Archive for the 'PA – Agents and Administrators' Category

AUGUST 2018 BAD FAITH CASES: POLICY VOIDED BY JURY ON BASIS OF FRAUDULENT APPLICATION, AND DAMAGES AWARDED TO INSURER (Pennsylvania Superior Court) (Non-precendential)

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The insured sued based on a denial of benefits for a vandalism loss. During the course of pre-suit examinations under oath, the insurer concluded that the policy was obtained by fraud. Thus, in addition to denying the claim, the insurer counterclaimed for common law fraud, breach of contract, statutory insurance fraud and reverse bad faith, based on a false insurance application. The jury ruled for the insurer and voided the policy.

The court awarded damages of over $285,000 to the insurer for claims paid and claim expenses incurred under the now voided policy, subject to a reduction for the return of premiums paid. Post-trial motions were denied, and the verdict was affirmed on appeal.

In upholding the verdict, the Superior Court recognized that fraud required the highest standard of proof known in a civil setting. The jury did not err, however, in finding the standard met. The appellate court found “the record is replete with evidence that [the insured], through an agent, knowingly provided … false, misleading and incomplete information in his insurance application statement.”

The court stated the insured had misrepresented his loss history, failed to disclose a foreclosure complaint, failed to disclose tax judgments against him and failed to reveal “he incurred a federal conviction in the Eastern District of Pennsylvania for filing false corporate tax returns.”

The court also rejected arguments concerning the trial court’s evidentiary rulings. There was no error in allowing evidence relating to a prior conviction for underpaying corporate taxes, and previous tax liens. Nor was there error in allowing testimony from an underwriter to describe underwriting practices during the relevant time period.

Date of Decision: August 15, 2018

Smith v. United States Liability Insurance Company, Superior Court of Pennsylvania, No. 1287 EDA 2017, 2018 Pa. Super. Unpub. LEXIS 2968 (Pa. Super. Ct. Aug. 15, 2018) (Lazarus, Panella, Strassburger, JJ.) (Not precendential)

 

AUGUST 2018 BAD FAITH CASES: BAD FAITH ACTION CANNOT BE BROUGHT AGAINST CLAIM REPRESENTATIVE WHO IS NOT AN INSURER (Philadelphia Federal)

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A UIM insured brought a breach of contract, loss of consortium, and bad faith action against both the claim representative and the insurer. The insurer argued that the claim representative was “fraudulently joined” to defeat diversity. The insurer asserted that bad faith actions against claim representatives are impermissible.

The court noted that the “removing party has a heavy burden of persuading a court that joinder is fraudulent.” However, “[t]he claims against [the claim representative] are wholly insubstantial and frivolous.” The court concluded as a matter of law “there is no basis to support a contract” against the claim representative because “only the principal, [insurer], may be held liable.” The claim representative was only an agent, who did not have a separate contract with the insured.

Further, the court concluded the insured could not state a bad faith claim against a claim representative. “The bad faith statute applies only to insurance companies.” The claim representative was not an insurer because she identified as an insurer in the policy, and the insured did not plead that claim representative acted as an insurer.

Thus, the court concluded the insured improperly joined the claim representative.

Date of Decision: August 8, 2018

Reto v. Liberty Mutual Insurance, U. S. District Court Eastern District of Pennsylvania, CIVIL ACTION NO. 18-2483, 2018 U.S. Dist. LEXIS 133336 (E.D. Pa. Aug., 8, 2018) (Savage, J.)

OCTOBER 2017 BAD FAITH CASES: BAD FAITH STATUTE DOES NOT APPLY TO INSURANCE AGENTS (Common Pleas Lackawanna County)

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The excellent Tort Talk Blog has posted an opinion from Judge Nealon in Lackawanna County reiterating that the bad faith statute does not apply to insurance agents.

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.)

JUNE 2016 BAD FAITH CASES: COMMUNICATIONS BETWEEN IN-HOUSE COUNSEL OF (1) TPA AND (2) AUHTORIZED CLAIM REPRESENTATIVE WITH INSURER USING THEIR SERVICES IS PRIVILEGED (Middle District)

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In Heller’s Gas v. International Insurance Company of Hannover, a breach of contract and bad faith case, the insured claimed that documents withheld or redacted did not fall within the attorney-client privilege, the work product doctrine, or reserve information. The insured argued that all but one document was either sent to or from employees of the insurer’s third party administrator (TPA) or its authorized claim representative, and as neither of these entities were subsidiaries of or owned by the insurer, the communications were not privileged.

In the Answer, the insurer did not assert an agency relationship with either the TPA or the authorized claims representative. It took the opposite position in the motion papers, arguing that communications between the TPA’s in-house counsel and/or the claim representative’s in-house counsel with the insurer fell within the scope of attorney-client privilege.

The court reviewed the unredacted documents in camera. The court stated: “After thoroughly examining the documents, this Court finds that the information redacted appropriately falls within the attorney-client privilege and work product doctrine and is consequently information directly related to or referencing legal strategy regarding the instant litigation. The correspondence further supports [the insurer’s] latterly-advanced argument that [the TPA and authorized claims representative] are essentially agents of [the insurer].”

Date of Decision: June 1, 2016

Heller’s Gas, Inc. v. Int’l Ins. Co. of Hannover Ltd., 4:15-CV-01350, 2016 U.S. Dist. LEXIS 71069 (M.D. Pa. June 1, 2016) (Brann, J.)

JANUARY 2016 BAD FAITH CASES: AGENT’S INVESTIGATION AND COMMUNICATIONS WERE ADEQUATE; INSURER’S FAILURE TO COMMUNICATE EVERY 45 DAYS PER UIPA WAS NEGLIGENCE AT MOST, NOT INTENTIONAL OR RECKLESS BAD FAITH (Philadelphia Federal)

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In Smith v. State Farm Fire & Casualty Company, the insureds brought suit against their insurer for breach of contract and bad faith in dealings arising from the insurer’s partial denial of coverage of the insureds’ homeowner’s insurance policy claim. The insurer moved for summary judgment, and argued that the insureds failed to prove bad faith by clear and convincing evidence, and the court granted the motion.

The insureds originally commissioned an inspection of their house for potential water damage after learning their neighbors were having issues with water damage, even though the insureds had not observed any water damage in their home at the time. The inspection revealed numerous design flaws and installation deficiencies, along with water damage. The insureds filed an insurance claim eighteen (18) months after receiving the inspection report.

The insurer sent an agent to inspect the home. The agent observed that certain damages would not be covered, but agreed to review the request for certain water damage. Twenty minutes after this inspection, the insurer reassigned the handling of the claim to another agent, who introduced himself to the insureds that same day. The new agent attempted to contact the insureds several times before finally performing an inspection weeks after the first inspection. The agent ultimately drafted a partial denial letter which was approved by another agent and sent to the insureds.

The insureds alleged that the insurer acted in bad faith by “refusing to honor their claim to replace the exterior insulation of their home, denying coverage without reasonable basis, and knowingly or recklessly disregarding its lack of reasonable basis for denying the claim.” The insureds asserted an unreasonable delay in adjusting the claim, failing to communicate, inadequately investigation, frivolous refusal to pay, misrepresenting policy provisions, and violating proper investigation standards.

The court reasoned that the insureds provided no evidence for their assertion that the original agent assigned to the claim intended to approve coverage; nor did the insureds explain why the seven days it took the subsequent agent to record the inspection he performed was an unreasonable amount of time. While the insurer did fail to communicate with the insureds every forty-five days, the court characterized this as “mere negligence,” which does not constitute bad faith.

Finally, although the insureds alleged that the insurer unreasonably interpreted and misrepresented the policy provisions, the court found that this disagreement was a contractual dispute. In a bad faith case, the court is only tasked with determining whether the insurer’s interpretation was unreasonable, not whether its ultimate decision was correct. The court found that the insurer’s denial letter established a reasonable basis for its decision, and granted summary judgment for the insurer.

Date of Decision:  November 24, 2015

Smith v. State Farm Fire & Cas. Co., CIVIL ACTION NO. 15-670, 2015 U.S. Dist. LEXIS 159127 (E.D. Pa. November 24, 2015) (Beetlestone, J.)

 

SUPERIOR COURT FINDS INSURERS CAN BE LIABLE IN NEGLIGENCE FOR ACTS OF AGENTS AND CONTRACTORS UNDER RESTATEMENT 323 AND 324A FOR ASSUMING DUTIES NOT OTHERWISE FOUND IN CONTRACT (Superior Court of Pennsylvania – not precedential)

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Last year, in Bruno v. Erie Insurance Company, Pennsylvania’s Supreme Court upheld the potential for negligence claims against an insurer, separate from the insurance contract, for the acts of its adjustor and engineering expert which occurred during the claims handling process. The insurer had a contractual duty to investigate and pay for certain mold claims, but the insureds alleged that these individuals went beyond the contract in giving the homeowner insureds gratuitous safety advice on whether or not any dangerous mold was actually present. The insureds stayed in the home based on this advice, allegedly leading to the death of one of the insureds. Thus, the gist of the action doctrine was inapplicable since the claim was not rooted in the contract.

On remand, the Superior Court had to decide whether this negligence claim, separate from the breach of contract claim, stated a cause of action under Pennsylvania law.  The intermediate appellate court found that it did.  The court found claims stated under both Restatement (Second) of Torts § 323, “negligent performance of undertaking to render services” and section 324A, “liability to third person for negligent performance of undertaking”.

The insureds had “pleaded that (through its agent) [the insurer]: voluntarily ‘undertook to render services to’ [the husband insured] (since [it] voluntarily and affirmatively took on the duty to advise [him] ‘regarding the toxicity of the mold and affirmatively recommending to [the insureds] that they continue their renovation efforts’); [the insurer] should have ‘recognize[d] [that the services were] necessary for the protection of’ [the insured]and his family (since the advice was voluntarily rendered by individuals who were hired to analyze the homeowners’ mold, given to the layperson homeowners, and concerned an alleged toxic substance in their home); [the insurer] allegedly failed to exercise reasonable care when it provided the advice; and, [the insureds] suffered physical harm as a result of [the insurer’s] breach (in that [the insurer’s] alleged ‘failure to exercise [reasonable] care increase[d] the risk of [the insureds’] harm’ and ‘the harm [the insureds] suffered [was because of their] reliance upon [the insurer’s] undertaking.’”

Date of Decision: July 22, 2015

Bruno v. Erie Insurance Company, No. 1154 WDA 2011, 2015 Pa. Super. Unpub. LEXIS 2308 (Pa. Super. Ct. July 22, 2015) (Bowes, Olson, Platt, JJ.) (non precedential)

AUGUST 2015 BAD FAITH CASES: COURT FINDS INSURED WIFE HAS STANDING TO BRING FIRST PARTY BAD FAITH CLAIM BASED UPON INSURER’S HANDLING OF INSURED HUSBAND’S MEDICAL BILL COVERAGE (Philadelphia Federal)

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In McGuckin v. Allstate Fire and Casualty Insurance Company, the Court denied the insurer’s motion to dismiss breach of contract and bad faith claims brought by an insured’s wife, based upon the insured husband’s involved in an automobile accident.

In the underlying action, the insured husband alleged that he met with an agent of the insurer to discuss a potential purchase of automobile insurance. The agent suggested that the insured purchase additional, extraordinary benefits for an increased premium price, and that the additional coverage would pay his or other insureds’ benefits when medical bills from an automobile accident exceeded $100,000.

In his complaint, the insured alleged that the insurance agent “knew or reasonably should have known that: (1) the representation was false; (2) the policy contained a requirement that the medical bills be for ‘reasonable and necessary’ medical treatment of the policyholder’s accident related injuries before [the insurer] would cover the bills; and (3) a determination of whether medical treatments were reasonable and necessary would be made, not by [the insured’s] treating physicians, but by a peer review conducted by third parties selected by [the insurer].” The insured purchased the extraordinary benefits policy, under which the insured’s wife was also named as an insured.

While the policy was still in force, the insured husband was involved in an automobile accident. The insureds sued the driver and settled the case with the insurer’s consent, but the settlement was insufficient to cover the insured husband’s medical bills. The insureds then filed a claim against the insurer for underinsured motorist coverage, and alleged that the insurer failed to make a reasonable offer to settle the claim. The parties ultimately resolved this issue through arbitration.

The insured husband subsequently filed claims for coverage under the extraordinary benefits policy after his medical bills exceeded $100,000. The insurer paid the claims for medical expenses at first, but refused to pay later bills. The insurer conducted an independent medical examination (“IME”) of the husband in connection with the claim, but allegedly failed to conduct a subsequent examination “in connection with its denial of his extraordinary benefits claims or rely upon the prior examination in reaching its decision to deny his claims.”

The insurer denied the claims “on the grounds that a peer review had concluded that [the medical bills] were not reasonable and necessary.”

The insured husband alleged that as a result of the denial, he was forced to pay excess costs and incur liens of medical providers. The insured husband further claimed that when his own financial resources were insufficient to cover his medical expenses, his wife had to contribute her own funds. The insurer also refused to pay certain claims for lost earnings.

The insured husband and wife both brought claims against the insurer, including bad faith claims. The insurer moved to dismiss all of the claims asserted by the insured wife. The insurer contended that the insured wife lacked standing to bring any claims “because she was not injured in the accident, did not incur her husband’s medical bills and did not file a claim for extraordinary medical expenses insurance coverage.”

In support, the insurer pointed to 23 Pa. Cons. Stat. § 4102, which the insurer claims makes the insured wife’s potential liability for her husband’s medical bills “contingent upon the creditors obtaining judgments and her husband’s assets being inadequate to pay the judgments.” The insured wife responded that “the statute makes her ultimately responsible for the payment of her husband’s medical expenses,” and that she has contributed financially to her husband’s expenses when his resources were insufficient to fully pay for them. In response, the insurer argued that the insured wife was under no obligation to make any payments and did so as a volunteer.

The Court stated that a volunteer is someone “who, having no interest to protect, without any legal or moral obligation to pay … pays the debt of another.” Here, even though the insured husband’s medical providers could not execute on the insured wife’s personal assets until they had obtained judgment and were unable to collect from the husband, the applicable Pennsylvania statute also states that creditors may sue and obtain a judgment against both insureds.

Thus, it could not be said that the insured wife “has no interest to protect” or that she is “without any legal or moral obligation to pay.” The Court concluded that for purposes of a motion to dismiss, the insured wife’s allegation was sufficient to establish that she has standing to pursue her claims, and denied the insurer’s motion to dismiss the insured wife’s claims.

Date of Decision: July 30, 2015

McGuckin v. Allstate Fire & Cas. Ins. Co.No. 15-2173, 2015 U.S. Dist. LEXIS 99376 (E.D.Pa. July 30, 2015) (Beetlestone, J.)

 

 

JUNE 2015 BAD FAITH CASES: WHERE INSURED’S BROKER WAS A NON-DIVERSE CO-DEFENDANT, AND AN ACTIONABLE BREACH OF CONTRACT CLAIM BASED ON ERRORS IN THE INSURANCE APPLICATION PROCESS WAS PLEADED AGAINST THE BROKER, THE CASE WAS REMANDED FOR LACK OF DIVERSITY JURISDICTION (Western District)

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In Hines v. Mutual of Omaha Insurance Company, the Court remanded a bad faith claim after finding a no subject matter jurisdiction. In the underlying complaint, the insured claimed he honestly answered all of the questions on the insurance application, and that his agent/broker was involved in the process. The insured was denied coverage for an injury that caused him to be disabled. The insurer claimed it denied coverage because “based on medical records it had obtained, [the insurer] concluded that [the insured’s] application was not correct because” of specific misstatements in the insurance application regarding prior treatment and income.

The insured brought claims for breach of contract and insurance bad faith against the insurer and his own broker. The bad faith claim alleged that the insurer “breached an implied covenant of good faith and fair dealing by refusing to pay disability benefits without a reasonable basis for that refusal.” Diversity existed between the insured and the insurer, but not between the insured and the broker. Thus, if the broker stayed in the case as a defendant, diversity would be destroyed and the case remanded.  The insurer argued that the broker had been fraudulently joined to destroy diversity.

The key was whether the insured’s complaint, “can possibly be read to allege a claim against [the agent].” The court recognized that the insured had no claim against his own broker for breach of the insurance agreement or bad faith in not issuing benefits on an insurance policy.  However, the court went on to observe that agents/brokers have duties to their client-insureds, the breach of which duties can be pleaded as a breach of contract against the broker.

As pleaded, the complaint set forth a possible action against the broker based on the fact that “the policy is void or materially defective through the agent’s fault.” The Court reasoned that “because Pennsylvania recognizes a breach of contract action by an insured against an insurance agent or broker, this Court concludes that it is at least possible that a state court could find that [the insured’s] original Complaint states a cause of action against [the agent], the resident Defendant.” Thus, the broker was properly joined and the lack of complete diversity deprived the Court of subject matter jurisdiction.

Date of Decision: May 20, 2015

Hines v. Mut. of Omaha Ins. Co., Civil Action No. 2:15-cv-00245, 2015 U.S. Dist. LEXIS 65853 (W.D. Pa. May 20, 2015) (Hornak, J.)

MAY 2015 BAD FAITH CASES: COURT FINDS NO “GOOD FAITH AND FAIR DEALING” CAUSE OF ACTION SEPARATE FROM BREACH OF CONTRACT AND BAD FAITH ACTION (Middle District)

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In Monck v. Progressive Corp., Plaintiff was involved in an automobile accident and received $16,000 from a policy held by the driver of the other vehicle. The insured claimed this amount was insufficient, and asserted that she was an insured under a policy issued to her aunt and uncle because she met the definition of relative, as she was living with her aunt and uncle at the time of the accident. The insurer denied Plaintiff’s claim because it believed she did not reside at the policy address.

Consequently, Plaintiff filed suit against the insurer. The insurer sought to dismiss five counts of Plaintiff’s eight-count complaint: (1) good faith and fair dealing; (2) breach of fiduciary duty; (3) unfair trade practices and consumer protection law (“UTPCPL”); (4) negligence; and (5) vicarious liability. The Court addressed each in turn and granted the insurer’s motion to dismiss.

The insurer argued that the good faith and fair dealing claim should be dismissed because it was redundant to Plaintiff’s claims of breach of contract and bad faith. The Court reasoned that “an independent claim for breach of the covenant of good faith and fair dealing is properly dismissed where the plaintiff brings a claim for first party insurance benefits and the complaint includes claims for breach of contract and bad faith.”

Here, the Court observed that Plaintiff asserted a claim for breach of contract, “within which she alleges that the conduct complained of constitutes a breach of the policy’s implied covenant of good faith and fair dealing and Count Three for “Good Faith and Fair Dealing” relies upon the same conduct.” The Court found  Plaintiff’s claim for good faith and fair dealing subsumed into her breach of contract claim.

Next, the insurer alleged that Plaintiff’s UTPCPL claim should be dismissed because “Plaintiff failed to allege facts to support justifiable reliance on Defendants’ alleged misconduct; a UTPCPL claim is barred by the economic loss doctrine; and there are no facts to support a claim for misfeasance.”

The Court was not convinced by Plaintiff’s argument that she was not required to show justifiable reliance but allowed her an opportunity to amend her Complaint as to this claim. The Court dismissed the UTPCPL claim, and therefore did not extensively discuss the economic loss doctrine or misfeasance arguments set forth by the insurer.

The insurer next argued that Plaintiff’s claims for breach of fiduciary duty and negligence were barred by the gist of the action doctrine, and the Court agreed because the claims were dependent on the insurance contract.

Finally, the insurer alleged that Plaintiff’s claim for vicarious liability should be dismissed because “Defendants’ agents and employees cannot be liable to Plaintiff.” Because Plaintiff did not present facts that would give rise to an independent claim for negligence, the Court dismissed the vicarious liability claim.

Date of Decision: April 13, 2015

Monck v. Progressive Corp., CIVIL ACTION NO. 3:15-CV-250, 2015 U.S. Dist. LEXIS 47801 (M.D. Pa. April 13, 2015) (Conaboy, J.)