Archive for the 'PA – Conflict of Interest' Category

BAD FAITH CLAIM BIFURCATED AND STAYED; REQUEST TO DEPOSE INSURER’S COUNSEL QUASHED AS COVERAGE COUNSEL COMMUNICATING WITH INSURED IS COMMONPLACE AND DOES NOT MAKE COUNSEL A FACT WITNESS (Middle District)

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In this first-party property damage case, Judge Conner addressed a motion to sever and stay a bad faith claim, as well as a motion for a protective order to quash the deposition of the carrier’s coverage counsel, who was also defending the breach of contract and bad faith action.

Motion to Sever and Stay Results in Bifurcation and Stay

Judge Conner first noted the difference between a Rule 21 motion to sever and stay, and a Rule 42 motion to bifurcate, observing that severance results in two separate and distinct actions, resulting in separate judgments. In this case, the insurer had moved to sever, but also included in its motion bifurcation as a form of relief.

“Severance is appropriate when the claims are ‘discrete and separate,’ each capable of resolution without dependence or effect on the other.” Factors include whether the two claims will require different evidentiary proof, judicial economy, and party prejudice. Judge Conner observed the wealth of case law addressing severance and bifurcation in insurance bad faith cases, but noting that the cases go both ways.

As in other cases, the insurer here argued, “irreparable prejudice from premature and potentially unnecessary disclosure of otherwise privileged information, inefficiency in litigating a secondary claim of bad faith that may be mooted by resolution of the coverage claim, and jury confusion and the potential loss of [the insurer’s] chosen counsel if the claims proceed together.”

  1. The court agreed that the breach of contract claim and bad faith claim are separate and distinct, with only minor overlap. For example, “[i]nformation concerning how [the insurer] investigated and evaluated the coverage claim, its claims-handling policies, and its attorney and personnel communications regarding denial of coverage … are simply immaterial to the issue of whether coverage is required under the policy.”

  2. The court also found the prejudice element favored the insurer’s position. The insurer focused on revealing its attorneys’ advice, opinions and strategy as providing an undue advantage in the insured’s contract case, where such information would not otherwise be discoverable. The insured focused on increased litigation expenses.

Judge Conner found “that although both parties have proffered potential prejudice, [the insurer’s] likely injury from denying separation of these claims outweighs the possible increased costs identified by [the insured]. As [the insurer] correctly notes, attorney-client privilege and the work product doctrine are long-held, venerated components of our legal system. …. Such protections are not absolute, but they should not be disregarded lightly. We do not dismiss [the insured’s] legitimate concern regarding litigation costs, but ultimately conclude that this factor also favors [the insurer].”

  1. On the judicial economy element, the court rejected the notion that a ruling denying coverage would moot the bad faith claim; instead observing that a bad faith claim can exist independently of a coverage denial. [Note: As recently reiterated on this Blog, there is a longstanding issue as to whether statutory bad faith can be pursued in Pennsylvania simply for poor claims handling, if there is no benefit due under the policy.] The court also rejected the notion that the likelihood of more complex discovery disputes if both actions are litigated together requires severance.

After weighing all factors, Judge Conner chose to bifurcate, rather than sever; and to stay discovery on the bad faith claim. He recognized other courts had ruled differently in insurance bad faith cases, but highlighted the fact that each case is unique, that judges have broad discretion, and that in “this” case bifurcation and stay were warranted.

Court denies insured’s request to depose the insurer’s counsel

The insured sought to depose the insurer’s defense counsel in the case, who was also involved in the underlying coverage dispute. The insurer moved to quash the deposition. As the only pending case was now the breach of contract claim, Judge Conner viewed the issue through that prism.

The insured argued that counsel acted as a claim investigator, and was thus a fact witness. However, it offered no support for that position. It sought to depose counsel to obtain his: “’thoughts and reasoning as to why certain information was or was not included in the denial letters,’ knowledge of the cause and extent of the loss, and reasons why ‘certain information was disregarded” and the claim ultimately denied.’” The court found this “either irrelevant to the breach of contract claim, privileged, discoverable through other means, or a combination thereof.”

“Furthermore, that [the insurer’s counsel] authored letters denying coverage and setting forth [the insurer’s] reasons for its denial has no bearing on whether his deposition is necessary on the breach of contract claim. The practice of insurers consulting with their attorney regarding coverage and having their attorney communicate with the insured is quite commonplace and does not transform [coverage counsel] into a fact witness.”

The court further recognized the potential issue that the deposition could result in counsel’s disqualification. This was another reason to quash the deposition in connection with the contract claim. Judge Conner did leave the door open for the insured to reassert its request to depose counsel in the bad faith case.

Dated: July 25, 2019

McFarland, LP v. Harford Mutual Insurance Cos., U. S. District Court Middle District of Pennsylvania CIVIL ACTION NO. 1:18-CV-1664, 2019 U.S. Dist. LEXIS 124038 (M.D. Pa. July 25, 2019) (Conner, J.)

Our thanks to Dan Cummins of the excellent Tort Talk Blog for bringing this case to our attention.

BAD FAITH ADEQUATELY PLEADED IN RAISING BIAS ON PART OF INSURER’S EXPERT (Middle District)

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As we posted earlier today, the theme is plaintiffs adequately pleading bad faith claims in federal court.

In this second post, the insured set out plausible bad faith claims in this property damage case by making specific factual allegations. The key assertions were that the insurer improperly “hired, retained and relied upon the opinion of an engineer or other professional knowing that such opinion would be favorable to [the insurer] on a financial incentive basis; and (2) disregarded information provided to it from the Plaintiffs that [the insurer’s] inspection and engineering report was inadequate, flawed, and erroneous.”

The court found the “complaint, taken as a whole, goes beyond a mere boilerplate recital of the elements of the statute. Rather, as we construe the complaint, it provides a chronology detailing alleged failures … to evaluate this claim in good faith. Instead, according to the plaintiffs [the insurer] relied upon false justifications to deny their claim; under-valuated their property; failed to account for the loss of use of the property; and demonstrated bad faith in its investigation of this insurance claim in 14 different ways, including specific allegations that [the insurer]: (1) hired, retained and relied upon the opinion of an engineer or other professional knowing that such opinion would be favorable to Allstate on a financial incentive basis; and (2) disregarded information provided to it from the Plaintiffs that Allstate’s inspection and engineering report was inadequate, flawed, and erroneous.”

The issue of the expert’s alleged financial bias could not be resolved in a judgment on the pleadings. “Thus, the plaintiffs’ complaint raises questions of motivation and bias which cannot be resolved on the pleadings alone. Therefore, the task of determining whether this expert report provides a defense as a matter of law to the bad faith claim in this case, in our view, may not be performed on consideration of a motion for judgment on the pleadings, where we must simply assess the adequacy of the pleadings. Instead, assessment of any such defense must await a properly documented motion for summary judgment.”

Date of Decisions: January 8, 2019 (Report and Recommendation), adopted by District Court on April 25, 2019

Flower v. Allstate Property & Casualty Insurance Co., U.S. District Court Middle District of Pennsylvania Civil No. 3:18-CV-1321, 2019 U.S. Dist. LEXIS 4096 (M.D. Pa. Jan. 8, 2019) (Carlson, M.J.) (Report and Recommendation), adopted by District Judge Mariani on April 25, 2019

MAY 2018 BAD FAITH CASES: (1) THIRD-PARTY CLAIMANT CANNOT BRING BAD FAITH CLAIM, BUT (2) DID PLEAD PLAUSIBLE CLAIM BASED ON ALLEGED INTERPLAY BETWEEN THE SAME CARRIER’S FIRST PARTY AND THIRD PARTY CLAIMS HANDLING BY A SINGLE ADJUSTER (Middle District of Pennsylvania)

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After an auto accident, the insured submitted a (first-party) UIM claim to its insurer. The tortfeasor in the accident had a policy with the same insurer. Thus, the insured was also a third-party claimant with respect to the tortfeasor. The insurer assigned the same claim representative to manage both the first-party claim and the third-party claim. The insured eventually sued for bad faith as to the handling of both claims.

The insurer moved to dismiss aspects of the bad faith claim on the basis that Pennsylvania law precludes a third-party claimant from bringing a cause of action for bad faith against a tortfeasor’s insurer. The Court denied the motion in part and granted in part.

The Court found the insured sufficiently pleaded facts regarding the interplay between the claims handling of first-party and third-party claims to make out a plausible bad faith claim. However, where the insured only pleaded bad faith against the insurer solely for its actions regarding his third-party claim, the Court dismissed these allegations under Pennsylvania law.

Date of Decision: April 23, 2018

Vella v. State Farm Mutual Automobile Insurance Co., United States District Court, Middle District of Pennsylvania, Civil Action No. 17-1900 (SHR), 2018 U.S. Dist. LEXIS 67419 (M.D. Pa. Apr. 23, 2018) (Rambo, J.)

 

JUNE 2015 BAD FAITH CASES: UNDISCLOSED PUTATIVE CONFLICT WITH DOCTOR PERFORMING IME NOT BASIS FOR BAD FAITH; INSURER CAN RELY ON IME WHERE NO EVIDENCE PUT FORWARD THAT IT WAS FLAWED (Middle District)

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In Neal v. State Farm Mutual Automobile Insurance Company, the Court granted the insurer’s motion for summary judgment and held that the insurer did not act in bad faith after denying benefits to the insured based on an independent medical examination (“IME”) that showed the insured had reached “pre-injury” status. In the underlying action, the insured was injured when a vehicle rear-ended the car in which the insured was a passenger.

The insurer’s claim representative requested an IME to be performed on the insured to address if “her ongoing complaints were accident related and whether she had reached pre-injury status from the accident.” The insurer contacted a vendor to arrange an IME by an orthopedic surgeon. After a surgeon was selected, the insurer requested an examination closer to her residence, so the vendor arranged for another doctor to perform the IME. Prior to going to the IME, the insured briefly discussed that doctor with her own current physician, and it turned out that the two doctors formerly had a practice together.

After performing the IME, the doctor observed that, among other things, he was “unable to detect any specific injury which occurred from the most recent motor vehicle accident,” and that the insured had reached full recovery from the car accident. Subsequently, the insurer denied all bills for treatment that the insured received after the IME.

The insured’s bad faith claim was premised on allegations that the insurer did not act reasonably in “refusing to reconsider its decision or schedule a new IME when presented with a potential conflict of interest” and “choosing to automatically follow the findings of the IME Report despite conflicting evidence regarding the nature and causation of Plaintiff’s injuries.”

In granting the insurer’s motion for summary judgment on the bad faith claim, the Court stated with regards to the potential conflict of interest, “there is no dispute that [the insurer] did not know about the prior association between the doctors at the time [the vendor] arranged for the IME to be performed….” The Court pointed out that even though the insured knew of the doctors’ prior association, she did not inform her insurer of any alleged conflict, nor did she believe that the doctor would be biased against her in performing the IME. Because the insured did not show clear and convincing evidence of any bad faith, the Court could find no material disputes of fact on this issue.

As for the claim that the insurer automatically followed the findings of the IME, the Court reasoned that “an insurer is entitled to rely on the findings of an IME … even in the fact of contrary medical opinions.” Further, the insured presented no evidence that the IME was flawed. In sum, the Court found that “the record evidence [was] insufficient to allow a reasonable fact-finder to find that Defendant exhibited bad faith in relying on [the allegedly conflicted doctor’s] IME.”

Date of Decision: May 12, 2015

Neal v. State Farm Mut. Auto. Ins. Co., 1:13-cv-02309, 2015 U.S. Dist. LEXIS 61770 (M.D. Pa. May 12, 2015) (Kane, J.)

 

JUNE 2014 BAD FAITH CASES: ATTORNEY INSURED’S BREACH OF CONTRACT AND BAD FAITH CLAIMS DISMISSED UNDER PRIOR KNOWLEDGE EXCLUSION IN MALPRACTICE POLICY WHERE DRAGONETTI ACTION AGAINST ATTORNEY AND THE CLIENTS BRINGING SUBSEQUENT MALPRACTICE SUIT CREATED OBJECTIVELY REASONABLE BASIS TO KNOW OF POTENTIAL MALPRACTICE CLAIM (Philadelphia Federal)

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In Ettinger & Assocs., LLC v. Hartford/Twin City Fire Ins. Co., the court addressed coverage under an attorney’s professional liability policy. The initial events concerned a suit against a realtor, who purportedly failed to inform his clients correctly about the zoning of a lot adjacent to a property. Although the realtor’s clients profited from the eventual sale of the property, they brought suit, alleging that the realtor’s errors and/or misrepresentations in connection with the zoning still resulted in lost profits.

The court ultimately found against the realtor’s clients on summary judgment.

The realtor subsequently filed suit against the clients and their lawyer for wrongful abuse of civil proceedings pursuant to the Dragonetti Act in bringing the action against the realtor. The realtor alleged that the attorney “not only knew his filings and prosecution of the [Realtor Action] claims were wrongful and malicious under the law, but encouraged and/or permitted his clients to pursue those claims rather than terminating or withdrawing from the action as their counsel, even in the face of being forewarned of the consequences.”

The realtor’s counsel had repeatedly warned the clients’ counsel that the claims were frivolous. The attorney represented both himself and the clients in the Dragonetti action, after telling the clients there was no conflict of interest in doing so.

The clients later fired the attorney and filed cross claims against him in the Dragonetti action, asserting professional negligence and malpractice, as well as a separate malpractice action. First, they alleged that he was negligent in advising them that the original claims against the realtor had merit, putting them in a position to be subject to the Dragonetti action.

They further alleged that the attorney breached a fiduciary duty by failing to advise them about potential conflicts of interest stemming from his representation of both them and himself in the Dragonetti action, and of their right to file a cross claim against him in the Dragonetti action.

The attorney sought coverage from his insurance carrier under a Claims Made Professional Liability Policy, which the carrier declined. The attorney brought a declaratory judgment action against the carrier, seeking coverage for himself and his firm, and asserting statutory bad faith. The carrier denied coverage on the basis of the “prior knowledge” exclusion, and “Relation Back Provision”, and brought a motion for judgment on the pleadings, which is governed by the Twombly/Iqbal standards.

The attorney-insured obtained the policy approximately six months before the malpractice suit was filed. The policy provided coverage for claims made during the policy period, defining claims as “[a] demand received by an insured for money or services alleging a negligent act, error, omission, or personal injury in the rendering of or failure to render professional legal services…’ or “[s]ervice or receipt of a suit or arbitration dispute resolution proceeding in which damages are claimed”.

The policy contained a “prior knowledge” exclusion which stated that the policy did not apply to claims arising out of an act occurring prior to the inception date of the policy, if any insured knew or could have reasonably foreseen that such an act might be expected to be the basis of a claim.

The insurer declined coverage on the basis that the attorney-insured knew from the Dragonetti action that his allegedly deficient representation of the clients in the Realtor Action could have been the basis for a future malpractice claim by those clients against the attorney.

The insurer argued that a reasonable lawyer in that situation would have been on notice that its acts, errors, or omissions in prosecuting the underlying Realtor litigation could be the basis of a claim. The carrier also took the position that the policy’s Relation Back Provision applied because both the malpractice action and the Dragonetti action arose out of the same or related negligent acts, errors or omissions and would be treated as a single claim pursuant to the aforementioned policy provision, i.e. the original advice in bringing the action against the realtor.

In analyzing the Prior Knowledge Exclusion, the Court applied the two-part Selko test. First, the insurer must show that the insured knew certain facts related to the prior incident, and second, the knowledge must be sufficient to create a reasonable “basis to believe” that a professional duty had been breached. Selko v. Home Ins. Co., 139 F. 3d 146 (3d Cir. 1998).

The court found that the Prior Knowledge Exclusion applied as a matter of law, reasoning that the filing of the Dragonetti action in itself constituted an allegation of professional negligence for purposes of the policy’s prior knowledge exclusion. Moreover, by that point, the attorney knew that the underlying action, which he filed on behalf of the clients, had been dismissed on the basis that the case lacked factual support for the claims asserted against the realtor (specially observing that the clients admitted the realtors statements were true at the time made).

The court found knowledge existed from the language in the Dragonetti complaint that the attorney “not only knew his filings and prosecution of the [Realtor Action] claims were wrongful and malicious under the law, but encouraged and/or permitted his clients to pursue those claims rather than terminating or withdrawing from the action as their counsel, even in the face of being forewarned of the consequences.”

It stated that these allegations were sufficient as a matter of law to show that a reasonable attorney would have had a basis to believe that he had breached a professional duty.

The Court also addressed the “Relation Back Provision”. The Policy contained a provision which stated that all claims arising out of the same or related incident will be deemed to have been made when the first claim is made. To determine whether claims relate back to the same facts, courts review the previous complaint to determine if the acts at issue, not the legal theories, are the same as, or related to, the alleged acts in the current dispute.

The Court concluded that the “bad advice” aspect of the malpractice action arose from the same acts as the original action as a matter of law, reasoning that attorney’s advice in pursuing the original action and subsequently continuing a frivolous suit was proximate cause of legal fees and the eventual Dragonetti action against the clients.

The Court, however, noted that the dual-representation aspect of the malpractice action, based on the attorney’s representation of his clients in the original suit and the Dragonetti Action, did not relate back for purposes of the policy exclusion.

Ultimately, this distinction did not affect the eventual disposition of the suit as coverage was still unavailable under the Prior Knowledge Exclusion. Therefore, the Court granted the insurer’s Motion for Judgment on the Pleadings.

Date of Decision: May 22, 2014

Ettinger & Assocs. v. Hartford/Twin City Fire Ins. Co., CIVIL ACTION NO. 12-3274, 2014 U.S. Dist. LEXIS 70265 (E.D.Pa. May 22, 2014) (Stengel, J.)

JUNE 2012 BAD FAITH CASES: COURT GRANTS SUMMARY JUDGMENT TO CARRIER BECAUSE SUBMISSION OF CLAIMS TO A PEER REVIEWER AND USE OF MULTIPLE ATTORNEYS DOES NOT AMOUNT TO BAD FAITH CONDUCT (Philadelphia Federal)

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In Watson v. Nationwide Mut. Ins. Co. of N. Am., the court heard a carrier’s motion for summary judgment after its insured sued for breach of contract and bad faith. The insured originally filed suit in the Lancaster County Court of Common Pleas, but the carrier removed and filed a motion to dismiss, which the court denied. The case stemmed from the carrier’s denial of first-party medical and uninsured motorist (“UM”) benefits under the insured’s automobile insurance policy after the insured was injured in a car accident.
After the accident, the insured began to feel pain in her lower back.

After filing a personal injury protection claim under her policy and engaging in negotiations with the carrier, the insured received benefits through mid-2009. In 2010, the insured re-initiated contact with the carrier. An adjuster for the carrier determined at that point that the insured’s future medical bills should be evaluated through the peer review process. A series of four peer reviews each held that the insured’s post-2009 tests and medical consultations were unreasonable and medically unnecessary, prompting the carrier to deny coverage.

The insured’s first claim was that the carrier acted in bad faith through the peer review process. The court recognized that under the Pennsylvania Motor Vehicle Financial Responsibility Law (“MVFRL”), some bad faith claims related to peer reviews are preempted. For instance, where an insured claims that bad faith resulted from the insured’s denial of benefits on the basis of a peer review, the MVFRL preempts the insured’s claims. Yet, where an insurance company submits a claim for peer review in bad faith, such a claim may exist. (See also this blog).

Despite acknowledging the existence of such a claim, the court rejected the insured’s contention that the carrier acted in bad faith by referring all future medical bills to peer review. The court also found no evidence of partiality and rejected the insured’s claim that there was a conflict of interest between the carrier and one of its peer reviewers.

A transactional relationship between the carrier and its peer reviewer did not raise an inference of bad faith, prompting the court to grant summary judgment for the carrier on these claims.

With respect to the insured’s claim that the carrier acted in bad faith while investigating her UM claim, the court granted summary judgment to the carrier. The record indicated that the carrier and the insured had engaged in significant negotiations that included many offers and counter-offers. As such, the insured’s claim was without any factual basis.

Lastly, the court held that the carrier did not act in bad faith during the ongoing litigation. Although the carrier hired several attorneys to deal with the case, there was no evidence that it had engaged in frivolous behavior as alleged by the insured. Finding no evidence of inappropriate conduct, the court granted summary judgment to the carrier on the insured’s bad faith claims, leaving only the breach of contract action for adjudication.

Date of Decision: June 13, 2012

Watson v. Nationwide Mut. Ins. Co. of N. Am., NO. 11-1762, 2012 U.S. Dist. LEXIS 83065, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. June 13, 2012) (Surrick, J.)

NOVEMBER 2006 BAD FAITH CASES
MOTION TO DISQUALIFY CARRIER’S FORMER STAFF LAWYER FROM BRINGING BAD FAITH CLAIM AS PLAINTIFF’S ATTORNEY REJECTED (Middle District)

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The Court considered Defendant’s Motion to Disqualify Attorney Selingo and his law firm based on assertions that continued representation would violate various rules of professional conduct addressing conflict of interest and attorneys as witnesses.  Selingo was Plaintiff’s counsel in Plaintiff’s underlying Under Insured Motorist (UIM) and bad faith claims.  Selingo was also an employee of Nationwide’s Trial Division from 1996 to 2001, when he primarily represented Nationwide’s insureds in UIM claims, but never in bad faith claims.

Following his employment with Nationwide, Selingo went into private practice as a lawyer and handled several claims against Nationwide, pursuing multiple bad faith and UIM actions, none of which led to Nationwide moving for his disqualification.

Defendant argued Selingo should be disqualified based on Pennsylvania Rule of Professional Conduct 1.9, which hinges on whether the matter is “substantially related” to the matter involved in the former legal representation.  Specifically if the lawyer might have acquired confidential information related to the subject matter of his subsequent representation, then Rule 1.9 would prevent the attorney from representing the second client.  Because Selingo never represented Defendant as a lawyer in any bad faith claims, and because Defendant waived disqualification by not previously seeking Selinger’s disqualification as counsel in other similar cases, the Court denied Defendant’s request to disqualify based on Rule 1.9.

Defendant then argued that Selingo should be disqualified based on Local Rule 43.1 of the Local Rules of the Middle District of Pennsylvania and Rule 3.7 of the Pennsylvania Rules of Professional Conduct, which require withdrawal if an attorney becomes a witness on behalf of a client.  However, the Court narrowly construed the rules to only apply to trials and found that disqualification of the lawyer would be premature at this stage in the litigation.

Finally, Defendant argued that Selingo’s law firm should be disqualified pursuant to Rule 1.10 of the Pennsylvania Rules of Professional Conduct which addresses the imputation of conflicts of interest.

The Court also rejected this argument, as Rule 1.10 relates to conflicts of interest defined in Rule 1.7 and 1.9, and because the Court concluded that Rule 1.9 does not form a basis for disqualification (and Rule 1.7 is not at issue), Rule 1.10 is not applicable.  Accordingly, the Court denied Defendant’s Motion to Disqualify.

Date of Decision:  November 6, 2006.

Javorski v. Nationwide Mut. Ins. Co., United States District Court for the Middle District of Pennsylvania, No. 3:06-CV-1071, 2006 U.S. Dist. LEXIS 81490 (M.D. Pa. November 6, 2006) (Conaboy, J.)

MARCH 2006 BAD FAITH CASES
EVIDENCE SUFFICIENT TO SUPPORT JURY’S BAD FAITH VERDICT BECAUSE OF FAILURE TO SETTLE AND APPOINTMENT OF SINGLE COUNSEL WITH CONFLICT OF INTEREST (Philadelphia Federal)

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A dermatologist and pathologist had failed to diagnose Jurinko’s skin cancer.  Jurinko brought suit in the Philadelphia Court of Common Pleas.  The same carrier provided a single lawyer to represent both doctors, even though there were potential cross claims and a conflict of interest in that representation.  The pathologist had no liability, but the dermatologist was found liable for $2.5 Million by the jury, far in excess of his available insurance.  He assigned his bad faith claim to Jurinko, and the bad faith suit proceeded to trial in federal court.

The federal jury awarded over $1.6 Million in compensatory damages and $6.25 Million in punitive damages.

The trial judge refused to grant the carrier’s post trial motions.  The court found there was sufficient evidence for the  jury to have found bad faith because (1) of a failure to offer any more than $50,000 to settle, where the policy limit was $200,000 and where two experienced judges had put 7 figure sums on the settlement value of the case; and (2) where the carrier knowingly appointed a lawyer with a conflict of interest.

Among other things, the carrier’s employee testified that the carrier was “fully aware that it was unethical [to assign one lawyer] and [that] would create a conflict of interest, [but] that it did so to save money.”

Date of decision:  March 29, 2006

Jurinko v. Medical Protective Co., United States District Court for the Eastern District of PA, No. 03-CV-4053, 2006 U.S. Dist. LEXIS 13601 (E.D. Pa. Mar. 24, 2006) (Rufe, J.)

 

MARCH 2006 BAD FAITH CASES
EXPERT TESTIMONY ON LEGAL MAL PERMITTED WHERE CARRIER KNOWINGLY APPOINTED SINGLE COUNSEL TO REPRESENT TWO INSUREDS DESPITE CONFLICT OF INTEREST (Philadelphia Federal)

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A dermatologist and pathologist had failed to diagnose Jurinko’s skin cancer.  Jurinko brought suit in the Philadelphia Court of Common Pleas.  The same carrier provided a single lawyer to represent both doctors in the early part of the case, even though there were potential cross claims and a conflict of interest.  One doctor had no liability, but the other was found liable for $2.5 Million by the jury, far in excess of his available insurance.

He assigned his bad faith claim to Jurinko, and the bad faith suit proceeded to trial in federal court.  The federal jury awarded $1.6 Million in compensatory damages and $6.25 Million in punitive damages.

The trial judge refused to grant the carrier’s post trial motions.  The Federal Judge found there was sufficient evidence for the jury to have found bad faith because of appointing a lawyer with a conflict of interest. Among other things, the carrier’s employee testified that the carrier was “fully aware that it was unethical [to assign one lawyer] and would create a conflict of interest, and that it did so to save money.”

Plaintiffs were permitted to put on expert testimony relating to defense counsel’s malpractice.  The malpractice was not per se evidence of bad faith, but the point of the evidence was to establish there was an irreconcilable conflict and the carrier had a duty to provide separate counsel, knowing that it was unethical for counsel to represent both of its insureds.

The expert “testified that this breach of [the carrier’s] duty to provide an adequate defense for its insureds was an act of bad faith,” which the court found central to the case.

Date of decision:  March 29, 2006

Jurinko v. Medical Protective Co., United States District Court for the Eastern District of PA, No. 03-CV-4053, 2006 U.S. Dist. LEXIS 13601 (E.D. Pa. Mar. 24, 2006) (Rufe, J.)