Archive for the 'PA – Attorney’s Fees' Category

Over One Million Dollars Awarded in Bad Faith Damages (Lehigh Common Pleas)

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The excellent Tort Talk Blog posted today on Judge Melissa T. Pavlack’s bad faith ruling in Unterberg v. Mercury Insurance Company. Judge Pavlack awarded $900,000 in punitive damages and $186,879.50 in attorneys’ fees, interest of $7,427.39, and costs of $3,595.35.  The underlying damages for breach of contract were $21,220.48. Thus, the total compensatory damages were $219,122.72, and punitive damages were based on this figure.

Our thanks to Tort Talk’s Daniel Cummins, Esquire for posting a summary of this case, and attaching a copy of Judge Pavlack’s opinion with her detailed reasoning.

NO BAD FAITH WHERE NO DUTY TO DEFEND; COURT ADDRESSES RESERVATION OF RIGHTS LETTERS AND ESTOPPEL (Philadelphia Federal)

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This case involves attorney malpractice insurance, and when a carrier is estopped from denying coverage for failing to issue a timely reservation of rights letter.

The underlying plaintiff brought two actions against the attorney arising out of the same underlying medical malpractice action: (1) a 2017 legal malpractice action and (2) a 2019 disgorgement action seeking return of a referral fee paid to the insured attorney.

As to the 2019 claim, the underlying plaintiff had demanded return of the referral fee even prior to the disgorgement action. The record indicates that at some point prior to the disgorgement action being filed, the carrier issued a reservation of rights letter, stating the attorney would not be covered for any disgorgement. Another reservation of rights letter was issued after the 2019 suit was filed.  The carrier defended the disgorgement action, but refused to indemnify after judgment was entered against the attorney, who had to disgorge his referral fee and pay treble damages.

The carrier brought a declaratory judgment action seeking a ruling that it had no duty to indemnify either the 2017 or 2019 actions. The insured counterclaimed for coverage, based on estoppel, and bad faith.  The underlying plaintiff, a party to the case, also asserted estoppel.

The present posture involved cross-motions for summary judgment.

Carrier estopped from denying coverage for failing to issue timely reservation of rights letter

As to the 2017 case, the malpractice carrier defended the first action without timely issuing any reservation of rights letter. Thus, the court held the insurer was estopped from later denying coverage in the 2017 malpractice action.

In reaching this conclusion, Judge Kearney provides a detailed analysis of when an insurer may be estopped from denying coverage for failing to issue a reservation of rights letter, which is worth reading in detail for any attorney doing coverage work. Without reciting every detail, Judge Kearney outlines the basic issues as follows:

  1. To estop an insurer from denying defense or coverage, the insured must show the insurer induced a belief in facts on which the insured relied to his detriment.

  2. In determining detrimental reliance, courts will assess whether the insured suffered actual prejudice.

  3. “Actual prejudice occurs when an insurer assumes the insured’s defense without timely issuing a reservation of rights letter asserting all possible bases for a potential denial of coverage.”

  4. “When an insurer receives notice of a claim, it has a duty ‘immediately to investigate all the facts in connection with the supposed loss as well as any possible defense on the policy.’”

  5. “[The insurer] cannot play fast and loose, taking a chance in the hope of winning, and, if the results are adverse, taking advantage of a defect in the policy.”

  6. “The insured loses substantial rights when he surrenders, as he must, to the insurance carrier the conduct of the case.”

No estoppel in second action and no bad faith

Earlier in the case, the court dismissed the insured’s bad faith counterclaims on the 2017 action, but had allowed the bad faith counterclaims on the 2019 action to proceed.

As to the 2019 action, the insurer promptly issued a reservation of rights and denial of coverage when it learned of the potential disgorgement claim. Moreover, it had even informed the insured prior to the second action’s actual filing that there was no coverage for disgorgement claims.

The court found the carrier was not estopped from asserting it owed no duties in the second action. Judge Kearney especially focused on the absence of prejudice to the insured.  Clearly, the court further agreed that the carrier had no indemnification duty toward the insured in the 2019 case, absent an effective estoppel argument.

As to bad faith, once the court found the insurer had reserved its rights and properly denied coverage in the second action, it rejected the bad faith claim.

Judge Kearney observed there is no common law bad faith claim in Pennsylvania, only statutory bad faith and the contractual breach of the implied duty of good faith and fair dealing. In this case, the insured did not raise statutory bad faith, so the court solely looked at the contractual duty of good faith and fair dealing claim.

“An insurer violates its implied contractual duty to act in good faith when it gives a ‘frivolous’ or ‘unfounded’ excuse not to pay insurance proceeds. As we find [the insurer] has no duty to defend or indemnify [the insured attorney], we cannot find its decision not to do so ‘unfounded’ or ‘frivolous.’”

Finally, the court found the underlying plaintiff had no standing to bring an estoppel counterclaim, even if she did have standing to argue for coverage.

Thus, the insured won summary judgment on coverage in the 2017 claim, but the insurer was successful on the 2019 claim.

Date of Decision: October 8, 2020

Westport Insurance Corporation v. McClellan, U.S. District Court Eastern District of Pennsylvania No. 20-1372, 2020 WL 5961047 (E.D. Pa. Oct. 8, 2020) (Kearney, J.)

INSURED SETS OUT BAD FAITH DELAY CLAIM, AS WELL AS CLAIM FOR ATTORNEY’S FEES (Philadelphia Federal)

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This UIM case involved a claim for full policy limits, amounting to $45,000. The insured alleged serious permanent injuries.

Over two years passed from the time the insured gave notice until the time of suit, with the claim neither paid nor denied. The insured filed suit for declaratory judgment, breach of contract, and bad faith. The insurer moved to dismiss the bad faith claim and attorney’s fee claim, and the court denied the motion.

Bad Faith Claim Based on Delay Adequately Pleaded

The court recognized at least two sources of statutory bad faith: (1) failure to pay and (2) delay in making payment. As to the first, “[w]here a claim of bad faith is based on a refusal to pay benefits under a policy, ‘the plaintiff must show that the defendant did not have a reasonable basis for denying benefits under the policy and that defendant knew or recklessly disregarded its lack of reasonable basis in denying the claim.’” As to the second, “[t]o sufficiently plead bad faith by way of delay, ‘a plaintiff must allege that a defendant had no reasonable basis for the delay in coverage, and that the defendant delayed coverage with knowing or reckless disregard for the unreasonableness of its action.’”

The court found bad faith delay pleaded, based on the following factual allegations:

  1. The insurer “was put on notice of [the] underinsured motorist benefits claim in March 2017.”

  2. “In January 2018, [the insurer] waived its subrogation rights and consented to … settlement with the third-party insurance carrier.”

  3. “On March 30, 2018, [the insurer] advised [the insured] that her claim for underinsured motorist benefits was being evaluated.”

  4. “From April to July 2018, the parties communicated regarding scheduling an EUO, which took place on July 9, 2018.” As pleaded, it was the insurer that sought an EUO in July, and the insured asked to move it up.

  5. “On July 26, 2018, [the insurer] advised [the insured] that it would likely require her to undergo an IME, however, [the insurer] never moved forward with the IME.”

  6. “Between August 2018 and February 2019, [the insured] provided medical records to [the insurer], both unsolicited and at their request.”

  7. “Between February and June 2019, [the insurer] did not notify [the insured] as to the status of her claim, and at the time of the filing of the instant Complaint in September 2019, [the insurer] had neither paid [the] claim, nor denied it.”

The court summarized how these factual allegations made out a bad faith claim. The insured repeatedly tried to have her claim evaluated. She complied with requests for information, provided unsolicited information, and inquired as to the claim status. However, “despite having over two years to conduct its investigation, [the insurer] has unreasonably and without justification failed to approve or deny her claim.” Based on these factual allegations, there appears no reasonable basis to delay the claim evaluation, which the court equated with a failure to evaluate. The knowing/reckless bad faith element was met because the insured had given notice to the insurer through her inquiries and providing information that the claim had not been paid or rejected.

The court cited the Ridolfi, Kelly, and Smerdon cases concerning a delay-based bad faith analysis.

Clear and Convincing Evidence Standard Held Irrelevant at Pleading Stage

The court rejected the argument that the factual pleadings had to be measured against the clear and convincing evidence standard at the motion to dismiss stage. The court stated this standard is relevant, e.g., to trial, but not at the pleading stage. Rather, pleadings are governed by the plausibility standard. Thus, the insured “need not ‘establish’ anything at this early point in the proceedings, let alone ‘by clear and convincing evidence.’” “Whether sufficient facts will be discovered for [the insured] to survive a motion for summary judgment is unknown and may be addressed at a later date.”

Attorney’s Fees Possible under Bad Faith Statute or MVFRL

Finally, the court refused to dismiss the attorney’s fee claim based on both the bad faith statute, and the possibility that attorney’s fees might be permitted under section 1716 of the Motor Vehicle Financial Responsibility Law.

Date of Decision: January 24, 2020

Solano-Sanchez v. State Farm Mutual Auto Insurance Co., U. S. District Court Eastern District of Pennsylvania No. No. 5:19-cv-04016, 2020 U.S. Dist. LEXIS 11784 (E.D. Pa. Jan. 24, 2020) (Leeson, Jr., J.)

PARTY WITH JUDGMENT FOR ATTORNEY’S FEES AGAINST AN INSURED DID NOT HAVE STANDING TO PURSUE THAT JUDGMENT AGAINST THE INSURER IN A BAD FAITH ACTION (Philadelphia Federal)

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Though not clearly pleaded, the court assumed the plaintiff was suing the carrier for insurance bad faith. The plaintiff, however, was not the insured. Rather, plaintiff had obtained a judgment against the insured for reimbursement of $276,000 in attorney’s fees and legal costs, per a contract between the plaintiff and the insured.

The court found the plaintiff had no standing to bring a claim against the insurer. It was not a third party beneficiary to the insurance contract, nor could it bring a direct action aginst the insurer. Thus, the court dismissed the complaint.

Date of Decision: January 23, 2020

Hensley v. CNA, U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-2837, 2020 U.S. Dist. LEXIS 11040 (E.D.Pa. Jan. 23, 2020) (Baylson, J.)

COMMON PLEAS JUDGE FINDS BAD FAITH FOR (1) RELYING ON UNWARRANTED RED FLAGS; (2) REACHING COVERAGE CONCLUSIONS UNSUPPORTED BY ACTUAL FACTS; (3) UNREASONABLE INTERPRETATION OF POLICY’S COVERAGE LANGUAGE; (4) DRAWING UNWARRANTED CONCLUSIONS FROM EXPERT REPORT; (5) FAILING TO INVESTIGATE FULLY; (6) VIOLATING UIPA (Common Pleas Lehigh)

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Today’s post summarizes Lehigh County Judge Melissa Pavlack’s Findings of Fact and Conclusions of Law in this breach of contract and bad faith case.

The Court’s Factual Findings

The insureds’ car was stolen. It was recovered, but with considerable damage. The insureds’ license plate was replaced with a stolen plate. The court found that the thieves never intended to return the vehicle. The insureds sought coverage based on the theft and vandalism, relying on policy language covering theft, larceny, vandalism, and malicious mischief.

The court found the insureds were not involved in any way with the theft or vandalism, nor was there any fraud on their part. The car was deemed a total loss, and valued at around $13,000. There were additional costs for hauling and storage, bringing the total claim to approximately $17,000.

The insurer denied the claim, citing insufficient evidence the car had been stolen. It refused to consider a separate vandalism claim because the damages arose out of an alleged theft. Thus, the insurer did not investigate the vandalism claim, and the denial letter never addressed the vandalism claim’s merits. The insurer never cited any policy exclusions applying to the vandalism claims. There was also no denial based on fraud.

The insurer’s investigation included a claim’s adjuster and supervisor, a fraud investigator, an appraiser, an appraisal report, an investigator and three investigator reports, an examination under oath over the telephone and in person, document requests, and a site visit to the loss location. At trial, the adjuster could not recall which of the insured’s statements under oath led to the claim denial.

The investigator reported to the carrier that one of the insureds was uncooperative because she did not bring unredacted tax returns and cell phone records to her examination under oath. Relying on this alleged lack of cooperation, the claims supervisor wrote to the insured that she had failed to cooperate by not bringing these tax returns and records, and failed to cooperate with the insurer’s investigation. However, the investigator was not aware that another of the insurer’s representatives had actually instructed the insured to bring redacted copies of the tax returns to the examination under oath, which she did.

As to other document issues allegedly evidencing a failure to cooperate, it was made clear during the examination under oath that the insured was a medical professional. She could not simply produce her phone records without violating HIPAA. She attempted to cooperate during the examination under oath by showing some messages in her phone from the days in question; but the adjuster was also concerned about HIPAA, and was hesitant to proceed with looking at her phone. Further, the court found the insured could not respond to the insurer’s request for the car purchase documents because these had been stolen from the glove compartment.

Moreover, in contrast to assertions that the insureds failed to cooperate, the court found that the insurer’s fraud investigator conceded the insureds had cooperated, and had provided documents requested in the manner requested.

As to the allegation there was insufficient evidence of theft, the insurer relied upon its expert report. The expert opined there was no forced entry, and that the car only could have been moved using a key. The court found (1) the insurance policy did not require forced entry as a condition precedent to establish theft, and (2) the car could be moved without a key. Further, the insurer’s fraud investigator testified that cars can be stolen without noticeable signs of forced entry, and there was other testimony to the same effect. The court also found that the fraud investigator never communicated with the claim adjuster that forced entry was not required to steal a car.

In sum, the court found these conclusions (forced entry and use of a key) were not reasonable bases to deny the very existence of a theft.

Most significantly, the expert only opined the car was not stolen by means of forced entry, and that a key had to have been used. Whether or not these conclusions were correct was irrelevant in the court’s view, because the expert never opined the car was not stolen. Thus, it was an error to make the leap that the car was not stolen, as it could have been stolen by some means other than forced entry, or could have been moved without a key.

There was Coverage for Theft, Vandalism, and Malicious Mischief

In addressing the breach of contract claim, the court looked at the policy’s plain language. The policy expressly covered theft, larceny, vandalism, and malicious mischief. There were no applicable exclusions in this case, so the court only had to interpret the coverage language.

The court looked at the dictionary definition of these terms, rather than any criminal statutes or case law defining vandalism, theft, etc. It concluded the facts of the case fell within these coverage terms, and the insureds claims were covered. As to bad faith, it was unreasonable to conclude the facts at hand did not fall within the policy’s plain and unambiguous language. Further, the court found the insurer’s conduct unreasonable in failing to consider coverage for vandalism and malicious mischief when denying the claims.

Court uses Unfair Insurance Practices Act and Unfair Claim Settlement Practices Regulations as Standards

The court cited (1) Unfair Claim Settlement Practice regulations (UCSP), 31 Pa. Code § 146.4, on obligations to fully disclose coverages and benefits; and (2) the Unfair Insurance Practices Act (UIPA), 40 Pa.S.A. § 1171.5(a)(10)(iv), on failing to reasonably explain a claim denial.

The court cited these UCSP and UIPA provisions in the context of the first bad faith prong, lack of a reasonable basis to deny benefits. The court then observed the insurer had completely failed to consider the vandalism and malicious mischief claims covered under the policy. This supported the existence of bad faith, though it is not wholly clear whether the UCSP and UIPA violations were evidence of bad faith conduct, or were bad faith per se.

[We have previously posted on how courts treat alleged violations of UCSP regulations and the UIPA in bad faith cases, ranging from (1) their being completely outside the scope of consideration in determining bad faith, (2) as constituting potential evidence of bad faith, or (3) as amounting to statutory bad faith. It is not quite clear in the present case which of the latter two standards applied. Even without citing the UCSP or UIPA, however, it would seem the court’s finding that the insurer gave no regard to plainly covered vandalism claims was a basis for bad faith, regardless of any UCSP or UIPA violations.]

Erroneous Red Flags

The insurer justified its conduct by identifying certain “red flags” that caused legitimate doubt in the insureds veracity. When scrutinized, however, the court found these red flags were based on factual errors or erroneous assumptions.

  1. The insured was deemed uncooperative for failing to attend a unilaterally scheduled examination under oath. In fact, however, the court found the insured gave sufficient notice she could not attend on that date, and cooperated in rescheduling the examination under oath on another date, at which she appeared. She also had agreed to, and participated in, an examination over the phone.

As to the original date for the in-person examination, the court observed that the insurer knew in advance the insured was not going to appear on the first scheduled date, but still had its representatives appear to make a record against the insured for failing to appear.

  1. The insurer also asserted the insured was uncooperative because she provided redacted tax returns. As stated above, the insurer’s own representative had informed the insured in writing that certain redactions could be made. Further, when the insurer later requested an unredacted return, the insureds provided it.

  2. As to the alleged lack of cooperation on cell phone records, this was fully addressed during the examination under oath. As stated above, the insured was a medical professional and there were certain items on her phone records that could not be produced under HIPAA. That being said, she still offered to let the insurer’s representative look at her cell phone during the examination under oath, regarding non-HIPAA messages from the date the car was stolen. The adjuster was concerned about violating HIPAA, and was hesitant to do so.

  3. The insurer also deemed it a red flag that the loss came shortly after the policy’s purchase. This turned out to be an error. The court found the policy was purchased at least six months earlier. Another suspicion surrounded alleged excessive mileage on the car, which the court found was likewise not factually the case.

Failure to Fully Investigate the Red Flags

The court observed that while the insurer took the insured’s examination under oath, and conducted various investigations based on these alleged red flags, it failed to contact the police. Nor did the insurer follow up on evidence that drugs reportedly were found in the glove compartment. Though not expressly stated in the conclusions of law, this implies that the presence of drugs, under all the facts, favored the idea that strangers had stolen the car for nefarious purposes.

The Insurer Relied on its Expert Report for the Wrong Conclusion

For the court, the coverage issue concerning the insurer’s expert was simple: Was the car stolen? The issue was not: How was the car stolen?

The expert opined on two means by which the car was not stolen. The court found the expert never opined, however, that the car was not stolen. Moreover, the insurer never argued that the insureds faked a theft or lied about it.

The court pointed out that other means could have been used to steal the car, including non-intrusive and non-mechanical means. For example, after the car was recovered it was towed twice. The court found this demonstrated the car could be moved without forced entry and/or without a key.

Thus, the insurer’s reliance on the expert report to deny the fundamental existence of theft was unreasonable. The court found relying on the expert report to reach a conclusion (no theft) on which the report did not render an opinion, amounted to a knowing or reckless unreasonable denial of benefits, i.e. bad faith.

After finding bad faith on all the foregoing grounds, the court stated it would schedule a hearing on attorney’s fees, interest, and punitive damages.

Date of Decision: December 27, 2019

Unterberg v. Mercury Insurance Company of Florida, Court of Common Pleas of Lehigh County Case No. 2016-C-806 (Dec. 27, 2019) (Pavlack, J.)

Thanks to Daniel Cummins of the excellent and extremely useful Tort Talk Blog for bringing this case to our attention.

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.)

INSURED SANCTIONED UNDER 28 U.S.C. § 1927 FOR “ACTING IN BAD FAITH BY PERPETUATING A NONSENSICAL LAWSUIT AGAINST THE INSURER AT EVERY TURN”

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The court earlier found the insured, an attorney, prosecuted her suit against the carrier in bad faith. This case addressed sanctions against the insured and her one-time co-counsel under 28 U.S.C. § 1927, after finding Rule 11 inapplicable.

The Court had identified fifty-two filings evincing “an unreasonable and vexatious multiplication of the proceedings.” It ordered the insured and co-counsel “to pay the carrier’s reasonable excess costs, expenses and attorneys’ fees associated with those filings….”

The court found 217.3 hours of the insurer’s legal fees reasonable, totaling $39,114. The court, however, rejected the argument expert fees could be awarded under section 1927. It left open for a later date a request for court costs.

The court then looked at whether it should reduce the sanctions, after balancing the equities between the parties. The court found no basis to reduce the fee award, stating that the insured and her co-counsel “acted in bad faith by perpetuating a nonsensical lawsuit at every turn.” By contrast, the insurer handled itself with “professionalism”.

The court then looked at the respective equities as between the insured and her co-counsel in dividing their payment obligations. The court described the insured as “the ring master of this circus.” The court found: “She devised this suit ‘to try to con [the insurer] into paying for damage most likely caused by [her] own neglect of her properties.’”Moreover, the court found the insured’s “bad-faith conduct was borne of malice.”

On the other hand, the court observed: “To be sure, [co-counsel] willingly enabled [the insured’s] worst instincts, and he is neither as naïve nor as guiltless as he pretends to be.” However, counsel lacked the insured’s “malice, and his misconduct pales in comparison to [the insured’s].” The court also considered that co-counsel already had been disbarred for unrelated conduct, blunting the deterrent effect of present sanctions. By contrast, the court stated, the insured “will exploit her law license and continue abusing the civil justice system unless and until she is discouraged from doing so.”

For all of the court’s stated reasons, it required the insured to pay $35,000 and co-counsel to pay $4,114.

A motion to seal the insurer’s time record’s was denied without prejudice, as the insurer neither specified what documents should be placed under seal, nor provided the good cause basis for sealing any documents.

Date of Decision: December 17, 2019

Doherty v. Allstate Indem. Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 15-05165, 2019 U.S. Dist. LEXIS 216253 (E.D. Pa. Dec. 17, 2019) (Pappert, J.)

Earlier Blog summaries concerning this case can be here (2016), and here (2017).

 

COURT ADDRESSES “WHO IS AN INSURER” FOR BAD FAITH PURPOSES (Philadelphia Federal)

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The plaintiff obtained insurance against its tenants failing to pay rent. It allegedly entered a relationship with two entities licensed to provide that insurance. One of those entities denied being an insurer, and moved to dismiss a bad faith claim against it.

The court observed:

“The Insurance Department Act of 1921, as amended, 40 P.S. § 221.3, defines ‘insurer’ as ‘any person who is doing, has done, purports to do, or is licensed to do an insurance business, and is or has been subject to the authority of . . . any insurance commissioner.'” … A party will be deemed to be “doing [an insurance] business” if it engages in any of the following acts:

(1) the issuance or delivery of contracts or certificates of insurance to persons resident in this Commonwealth;

(2) the solicitation of applications for such contracts, or other negotiations preliminary to the execution of such contracts;

(3) the collection of premiums, membership fees, assessments or other consideration for such contracts; or

(4) the transaction of matters subsequent to execution of such contracts and arising out of them.

The Complaint alleged the moving defendant acted in concert with another entity to provide plaintiff with insurance coverage. Specifically, plaintiff claims that both entities “entered into insurance policies pursuant to which Defendants agreed to ‘insure and protect … against tenants failing to pay rent or failing to vacate properties after defaulting on rent or the expiration of their lease.’” Plaintiff also “alleges that Defendants marketed the policies to [plaintiff], that [plaintiff] made thousands of dollars of premium payments under the policies, and that Defendants subsequently sent termination notices as to the policies.” Drawing all reasonable inferences, the complaint alleged the moving defendant solicited the application for an insurance contract, entered into an insurance contract, collected fees and premiums, and “’transact[ed] [in] matters subsequent to execution of [the] contracts and arising out of [it].’”

The moving defendant argued that its contracts with plaintiff do not use the word insurance, that in a related document the moving defendant itself is described as a “named insured,” and that a search of the Pennsylvania Insurance Department’s web site did not include the moving defendant as an insurer. The court rejected all of these arguments.

First, taking all reasonable inferences in plaintiff’s favor, the court found the language in the parties’ agreement sufficient to be considered an insurance agreement, in referencing payment of fees in return for coverage. Second, that the moving defendant was a “named insured” itself in relation to a reinsurer did not define the relationship between the moving defendant and plaintiff. Third, the moving defendant’s absence from the Pennsylvania Insurance Department’s website “does not preclude a reasonable inference that [it] was doing . . . [or] purport[ing] to do . . ., an insurance business and, in that capacity, was subject to the authority of . . . an[] insurance commissioner, even if the insurance commissioner was not actively exercising that authority.” (internal quotations omitted).

While the court denied the motion to dismiss, however, it did not rule on the ultimate issue of fact as to whether the moving defendant was an insurer for statutory bad faith purposes. It simply allowed the case to proceed.

On a final point, the court recognized, but did not resolve, the issue of whether the insuring agreement could expressly limit recovery of attorney’s fees and punitive damages that are otherwise expressly permitted by the bad faith statute.

Date of Decision: December 17, 2019

ABC Capital Invs., LLC v. Nationwide Rentsure, U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-4980, 2019 U.S. Dist. LEXIS 216129 (E.D. Pa. Dec. 17, 2019) (Padova, J.)

PUNITIVE DAMAGES CLAIM PREVENTS REMAND; BAD FAITH PLEADED WHERE CASE IS NOT MERELY A VALUATION DISPUTE (Middle District)

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On July 1, 2019, Judge Munley issued two opinions in this UIM bad faith case: (1) finding removal proper; and (2) finding the insured pleaded a plausible bad faith case.

Removal was proper where potential punitive damages could take the case above the $75,000 jurisdictional minimum

Judge Munley ruled that the case would remain in federal court, after removal from state court. The insured allegedly suffered severe personal injuries, and the carrier refused to pay the $25,000 UIM policy limits. The state court complaint sought damages in excess of $50,000, punitive damages, interest, counsel fees and costs.

The court recognized that actual damages were limited to $25,000, and the punitive damage and attorney’s fees claims would have to exceed $50,000 to meet the $75,000 jurisdictional minimum. Judge Munley found that “[a] punitive damages award which is double the amount of the policy limit is reasonable and possible in such a case.” As remand is only proper when it appears to “a legal certainty that the plaintiff cannot recover, or was never entitled to recover, the jurisdictional amount [$75,000],” he denied the motion to remand.

The insured pleads a plausible bad faith claim where delays and refusal to pay the sum demanded are not mere disagreements over valuation

Judge Munley observed the insured alleged a severe injury, with damages beyond the tortfeasor’s coverage limits. The insured’s UIM coverage was $25,000, which the defendant carrier refused to pay. Judge Munley concluded the case, as pleaded, was not merely a disagreement over claim valuation, but made out a plausible bad faith claim.

The following averments were sufficient to survive the insurer’s motion to dismiss:

  1. “The amended complaint avers that defendant failed to effectuate a prompt fair and equitable settlement of plaintiff’s claim and compelled her to seek legal redress and commence litigation to recover the benefits to which she was entitled.”

  2. “Further, defendant ignored and discounted the severity of plaintiff’s injuries.”

  3. “Also, defendant did not promptly evaluate the claim, but rather engaged in dilatory and abusive claims handling by delaying the valuation of plaintiff’s claim and failing to pay the claim.”

  4. “The amended complaint also suggests that defendant failed to timely investigate or to make a reasonable settlement offer.”

  5. “Defendant further delayed by asking for authorization to receive medical records which were already in its possession.”

The court also refused to dismiss an attorney’s fee demand under the breach of contract count, as such fees might prove permissible under the Motor Vehicle Financial Responsibility Act (MVFRL).

Dates of Decision: July 1, 2019

Pivtchev v. State Farm Mutual Auto Insurance Co., U. S. District Court Middle District of Pennsylvania No. 3:19cv150, 2019 U.S. Dist. LEXIS 109378 (M.D. Pa. July 1, 2019) (Munley, J.)

Pivtchev v. State Farm Mutual Auto Insurance Co., U. S. District Court Middle District of Pennsylvania No. 3:19cv150, 2019 U.S. Dist. LEXIS 109377 (M.D. Pa. July 1, 2019) (Munley, J.)

STATUTORY ATTORNEY’S FEES AND CONTINGENCY ENHANCEMENTS (Philadelphia Federal)

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The case at hand did not involve statutory bad faith, but relied on one of the Third Circuit’s leading bad faith cases, Polselli v. Nationwide Fire Insurance Company, for guidance on the issue of determining statutory attorney fee enhancements. Judge Kearney provides a good summary of Polselli’s key points.

[We are only highlighting Polselli in this post, and refer the reader to Judge Kearney’s general discussion on fee enhancement criteria as set forth in his opinion, which can be found here.]

First, Judge Kearney defined the meaning of the words being analyzed and the fees at issue:

“In a statutory fee shifting case, the attorney’s recovery is contingent on a court awarding its reasonable hourly fees (a lodestar) only if the [plaintiff] succeeds; but, a contingency could also mean a percentage of the total recovery awarded … regardless of the invested time. As we would not compare the lodestar to a percentage fee in this context and [plaintiff’s counsel] swears the lawyers kept regular time records and the firm generates approximately $500,000 annually in hourly billings, we presume [plaintiff’s counsel’s] use of the term ‘straight contingency fee’ means the lodestar awarded today — and it is not also asking [plaintiff] to pay a ‘straight contingency’ on the total recovery.”

The issue in Polselli was “whether, and under what circumstances, a court may enhance a fee under Pennsylvania law to reflect the contingent risk of nonpayment assumed by the plaintiff’s attorney in accepting the case on a contingent-fee basis.”

The Third Circuit stated the following:

  1. A contingency fee enhancement does not apply in every case.

  2. A trial court can “enhance the lodestar amount to account for a particular case’s contingent risk only to the extent that those factors creating the risk are not already taken into account when calculating the lodestar amount.”

  3. Trial courts must “’exercise caution’ in considering an enhancement ‘so as not to skew the calculation of a reasonable rate by double counting’”.

[By way of example, “if the complexity of a case is reflected in the high number of hours researching the complex issues or in the relatively high regular hourly rate of the attorney, complexity does not justify a contingency enhancement.”]

  1. The trial court must consider “’whether the attorney was able to mitigate the risk of nonpayment….’”

[By way of example, “an attorney who enters into a contingency fee agreement ‘has significantly mitigated the continued risk’ because the attorney ‘obtains the prospect of compensation under the agreement substantially in excess of the lodestar amount.’”]

  1. Trial judges “must not … deviate from [their] ultimate responsibility — the calculation of a ‘reasonable’ fee.”

In sum, “[t]o the extent factors creating a contingent risk in a particular case are mitigated or already taken into account when calculating the lodestar amount, a contingency enhancement is not reasonable and should not be awarded.”

Date of Decision: February 25, 2019

Middlebrooks v. Teva Pharms. USA, Inc., U. S, District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-412, 2019 U.S. Dist. LEXIS 30530, 2019 WL 936645 (E.D. Pa. Feb. 25, 2019) (Kearney, J.)