Archive for the 'PA – Common Law Bad Faith (contractual or fiduciary basis)' Category

“DEEMS EXPEDIENT” CLAUSE UNDERMINES BAD FAITH SETTLEMENT CLAIM; 4 YEAR STATUTE OF LIMITATIONS APPLIES TO CONTRACT BASED BAD FAITH CLAIMS (Philadelphia Federal)

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The essence of the insured’s case is the insurer settled claims against the insured without the insured’s knowledge or permission, and without adequate investigation.  The insurer paid $995,000 out of a $1 Million policy to the person injured in the insured’s ambulance. The insured asserts the carrier overpaid to settle, resulting in $200,000 in damages from increased premiums.

The complaint did not include any reference to statutory bad faith, 42 Pa.C.S. § 8371. Thus, the court found that the sole “bad faith” claim at issue was a breach of the contractual duty of good faith and fair dealing.

The insurer moved to dismiss based on section 8371’s two-year statute of limitations. Since this is a contract based bad faith claim, however, the statute of limitations is four years, and that argument was rejected.

As to the merits, the carrier asserts the policy language expressly provides it can settle any claim or suit as it considers appropriate. Thus, it has complete authority to settle within policy limits at any amount.  The insured argues this is “absurd,” but offers no authority to support its position.

The court ruled for the insurer, observing: “Pennsylvania law disfavors bad faith claims where a policy grants the insurer discretion to settle and where such settlement is within policy limits. However, ‘in limited circumstances,’ ‘a claim for bad faith may … be asserted against the insurance company notwithstanding a ‘deems expedient’ provision … if such settlement was contrary to the intent and expectation of the parties.’” Here, the court found the “settle when appropriate” language to be the equivalent of a deems expedient provision.

The court cited two precedents where a deems expedient provision undermined the possibility of a bad faith claim. In the first, there was no evidence the parties did not freely negotiate policy terms. As to the second, the Third Circuit interpreted “’deems expedient’ clauses broadly—so broadly as to allow insurers to settle claims subject to such clauses ‘for nuisance value of the claim’ or even where a ‘suit … presents no valid claim against the defendants.’”

In the present case, the insured does not contend the deems expedient clause was not freely negotiated. Moreover, even if the insurer could have done more to investigate the underlying claim, “the ‘deems expedient’ clause in its policy afforded [the insurer] the option of settling … simply because it preferred settlement over further investigation of his claim.”

Thus, the bad faith claim was dismissed with prejudice.

Date of Decision: July 22, 2020

Healthfleet Ambulance, Inc. v. Markel Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 20-2250, 2020 U.S. Dist. LEXIS 129185 (E.D. Pa. July 22, 2020) (Beetlestone, J.)

PLAINTIFF WAS NOT A NAMED INSURED AND COULD NOT CLAIM THE INSURER BREACHED A FIDUCIARY DUTY UNDER THE POLICY (Philadelphia Federal)

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Plaintiff asserted that the insurer breached a fiduciary duty. The insurer moved to dismiss, alleging plaintiff was not a named insured. Rather the policy was issued to his mother.  The court rejected plaintiff’s argument that because he was a co-owner of the underlying asset he should be treated as an insured, and the claim was dismissed with prejudice.

The court observed that under Pennsylvania law:

  1. “[A]n insurer does not have a fiduciary duty to an insured, except in limited circumstances such as where the insurer asserts a right to defend claims against the insured.”

  2. “[T]he existence of a fiduciary duty . . . is predicated upon an existing contractual relationship between the insurer and the insured.”

  3. “To determine who is an insured under a given policy, the Court ‘must look to the terms of the [p]olicy.’”

Applying these principles, the plaintiff could not claim a breach of fiduciary duty when he was not a named insured.  “Notwithstanding his alleged co-ownership of the underlying asset, plaintiff cannot claim that the defendants owed him a fiduciary duty or that he was entitled to recover under the terms of the policy.”

Date of Decision: July 13, 2020

Deckard v. Steven Emory, U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-5182, CIVIL ACTION NO. 19-2001, 2020 U.S. Dist. LEXIS 122720 (E.D. Pa. July 13, 2020) (DuBois, J.)

NO UM BAD FAITH CLAIM PLEADED; FIDUCIARY DUTY ALLEGATIONS STRICKEN FROM COMPLAINT (Middle District)

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As in the two Eastern District cases summarized earlier this week, Middle District Judge Jennifer P. Wilson dismissed a bad faith claim with leave to amend. Judge Wilson also struck fiduciary duty allegations from the complaint in this uninsured motorist case.

The complaint fails to allege bad faith

The insured alleged the insurer was “supplied with documentation sufficient to fully and fairly evaluate the uninsured motorist claim, but [the insurer] failed to do so.” Judge Wilson found the insured failed to plead specific facts as to what might qualify as bad faith conduct. Plaintiff simply alleges the bad faith elements, and “does not lay out ‘any facts that describe who, what, where, when, and how the alleged bad faith conduct occurred.’” Judge Wilson cited Western District Judge Bissoon’s Mondron opinion to support her conclusion, though she did allow plaintiff leave to amend.

No fiduciary duty in UM/UIM context

The insurer also successfully moved to strike allegations that it owed a fiduciary duty.

The court observed that the insured’s breach of contract claim was based on the UM policy benefits. In Pennsylvania, there is no fiduciary duty arising out of insurance contracts that goes beyond the duty of good faith and fair dealing “until an insurer asserts a stated right under the policy to handle all claims asserted against the insured. … These are not the circumstances in an uninsured motorist claim.”

Rather, the Pennsylvania Supreme Court makes clear in the UM/UIM context “an insurance company’s duty to its insured is one of good faith and fair dealing. It goes without saying that this duty does not allow an insurer to protect its own interests at the expense of its insured’s interests. Nor does it require an insurer to sacrifice its own interests by blindly paying each and every claim submitted by an insured in order to avoid a bad faith lawsuit.”

Thus, plaintiff’s allegations of a fiduciary duty were “not pertinent to her breach of contract claim, which only requires an insurer to act in good faith and fair dealing towards the insured.” As allowing the fiduciary duty allegations would only confuse the actual issues in the case, the motion to strike those allegations was granted.

Date of Decision: June 17, 2020

Miller v. State Farm Mutual Automobile Insurance Co., U.S. District Court Middle District of Pennsylvania Civil No. 1:20-CV-00367, 2020 U.S. Dist. LEXIS 105766 (M.D. Pa. June 17, 2020) (Wilson, J.)

NO CONTRACTUAL BAD FAITH POSSIBLE WHERE POLICY’S EXPRESS LANGUAGE DID NOT REQUIRE THE ACTIONS PLACED AT ISSUE (Third Circuit – Pennsylvania Law)

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A policy lapsed for failure to make payments. Plaintiff brought an action for breach of the duty of good faith and fair dealing, alleging that the insurer by failed to notify him a premium was due. The trial court granted the insurer summary judgment and the Third Circuit affirmed.

This was a contract-based claim, not a statutory bad faith claim. As the Third Circuit observed, “Pennsylvania law implies a duty of good faith and fair dealing into every contract.” Contractual good faith means “[h]onesty in fact in the conduct or transaction concerned.” Examples of contractual bad faith include, e.g., “evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party’s performance.” However, “[t]he duty of good faith ‘is not divorced from the specific clauses of [a] contract and cannot be used to override an express contractual term.’”

The insurance agreement did not require the insurer to give notice of premium lapses and the consequence of such lapses. The insurer had an internal business practice to give such notices, and attempted to do so in this case, but there was considerable complication concerning the correct address and the notices never reached plaintiff. This was of no moment, however, because the duty of good faith is “tied specifically to and is not separate from the duties a contract imposes of the parties,” and here, the policy did not include a requirement that the insurer remind plaintiff that premiums were due “or otherwise notify him before the policy lapses.”

Alternatively, under the facts at hand, even if such a duty was imposed there was still no bad faith. The insurer did mail non-payment notices to the address it had for plaintiff, which was not plaintiff’s actual address. However, it was plaintiff’s own lack of diligence in failing to provide the correct address leading to his never receiving the notices.

Thus, summary judgment for the insurer was affirmed.

Date of Decision: May 29, 2020

Power v. Erie Family Life Insurance Co., U.S. Court of Appeals for the Third Circuit No. 19-2994, 2020 U.S. App. LEXIS 17083 (3d Cir. May 29, 2020) (Ambro, Hardiman, Restrepo, JJ.)

 

STATUTORY BAD FAITH CLAIMS ONLY AVAILABLE TO INSUREDS; COMMON LAW DUTY OF GOOD FAITH SUBSUMED IN CONTRACT CLAIM (Philadelphia Federal)

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The insurer issued a policy to the plaintiff’s lender, the mortgage holder. The plaintiff sought relief under the policy, and the insurer argued plaintiff was not a party or third party beneficiary to the policy. The plaintiff brought breach of contract and bad faith claims. The insurer successfully moved to dismiss both claims.

The court first ruled that plaintiff was not an insured or third party beneficiary to the policy. Thus, the breach of contract claim failed.

The court then held that plaintiff could not bring a statutory bad faith claim when he had no rights under the policy. Thus, it was “immaterial that [the plaintiff] may have sufficiently alleged facts to support the other elements of the bad faith cause of action.”

Finally, plaintiff asserted a “common law” bad faith claim. The court observed that Pennsylvania has no common law bad faith tort remedy. Pennsylvania does recognize a contract based claim for breach of the implied duty of good faith and fair dealing, separate from statutory bad faith. However, this common law contact claim also failed.

As already stated, the plaintiff was not a party or a third party beneficiary to the insurance contract, thus there could be no contract based bad faith claim. Further, the breach of the contractual duty of good faith and fair dealing is not separate from the breach of contract claim. In alleging the insurer “violated the duty of good faith and fair dealing by denying benefits under the policy, his bad faith claim is subsumed into the breach of contract claim and fails with that claim.”

Date of Decision: April 13, 2020

Weiser v. Great American Insurance Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-1218-KSM, 2020 U.S. Dist. LEXIS 63839 (E.D. Pa. April 13, 2020) (Marston, J.)

 

WHERE THERE IS NO DUTY TO DEFEND THERE IS NO STATUTORY BAD FAITH; NO COMMON LAW BAD FAITH WHERE NO BREACH OF CONTRACT (Western District)

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The court determined there was no coverage due under an additional insured endorsement. Thus the insured lost on its breach of contract and declaratory judgments claims. It likewise failed to salvage its bad faith claims.

In addressing the bad faith claim, the court relied on the Third Circuit’s recent decision in 631 N. Broad Street v. Commonwealth Land Title, observing “that where there is ‘no duty to defend, there could be no [statutory] bad faith claim against’ the insurer.”

The insured tried to evade this result by asserting it still had a common law bad faith claim. However, the only common law bad faith cause of action available in Pennsylvania arises out of the insurance contract. If the contract claim fails, the common law bad faith claim fails of necessity. Thus, “[b]ecause the Court dismisses [the] breach-of-contract claim based on lack of potential for coverage, so too must it dismiss a subsumed claim of common law bad faith.”

On the common law bad faith holding, the court relied upon the Eastern District decisions in CRS Auto Parts and Tubman, and the Middle District decisions in Bukofsi and Porter.

Date of Decision: March 13, 2020

NVR, Inc. v. Mutual Benefit Insurance Co., U.S. District Court Western District of Pennsylvania No. 2:19-cv-26-NR, 2020 U.S. Dist. LEXIS 44135 (W.D. Pa. Mar. 13, 2020) (Ranjan, J.)

BOILERPLATE BAD FAITH COMPLAINT FAILS; NO COMMON LAW BAD FAITH CLAIM RECOGNIZED (Philadelphia Federal)

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This bad faith case involved a first party property damage dispute. The insured alleged he fully cooperated in the insurer’s investigation, but the insurer wrongly denied his claim. He brought a breach of contract, common law bad faith, and statutory bad faith action. The insurer moved to dismiss both bad faith claims. The court found the insured’s bare bones and conclusory allegations did not meet federal pleading standards, and dismissed the complaint.

On the statutory bad faith claim, the insured did “nothing more than set forth a threadbare recital of the elements of this cause of action, alleging [the] denial of his claim ‘was unreasonable, baseless, without foundation, made in bad faith, and made without any basis in fact whatsoever.’”

The following alleged facts failed to make out a statutory bad faith claim:

  1. The insured had a policy with the insurer;

  2. His car was stolen, stripped and destroyed;

  3. He submitted a proof of loss, other documentation, and sat for a lengthy statement under oath;

  4. He was truthful throughout the investigation and engaged in no fraudulent commissions or omissions;

  5. He demanded an actual cash value payment; and

  6. The insurer denied the claim.

These allegations, however, allowed for no plausible inference that (1) the insurer lacked a reasonable basis to deny benefits or (2) the insurer knew or recklessly disregarded its lack of a reasonable basis.

Next, the court observed that there is no common law bad faith cause of action in Pennsylvania for refusing to pay benefits or as to claims handling. The insured did not oppose the motion to dismiss on this basis, and the common law count was dismissed as well. [Note: There is no discussion of any distinction between a tort-based common law claim, as rejected in D’Ambrosio, and the type of contractual common law bad faith claims permitted in cases like Cowden or Birth Center.]

Date of Decision: February 21, 2020

Diaz v. Progressive Advanced Ins. Co., U. S. District Court Eastern District of Pennsylvania Case No. 5:19-cv-06052-JDW, 2020 U.S. Dist. LEXIS 29708 (E.D. Pa. Feb. 21, 2020) (Wolson, J.)

STATUTORY BAD FAITH CLAIM BARRED BY TWO-YEAR STATUTE OF LIMITATIONS; PUTATIVE COMMON LAW BAD FAITH BARRED BY TWO-YEAR CONTRACTUAL LIMITATION; NO COMMON LAW BAD FAITH IN FIRST PARTY CASES (Middle District)

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The insurer denied coverage on November 3, 2015. The insured sued for breach of contract and bad faith on September 20, 2019. The insurer moved to dismiss the contract claim based on a contractual two-year limitation period, and the bad faith claim under the controlling two-year statute of limitations. The relevant facts were evident on the face of the complaint. Therefore, the court could decide the issues on a motion to dismiss.

As to the contract claim, because the “policy had a 2-year suit limitation, there is no merit to plaintiff’s contention that Pennsylvania’s 4-year statute of limitations for contract claims under 42 Pa.C.S.A. §5501 should control in this case.” The insured nowhere alleged the insurer “led her to believe the two-year limitations period would not be enforced or that [the insurer] committed any actions that induced her to file her complaint after the two year deadline.” The contract claim was dismissed with prejudice.

As to the bad faith claim, “since ‘Plaintiff’s claim of bad faith is … based on Defendant’s denial of benefits to Plaintiff under the Policy, [the] Court can therefore consider the [November 3, 2015 denial of coverage letter] attached by Defendant to its Motion to Dismiss.” The court would not let the plaintiff escape the timing issue by simply leaving out the denial date and not attaching a document on which it relied in its complaint in pleading its case, where the defendant then attaches to its motion.

Further, the court found “[no] doubt that the two year statute of limitations for a bad faith suit begins to run when insured first learned that the insurance company was denying coverage.” Thus, the statutory bad faith claim was time barred.

[Note on statute of limitations triggers and the scope of the bad faith statute. The court observes that the two year bad faith statute of limitations begins to run at the time coverage is denied, and cites case law for this proposition, also phrased as when claims for benefits are denied. As noted previously on this blog, there are cases holding that the bad faith statute applies not only to coverage denial, but distinctly to various claims handling misconduct. Under this theory, the statute of limitations cannot begin to run at the time coverage is denied, because, e.g., no coverage may be due and bad faith is based solely on egregious claims handling failures. Does this mean that the statute of limitations case law makes clear that statutory bad faith must be based on a benefit denial, see one example here, and these bad faith claims handling cases are wrongly decided; or that there are other triggers for the two-year statute beginning to run wholly independent of a coverage denial?

The governing case on the statutory bad faith statute of limitations is the Pennsylvania Supreme Court’s decision in Ash v. Continental Ins. Co., 932 A.2d 877 (Pa. 2007). In Ash, a clear majority of Pennsylvania’s Supreme Court followed Chief Justice Cappy’s Toy v. Metropolitan Life Ins. Co. opinion. The Ash majority states: “The bad faith insurance statute, on the other hand, is concerned with “the duty of good faith and fair dealing in the parties’ contract and the manner by which an insurer discharge[s] its obligation of defense and indemnification in the third party claim context or its obligation to pay for a loss in the first party claim context.” See Toy v. Metropolitan Life Ins. Co., 928 A.2d 186, 199 (Pa. 2007). It applies only in limited circumstances–i.e., where the insured first has filed ‘an action arising under an insurance policy’ against his insurer, see 42 Pa.C.S. § 8371–and it only permits a narrow class of plaintiffs to pursue the bad faith claim against a narrow class of defendants.” An article discussing Toy and Ash can be found here.]

The insured attempted to claim there was somehow a common law bad faith claim, subject to the four-year contract statute of limitations. Aside from the fact that the complaint alleged statutory bad faith, common law bad faith is solely contract based in Pennsylvania, and merges with the breach of contract claim. Thus, it would be subject to the same two-year contractual limitations period.

Finally, the court stated that in any event, common law bad faith did not apply to first party property damage claims, as were at issue in this case. The court relied on Judge Munley’s 2009 Bukofski decision on this point.

Date of Decision: February 13, 2020

Mazzoni v. Travelers Home & Mutual Insurance Co., U.S. District Court Middle District of Pennsylvania CIVIL ACTION NO. 3:19-2169, 2020 U.S. Dist. LEXIS 25513 (M.D. Pa. Feb. 13, 2020) (Mannion, J.)

MERELY RECITING THE ELEMENTS OF A BAD FAITH CLAIM WITHOUT SUPPORTING FACTS MERITS DISMISSAL; COMPENSATORY, CONSEQUENTIAL, AND INCIDENTAL DAMAGES NOT RECOVERABLE UNDER BAD FAITH STATUTE (Western District)

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The insured and insurer disputed the amount of coverage due on a homeowner’s property loss claim. The insured brought breach of contract and bad faith claims. The insurer moved to dismiss the bad faith claim for (1) inadequate pleading and (2) seeking damages not available under the bad faith statute.

The court observed, among other principles, that “[m]ere restatements of the elements of a claim are not entitled to the assumption of truth.” Similarly, the “generic invocation of statutory language is insufficient to satisfy [the] federal pleading burden.” Further, a plaintiff fails to state a plausible basis for recovery under the bad faith statute if the complaint is devoid of facts describing the “who, what, where, when, and how the alleged bad faith conduct occurred.” The insured’s complaint failed the test.

The complaint only set out “boilerplate legal conclusions such as [the insurer] failed to pay [the insured], failed to objectively and fairly evaluate the Claim, unreasonably withheld Policy benefits, acted unreasonably and unfairly, and denied the Claim without justification or good faith basis to deny the Claim.” Thus, the court dismissed the bad faith claim for failing to plead a plausible claim. It relied on the following cases, summarized previously on this Blog: Mondron, Myers, and Plummer.

Still, the dismissal was without prejudice, and the insured was given leave to amend her complaint.

On the other hand, the court dismissed with prejudice the insured’s statutory bad faith claims for compensatory, consequential, and/or incidental damages. Such damages are only available in common law bad faith cases, not for statutory bad faith claims.

Date of Decision: December 31, 2019

Bick v. State Farm Fire & Casualty, U. S. District Court Western District of Pennsylvania No. 2:19-cv-00821-CRE, 2019 U.S. Dist. LEXIS 222775 (W.D. Pa. Dec. 31, 2019) (Reed Eddy, M.J.)

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.)