to dismiss the insured’s bad faith claim “as of” the date of the Agreement. The insured argued that, pursuant to the Agreement, only claims for bad faith occurring “prior to” the date of the Agreement should be dismissed. The trial court ruled for the insured.

The insured filed a separate lawsuit, alleging that the insurer acted in bad faith when it introduced the videotaped deposition of the medical experts, whom the insured felt was biased; referenced their testimony during closing; and filed the motion to mold the verdict with what the insured believed had inaccurate wording. The insurer filed a motion to dismiss the insured’s complaint.

In addressing the litigation conduct as bad faith issue, the Court found there was an: “ill-defined line… drawn between conduct which can be described as ‘defending the claim’ and that which suggests ‘that the conduct was intended to evade the insurer’s obligations under the insurance contract.’” The Court reviewed decisions from other jurisdictions that had “developed more comprehensive rules for dealing with bad faith claims premised on litigation conduct.” It found that the other jurisdictions employ four approaches.

In the first approach, there is a blanket prohibition on introducing evidence to show an insurer’s bad faith. In the second approach, an insured may introduce evidence of unreasonable settlement behavior, while introduction of litigation conduct, techniques and strategies is prohibited. In the third approach, an insured may introduce litigation strategies and techniques, “as long as the insurer knowingly encouraged, directed, participated in, relied upon, or ratified the alleged wrongful conduct.” In the fourth approach, utilized by most jurisdictions, evidence of litigation conduct is admissible evidence of bad faith in “rare cases involving extraordinary facts.”

The Court found that Pennsylvania’s Supreme Court has not adopted any of the four approaches. It predicted that the Supreme Court would adopt the fourth approach for three reasons: (1) The fourth approach “most effectively balances an insurer’s interest in defending itself and the ability of courts and rules of civil procedure to handle most litigation abuses with the relatively broad scope of § 8731.”; (2) Most of the other jurisdictions utilize the fourth approach; and (3) The fourth approach is the most consistent with the Pennsylvania case law that exists on the issue.

Applying this standard, the Court ruled that the insured’s allegations relating to the insurer’s medical experts were not rare, extraordinary, or egregious; and did not rise to the level of bad faith. Specifically, in regards to the first medical expert, the Court rejected the insured’s argument that the expert was biased, given the contradiction between the expert’s report and his deposition testimony. The insured’s allegations were merely conclusory. As to the second expert, the Court found that the insured was able to fully address his concerns through cross-examination, that the expert “always finds in favor of the party paying him”.

As to referencing the medical experts’ during closing argument, the Court held that if the insurer’s use of the expert testimony did not constitute bad faith, then referencing it during closing arguments similarly could not constitute bad faith. The Court stated that the insured did not suffer any prejudice. More importantly, the Court explained: “parsing an insurer’s closing argument after the fact through a bad faith action endangers an insurer’s ability to defend itself.” Furthermore, the Court stated that it would threaten the insurer’s attorney’s duty to competently and zealously represent a client.

Finally, with regard to the insured’s allegations based upon the insurer’s motion to mold the verdict, via putative improper wording, the Court held that the allegations did not rise to the level of bad faith. Specifically, the Court found that the insurer’s wording “seem[ed] reasonable given the somewhat ambiguous wording of the [A]greement itself.”

Ultimately, the Court granted the insurer’s motion to dismiss the insured’s complaint.

The case is currently on appeal with the U.S. Court of Appeals for the Third Circuit.

Date of Decision: August 26, 2016

Homer v. National Mutual Ins. Co., No. CV 15-1184, 2016 WL 4493689, 2016 U.S. Dist. LEXIS 114548 (W.D. Pa. Aug. 26, 2016) (Barry Fischer, J.)

The case was affirmed on appeal, however, the Third Circuit held it did not have to rule on what litigation conduct might be actionable under the Bad Faith Statute as none of the conduct at issue constituted bad faith under any standard.

FEBRUARY 2016 BAD FAITH CASES: STATUTE OF LIMITATIONS CAN BE TRIGGERED BY DENIAL OF BENEFIT, OR FAILURE TO INVESTIGATE THE SAME CLAIM AFTER DENIAL, WHERE INSURER IS PROVIDED WITH NEW INFORMATION (Pennsylvania Superior Court)

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In Rancosky v. Washington National Insurance Company, the Superior Court addressed a bad faith claim in the first party context, where the insured had purchased a “Cancer Policy”.  The Superior Court ruled that the bad faith claim fell within the two year statute of limitations period based upon poor investigative practices, even when the original denial of the benefit was beyond the two year period.

The insurance policy had a contractual “suit limitations clause,” providing legal actions for benefits.  However, for purposes of the bad faith claim, the court ultimately focused on the two year statute of limitations. The policy also contained detailed waiver of premium provisions based upon a manifestation of cancer and disability therefrom.  The policy also addressed the situation where an insured ceased making direct premium payments via payroll checks, but could convert to making direct payments personally, while keeping coverage.

After going into the facts in painstaking detail, the Superior Court concluded that the waiver of premium provision should have applied; that there was no need to address conversion for future premium payments; and thus that the insurer’s denial of benefits for missing premium payments was an unreasonable position for the insurer to take.

At trial level, after a jury ruled for the insured on the breach of contract claim, the trial court ruled for the insurer on the bad faith claim.

The Superior Court reversed, and among other things in its close factual analysis, stated: “The record reflects that [the insurer] did not purport to conduct any investigation regarding [the] claim until it received [the insured’s] request for reconsideration … eighteen months after it had first received conflicting information regarding the starting date of [her] disability.” Before that time, the insured had provided 8 authorizations, all of which permitted the carrier to contact her employer and physicians “regarding the date when she first became unable, due to cancer, to perform all the substantial and material duties of [her] regular occupation.”

Instead, “despite requiring that [the insured] sign these authorizations, [the insurer] never bothered to use them to obtain the information that it needed in order to make an accurate determination as to the starting date of her disability.”

LEGAL ANALYSIS

  1. Self Interest and Ill Will are not elements of a bad faith claim.

First, the trial court effectively ruled that a bad faith plaintiff must establish the insurer had a motive of self-interest or ill will.  As the Superior Court has stated numerous times in earlier opinions, this is not an element of proof in a statutory bad faith claim. Ill will or self-interest are only evidence that can be used to establish the second element of statutory bad faith, i.e., that the insurer knowingly or recklessly disregarded the first element, that there was no reasonable basis to withhold the benefit.  While the trial court had ruled that self-interest or ill will were considered in weighing the first element, absence of a reasonable basis, the Superior Court found this was merely a back door ruling that self-interest or ill will were required elements to establish the claim.

  1. Superior Court defines bad faith expansively.

Second, as stated above, the appellate court reviewed the record and concluded that the trial court erred in finding there was a reasonable basis to deny coverage.  In reaching this decision, the court rendered an expansive view of the bad faith statute.

It began by stating that “a heightened duty of good faith was imposed on [the insurer] in this first-party claim because of the special relationship between the insurer and its insured, and the very nature of the insurance contract.”  It then stated that statutory bad faith under section 8371 “is not restricted to an insurer’s bad faith in denying a claim.” The Superior Court then cited six of its prior decisions as examples to support this point.  It did not cite or discuss the Supreme Court’s 2007 Toy decision in this context, as to what constitutes a cognizable section 8371 bad faith claim. It solely cited language from the prior Superior Court decisions on, e.g., the breadth of the statute’s aim to stop all forms of bad faith, and that section 8371 was intended to address conduct that evades “the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party’s performance.”

  1. Bad Faith statute of limitations period can be extended by conduct of investigative practices, irrespective of the time when the claim was originally denied.

Third, and most significantly, the Superior Court addressed when the statute of limitations begins to run.  It observed that “there is an important distinction between an initial act of alleged bad faith conduct and later independent and separate acts of such conduct.”  It ruled that: “When a plaintiff alleges a subsequent and separately actionable instance of bad faith, distinct from and unrelated to the initial denial of coverage, a new limitations period begins to run from the later act of bad faith.” Thus, “[a]n inadequate investigation is a separate and independent injury to the insured.”

[Note: This conclusion is measured against a prior Superior Court opinion, and does not address the Supreme Court’s Toy decision. The court cites the Supreme Court’s Ash opinion on the bad faith statute’s limitations period, though it does not reference footnote 10 of the Ash opinion on the scope of the bad faith statute (“The bad faith insurance statute, on the other hand, is concerned with ‘the duty of good faith and fair dealing in the parties’ contract and the manner by which an insurer discharge[s] its obligation of defense and indemnification in the third party claim context or its obligation to pay for a loss in the first party claim context.”)]

The court then states that “a refusal to reconsider a denial of coverage based on new evidence is a separate and independent injury to the insured. The statute of limitations for such injuries begins to run, in the first instance, when the insurer communicates to the insured the results of its inadequate investigation, and in the latter instance, when the insurer communicates to the insured its refusal to consider the new evidence that discredits the insurer’s basis for its claim denial.” The Superior Court found that had the insurer conducted a “meaningful investigation” and “good faith investigation” into the additional information, or “undertaken to ‘research’ the new information” it would have discovered that there was no reasonable factual basis to deny coverage. Thus, the insurer’s “failure to conduct an meaningful investigation of [the] claim when it undertook to do so in [8 months after its original denial of the benefit], and its refusal to reconsider its denial of coverage based on the new information provided by [the insured] in her November 30, 2006 letter [7 months after the insurer’s original denial], constituted new injuries to the insured.”

By contrast, the Dissent in this 2-1 decision would have ruled that the statute of limitations began to run when the insurer first denied the benefit was due. In response, the majority stated that the Dissent unduly focused on the denial of the benefit as the basis for the bad faith claim, “without considering [the insured’s] claim for bad faith based on [the insurer’s] lack of good faith investigation.” Once again, citing prior Superior Court case law without reference to Toy or Ash, the court observed that “a claim for bad faith may be based on an insurer’s investigative practices.” Thus, “[i]n declining to acknowledge these tenets of Pennsylvania’s bad faith law, the Dissent has failed to acknowledge [the insured’s] claims for bad faith based on a lack of good faith investigation, or identify the date(s) on which such claims accrued. Thus, we abide by our conclusion that [insured’s] bad faith claim is not time-barred.”

4.  Failure to allege bad faith based on litigation conduct waived 

The insured also sought reversal on the basis that the trial court failed to consider the insurer’s litigation conduct during the bad faith litigation and trial itself.  However, the insured had never made this argument prior to trial, and such an argument was waived.

  1. Court finds bad faith claim by a distinct insured was properly dismissed on summary judgment.

Lastly, the court affirmed a summary judgment against the foregoing insured’s husband, who likewise had developed cancer and was seeking relief from the same insurer.  The court found that the husband insured had not provided evidence as to why it was not reasonably possible for him to have given the required notice under the policy.

While upholding this later judgment, the case was reversed and remanded on the wife insured’s bad faith claim.

Date of Decision:  December 16, 2015

Rancosky v. Wash. Nat’l Ins. Co., Superior Court No. 1282 WDA 2014, 2015 Pa. Super. LEXIS 822 (Pa. Super. Ct. December 16, 2015)

The Supreme Court’s Rancosky decision ultimately held that self-interest and ill will are not elements of a statutory bad faith claim.