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

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.)

COURT OUTLINES PRINCIPLES FOR REMOVING BAD FAITH CLAIMS TO FEDERAL COURT (Philadelphia Federal)

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Federal Judge Mitchell S. Goldberg sets out useful examples and principles concerning removal of statutory bad faith claims to federal court. The issue in these cases is the degree of certainty needed to measure claims made against the $75,000 jurisdictional threshold.

  1. The sum at issue is determined at the time the petition to remove is filed.

  2. Courts do not look at the low end of an open-ended claim; rather, the measure is “a reasonable reading of the value of the rights being litigated.”

  3. Punitive damages and attorneys’ fees are considered in statutory bad faith cases.

  4. There is no recovery cap on the punitive damages and attorneys’ fees available under the bad faith statute.

[Note: Attorney’s fees must still be reasonable, and the U.S. Supreme Court has placed limits on punitive damages to conform to due process requirements.]

  1. In a bad faith case, the “amount in controversy exceeds the $75,000 threshold where a plaintiff is able to recover a specified amount of damages, plus punitive damages and attorney’s fees….”

  2. The court gave two case examples of pleading specified damages along with punitives: (1) a claim for $53,315 in contract damages accompanied by a bad faith claim “in excess of $50,000 together with interests and costs” was sufficient; and (2) a claim for $28,682.41 in unpaid benefits plus punitive damages was sufficient.

  3. Under this line of cases, the instant plaintiff’s claim for $24,711.11 plus punitive damages meets the $75,000 pleading threshold.

  4. By contrast, failure to plead a specific unpaid benefit amount works against removal.

  5. In two cases where the action was remanded, the plaintiffs pleaded lost benefits in “an amount not in excess of $50,000” and punitive damages “not in excess of $50,000”.

In this case, even though the $75,000 threshold was met, the court still remanded the action because removal was untimely. The insurer argued that any damage sum was uncertain as pleaded in the complaint. Therefore, any effort at removal lacked “legal certainty” and the insurer had to serve requests for admissions to get sufficient clarity before it could properly remove the action. This process took many months.

The court disagreed, finding the complaint itself was adequate to make the monetary threshold determination. Thus, the thirty-day removal period from service of the complaint had long passed, without the insurer taking action to remove the case, and the case was remanded.

Date of Decision: January 28, 2019

Hutchinson v. State Farm Fire & Casualty Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 18-cv-2588, 2019 U.S. Dist. LEXIS 13820 (E.D. Pa. Jan. 28, 2019) (Goldberg, J.)

SEPTEMBER 2018 BAD FAITH CASES: OUTRAGEOUSLY EXCESSIVE FEE PETITION RESULTS IN DENIAL OF ALL FEES; 10 FACTORS TO CONSIDER IN EVALUATING A FEE PETITION (Third Circuit, Pennsylvania Bad Faith Statute)

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In this unusual case, the trial court entirely denied a successful bad faith plaintiff attorney’s fees petition, and the Third Circuit affirmed.

On appeal, the Third Circuit summarized the trial court opinion: “As the prevailing party under the Bad Faith Statute, [the insured] then submitted a petition for attorney’s fees, in which he requested an award of $946,526.43 in fees and costs. The District Court denied this request in its entirety, however.

In a thorough and well-reasoned one-hundred-page opinion, the court reviewed every time entry submitted, performed a traditional lodestar analysis, and concluded that eighty-seven percent of the hours billed had to be disallowed as vague, duplicative, unnecessary, or inadequately supported by documentary evidence. In light of that substantial reduction, the District Court deemed [the] request ‘outrageously excessive’ and exercised its discretion to award no fee whatsoever.”

The Third Circuit affirmed, and made clear that under circumstances of “outrageously excessive” fee demands, a trial court has discretion to award no fees at all, even though some fees were obviously incurred. The court stated:

“The District Court denied this petition in its entirety, reasoning that it was not adequately supported and that the requested amount was grossly excessive given the nature of the case. Finding no abuse of discretion, we will affirm and, in doing so, take the opportunity to formally endorse a view already adopted by several other circuits—that is, where a fee-shifting statute provides a court discretion to award attorney’s fees, such discretion includes the ability to deny a fee request altogether when, under the circumstances, the amount requested is ‘outrageously excessive.’”

The opinion gives some guidance on how to properly petition for attorney’s fees:

  1. Maintain contemporaneous time records. Even if not required, this is the best practice.

  2. It is best not to reconstruct time records. This is not forbidden, but will call for higher scrutiny in evaluating the fee petition.

  3. It is best not have one attorney reconstruct time records for another attorney, especially where the other attorney is no longer with the firm and cannot be consulted.

  4. Time entries should not be so vague that the amount of time needed to complete the task cannot be evaluated from the time entry. As the court states, the time entries must “be specific enough to allow the district court to determine if the hours claimed are unreasonable for the work performed.”

  5. Time spent must not be unnecessary or excessive.

  6. Purely clerical matters should not be billed at attorney rates.

  7. Trial preparation time should not be disproportionate to the time actually spent at trial.

  8. Do not seek to recover fees that never would have been billed to the client. (“Hours that would not generally be billed to one’s own client are not properly billed to an adversary.”)

  9. At trial, be prepared and know the applicable rules of court, especially when considerable time is billed for trial preparation.

  10. The billing attorneys themselves must put on evidence, by affidavit or testimony, of the reasonableness of their hourly rates.

In sum, “district courts have the discretion to deny a fee request in its entirety when the requested amount is ‘outrageously excessive’ under the circumstances.” “If courts did not possess this kind of discretion, ‘claimants would be encouraged to make unreasonable demands, knowing that the only unfavorable consequence of such conduct would be reduction of their fee to what they should have asked for in the first place.’”

“When a party submits a fee petition, it is not the ‘opening bid in the quest for an award.’ Rather, it is the duty of the requesting party to ‘make a good faith effort to exclude . . . hours that are excessive, redundant, or otherwise unnecessary, just as a lawyer in private practice ethically is obligated to exclude such hours from his fee submission.’”

Date of Decision: September 12, 2018

Clemens v. New York Central Mutual Fire Insurance Company, U. S. Court of Appeals for the Third Circuit No. 17-3150, 2018 U.S. App. LEXIS 25803 (3d Cir. Sept. 12, 2018) (Bibas, Greenaway, Restrepo, 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.

 

SEPTEMBER 2017 BAD FAITH CASES: COURT GIVES CLOSE SCRUTINTY TO APPLICATION FOR STATUTORY FEES AND INTEREST: (1) NO INTEREST ON PUNITIVE DAMAGES; (2) NO FEES AND COSTS FOR INADEQUATELY SUBSTANTIATED AND MAINTAINED BILLING RECORDS; (3) RETROACTIVE GUESSING TO RECREATE TIME OF OTHERS OVER A PERIOD OF YEARS, AND FAILURE TO EXPLAIN HOURLY RATE, ADMONISHED AND (5) MATTER REFERRED TO DISCIPLINARY BOARD (Middle District)

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This is a very lengthy opinion, focusing on a successful bad faith plaintiff’s pursuit of statutory interest, attorney’s fees, and costs. The total sought was over 9 times greater than the UIM and bad faith recovery, and the Court scrutinized each time entry invoiced in determining the outcome, which included the Court’s referral of the matter to the Disciplinary Board.

The insured received a $25,000 settlement on his UIM claim, and a $100,000 punitive damages verdict on his bad faith claim. After that verdict, the plaintiff pursued attorney’s fees, statutory interest and costs under the Bad Faith Statute, totaling $1,122,156.43.

Regarding interest, the insured argued that the unpaid balance of $125,000 should bear interest from April 1, 2010 (the date the insured’s claim began) through November 6, 2015 (the date of the jury’s verdict). The insured sought $175,630.70 in total interest.

The Court found this calculation flawed for multiple reasons. (1) The Court had previously found that the appropriate timeframe was June 21, 2011 through June 20, 2014. (2) The insured sought interest on the $100,000 punitive damage award, in addition to the $25,000 UIM payment. Such a request for interest on punitive damages is improper, as “there is no support either in the statute or in the applicable case law for such interest.” (3) The insured’s counsel failed to deduct the principal balance in calculating interest. (4) Using the prime rate of 3.25%, plus 3% statutory super-interest on the underlying UIM claim, the Court awarded $4,986.58 for interest.

In addressing attorney’s fees and litigation expenses, the Court reiterated that the purpose of an award of attorneys’ fees under § 8371 is “to make the successful plaintiff whole by allowing the plaintiff to recoup funds unnecessarily expended to force an insurance company to pay that which it should have paid.”

In reviewing the request for fees and costs, the Court found that billing records were not properly maintained. Rather, one attorney reconstructed all time entries for every attorney, paralegal, and IT staff member billing time on the matter over a six-year period. This attorney did so by guessing as to how long each task took. The Court repeatedly referenced the word “guess” in the Opinion. (E.g., the Court stated: “In addition to the unconscionable number of vague entries which have been billed for (or more accurately guessed about) by the plaintiff’s counsel, there also appear to be a number of duplicative entries in the bad faith time logs for which no explanation is provided.”)

The Court scrutinized every entry billed, finding “that a vast number of the entries for paralegal services on the UIM claim should be disallowed as vague, excessive, duplicative or unnecessary.” Thus, the Court disallowed 84 hours out of a total of 106.5 hours submitted for paralegal services on the UIM claim, a 79% reduction.

The Court found the same problems with respect to the paralegal hours billed for the bad faith claim, and disallowed 177.75 hours out of a total of 198 hours submitted, for a 90% reduction.

The Court found that entries submitted for the attorneys’ services also suffered from problems of vagueness and being duplicative. The Court stated that the “[insured’s] counsel . . . failed to meet even the most basic burden of providing the rate(s) charged for the[] entries, let alone establishing the reasonableness of such rate(s).” For the UIM claim, the Court disallowed all but 4 attorney hours from the 99 submitted, a 96% reduction. With respect to the bad faith claim, counsel submitted 1,984 attorney hours. The Court disallowed 1,662.5 of those hours, an 84% reduction. The Court additionally reduced the hours billed by the IT staff by 71%.

Lastly, the Court admonished counsel for failing to provide any justification for an hourly rate of $420. The Court forwarded a copy of its opinion to the Disciplinary Board of the Supreme Court of Pennsylvania.

The District Court’s decision to award no fees at all because of the excessively outrageous fee request was affirmed by the Third Circuit, on September 12, 2018.

Date of Decision: August 29, 2017

Clemens v. New York Cent. Mut. Fire Ins. Co., No. 3:13-2447, 2017 U.S. Dist. LEXIS 138557 (M.D. Pa. Aug. 29, 2017) (Mannion, J.)

AUGUST 2017 BAD FAITH CASES: COURT ADDRESSES NON-STATUORY PUNITIVE DAMAGE, SUPER-INTEREST AND ATTORNEY’S FEES CLAIMS; DIFFERENCE BETWEEN CONTRACTUAL DUTY OF GOOD FAITH AND BREACH OF FIDUCIARY DUTY; NO STATUTORY RIGHT TO WITNESS FEES; AND ADEQUACY OF DAMAGE PLEADINGS (Philadelphia Federal)

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This case provides an explanation of the distinct rights to relief under claims of breach of contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, and Pennsylvania’s Bad Faith Statute, 42 Pa. Cons. Stat. Ann. § 8371.

After a severe storm damaged the insured’s home, pool, and automobile, the insurer’s agent initially estimated the cost of repairs at $119,111.16 actual cash value and $131,185.96 replacement cost value. The insurer paid $119,111.16. No contractor agreed to make the repairs for that amount. One contractor gave the insured an estimate of $288,614.29 for the repairs. The insurer increased its loss estimate to $128,778.67 actual cash value and $141,166.41 replacement cost value.

The insured then sued for breach of contract (Count I), breach of the implied covenant of good faith and fair dealing and breach of fiduciary duty (Count II), and statutory bad faith (Count III). The insurer moved to strike the punitive damage claims in Counts I and II. The Court agreed, explaining that “[t]he law in Pennsylvania has always been that punitive damages cannot be recovered for breach of contract.”

The insurer also moved to strike the insured’s claims in Count II, arguing that Pennsylvania law does not recognize these distinct causes of action where a breach of contract claims is already alleged. The Court dismissed the insured’s breach of the implied covenant of good faith and fair dealing claim with prejudice, as it recognized that such claims “are subsumed in a breach of contract claim.”

As to the breach of fiduciary duty claim, the Court held that while a fiduciary relationship does not exist as a matter of law between the insurer and the insured, an insured could plead such facts that give rise to such a relationship. Thus, the Court dismissed that claim without prejudice, giving the insured the ability to plead such facts.

The insurer also moved to strike references to attorneys’ fees in Counts I and II. The Court agreed, finding that “there can be no recovery of attorneys’ fees . . . absent an express statutory authorization . . . .” The motion to strike also requested the Court to strike the insured’s request to recover interest at the prime rate plus three-percent in Counts I and II. Noting that only Pennsylvania’s bad faith statute authorizes such a super-interest remedy, the Court struck these references.

Additionally, the insurer argued that the Court should strike references to the insured’s alleged damages in Counts I and II because the complaint failed to allege sufficient facts to show that the damages resulted from the alleged breach of contract. The Court disagreed, and found that “details about [the insured’s] damages undoubtedly relate to his claim for breach of contract and, if proven, will be material to damages calculations.” Thus, the insured’s references to his alleged damages were not immaterial, impertinent, or scandalous, and the Court declined to strike them.

Lastly, the insurer sought to dismiss the insured’s request for expert witness fees in Count III (the bad faith claim). Citing prior case law from the Pennsylvania Superior Court, the Court held that the plain language of Section 8371 precludes recovery of expert witness fees, and therefore struck the insured’s request for such fees.

Date of Decision: August 14, 2017

Aaron v. State Farm Fire and Casualty Company, No. 17-2606, 2017 U.S. Dist. LEXIS 128994 (E.D. Pa. Aug. 14, 2017) (Pappert, J.)

 

MARCH 2016 BAD FAITH CASES: PHILADELPHIA COURT (1) APPLIES PENNSYLVANIA LAW TO STATUTORY BAD FAITH CLAIM AFTER CONDUCTING CHOICE OF LAW ANALYSIS; (2) FINDS GENUINE ISSUE OF MATERIAL FACT EXISTED AS TO WHETHER INSURER’S CLAIMS HANDLING OVER PAYMENTS OF DEFENSE COUNSEL FEES AMOUNTED TO BAD FAITH; (3) DISMISSES INSURED’S BREACH OF FIDUCIARY DUTY CLAIM AFTER FINDING IT WAS REDUNDANT OF BAD FAITH CLAIM (Philadelphia Commerce Court)

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In IMS Health Inc. v. Zurich American Insurance Company, the insured brought action against its insurer.  Suit previously had been filed in Philadelphia’s federal district court against the insured for tortious interference with contract and unfair competition under Pennsylvania common law. The insured tendered the defense, and the insurer agreed to defend the Philadelphia federal action under a reservation of rights.

After an attorney fee rate dispute between the insured and the insurer, the insurer filed a declaratory judgment action in the United States District Court for the District of Connecticut concerning coverage as well as rates payable to the insured’s two sets of attorneys. Shortly thereafter, the insured filed the instant action in the Philadelphia Commerce Court against the insurer, and both parties filed partial motions for summary judgment in the Commerce Court.

The Commerce Court first addressed the insured’s claim that application of a 10% discount by the insurer on already reduced rates predetermined by the insurer constitutes a breach of the duty to defend and is bad faith. As a question of fact existed as to whether the insurer applied the discount improperly, the court refused to grant summary judgment on this issue.  Next, the court found that Connecticut law applied on the issue of whether the insurer could seek recoupment of attorney’s fees paid to defend the insured, a remedy not available under Pennsylvania law.

The court reached a different decision on the applicability of Pennsylvania law on bad faith, on the issue of bad faith in claims handling in the non-payment of defense costs for the Philadelphia federal action.

The insurer argued that Connecticut law should apply to the bad faith claim, while the insured argued that Pennsylvania law should apply. The court found that a true conflict existed, as Connecticut recognizes a common law bad faith claim based on breach of an implied covenant of good faith and fair dealing as well as two statutory claims, but does not recognize a tort of bad faith based on claims mishandling.

However, Pennsylvania provides for a private cause of action for bad faith insurance disputes under its bad faith statute, which can include a bad faith claim for claims handling.  In this case, the claims handling at issue was the calculation and payment of attorneys’ fees to the insured’s defense counsel in the federal action.

After conducting a conflict of law analysis, the court found Pennsylvania had the greater interest in applying its bad faith statute to “curtail certain bad faith acts by insurers” by “formally imposing a duty of good faith on insurers based on the apparent determination that such a provision was necessary to deter bad faith.”

The court went on to deny summary judgment under Pennsylvania law, as genuine issues of material fact existed as to whether the insurer’s claims handling concerning the attorney’s fees amounted to bad faith.

Finally, the court granted the insurer’s motion for summary judgment on the breach of fiduciary duty claim filed by the insured, reasoning that Pennsylvania law “does not recognize a separate tort-law cause of action for breach of fiduciary duty against an insurer” aside from certain exceptions, and that Pennsylvania courts have dismissed claims for breach of fiduciary duty in the insurance context as “duplicative of statutory bad faith claims.”

Here, the insured’s claim for breach of fiduciary duty arose from the same allegations of misconduct concerning the claims handling as to attorneys’ fees. Accordingly, the breach of fiduciary duty claims was found to be redundant of the bad faith claim and dismissed.

Date of Decision:  December 15, 2015

IMS Health Inc. v. Zurich Am. Ins. Co., April Term 2014, NO. 2046, 2015 Phila Ct. Com. Pl. LEXIS 387 (Phila. C.C.P. December 15, 2015) (McInerney, J.) (Commerce Program)

DECEMBER 2015 BAD FAITH CASES: (1) INSURED CANNOT PLEAD ATTORNEYS’ FEES IN BREACH OF CONTRACT CLAIM STANDING ALONE; (2) NO SEPARATE ACTION FOR BREACH OF IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING; AND (3) BOILERPLATE ALLEGATIONS OF STATUTORY BAD FAITH ARE GOING TO BE DISMISSED, AT BEST WITHOUT PREJUDICE, WHERE NO SUPPORTING FACTS ARE ALLEGED (Philadelphia Federal)

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In Soldrich v. State Farm Fire & Casualty Company, the court made three relevant holdings:

  1. An insured cannot include a claim for attorneys’ fees in its breach of contract count, standing alone, on the basis that attorneys’ fees may be awarded for violation of the bad faith statute. Such a claim can only be pleaded in the bad faith statute.

  2. An insured cannot plead a distinct cause of action for the breach of the implied covenant of good faith and fair dealing separate from a breach of contract claim, and where the allegations and relief sought are identical to the statutory bad faith claim.

  3. Statutory bad faith claims will be dismissed without prejudice where the complaint alleges a boilerplate litany of offensive conduct which is conclusory in nature, and fails to plead any substantiating facts.

In this case, the ineffective recitation was: “Plaintiff alleges that Defendant has failed to properly adjust Plaintiff’s claim and has acted in bad faith by (a) failing to pay the full amount owed to him under the policies; (b) failing to timely pay the amounts owed; (c) scheming to defraud him; (d) recklessly disregarding its obligations under the policy; (e) accepting premiums from him without intending to pay monies owed for covered losses; (f) fraudulently telling him that the losses were not covered despite evidence that they were; (g) claiming that losses were due to uncovered causes despite having no evidence to support that contention; (h) claiming that losses were due to uncovered causes despite evidence to support a covered loss; (i) unilaterally denying covered losses without proper investigation; and (j) falsely misrepresenting its responsibilities under the policy. Comp. ¶ 56. Furthermore, Plaintiff alleges that Defendant unreasonably and unjustifiably delayed the handling of Plaintiff’s insurance claim and knew or disregarded the fact that it was doing so. Id. ¶¶ 57-59. This failure to process the Plaintiff’s claims in a reasonable matter, Plaintiff alleges, amounts to bad faith by the Defendant. Id. ¶¶ 61.”

Date of Decision:  November 25, 2015

Soldrich v. State Farm Fire & Cas. Co., No. 5:15-cv-01438, 2015 U.S. Dist. LEXIS 159125 (E.D. Pa.  November 25, 2015) (Leeson, J.)

JULY 2015 BAD FAITH CASES: (1) INSURANCE BAD FAITH STATUTE DOES NOT APPLY TO SURETIES; (2) PRINCIPLES ALLOWING AWARD OF ATTORNEY’S FEES FOR BAD FAITH CONDUCT IN BRINGING/DEFENDING/PURSUING LITIGATION CANNOT BE USED TO END RUN THE INSURANCE BAD FAITH STATUTE (Philadelphia Federal)

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In Board of Trustees, Roofers Union Local 30 v. Liberty Mutual Insurance Company the court reiterated, with thorough citation of authority, that Pennsylvania’s insurance bad faith statute does not apply to sureties.

The court also made clear that a plaintiff cannot use the argument that it is entitled to attorney’s fees under a bad faith, wanton, oppressive, and vexatious conduct theory, as such extraordinary relief from the “American Rule” that each side pays its own attorney’s fees in the absence of a statute or contract allocating fees, addresses an entirely different context than the insurance bad faith statute. This exception, as set forth in federal case law cited by the court, “deals with either bad faith initiation/defense of the lawsuit or conduct of the party or its attorney during the course of the litigation—it is not intended as an end run around the insurance bad faith statutes or to punish bad faith that does not involve willful abuse of the judicial process.”

Though not mentioned in this federal opinion discussing Third Circuit case law on awarding attorney’s fees in this limited context, the same argument would likely apply to Pennsylvania statutes 42 Pa.C.S. §§ 2503(6)(7)(9), on the right to receive attorney’s fees as taxable litigation costs:

“The following participants shall be entitled to a reasonable counsel fee as part of the taxable costs of the matter: (6) Any participant who is awarded counsel fees as a sanction against another participant for violation of any general rule which expressly prescribes the award of counsel fees as a sanction for dilatory, obdurate or vexatious conduct during the pendency of any matter.   (7) Any participant who is awarded counsel fees as a sanction against another participant for dilatory, obdurate or vexatious conduct during the pendency of a matter. (9) Any participant who is awarded counsel fees because the conduct of another party in commencing the matter or otherwise was arbitrary, vexatious or in bad faith.”

Date of Decision:   July 14, 2015

Bd. of Trs. v. Liberty Mut. Ins. Co., CIVIL ACTION NO. 15-2820, 2015 U.S. Dist. LEXIS 91723 (E.D. Pa. July 14, 2015) (Buckwalter, J.)