Archive for the 'PA – Cooperation with insurer' Category
Western District Judge Horan previously dismissed breach of contract and bad faith claims in this case, with leave to amend. A copy of our earlier summary can be found here. The insured cured the defects in its contract claim, but once again failed to set out a plausible bad faith claim. This time, however, Judge Horan dismissed the bad faith claim with prejudice, as any future attempt to amend would be futile.
The claim centered on a dispute over actual cash value losses for damaged equipment, and documents the insurer requested as part of an examination under oath (EUO). The insured failed to produce those documents, deeming them irrelevant, and the insurer would not proceed without those documents.
The complaint pleads that the carrier’s actual cash value calculation was fundamentally flawed, and that the carrier sought documents for the EUO that had nothing to do with coverage.
Judge Horan carefully reviewed the second amended complaint, finding plaintiff still failed to state a statutory bad faith claim for the same reasons set forth in her original March 4, 2021 opinion. Rather than overcoming the bad faith claim’s flaws, the new allegations in the second amended complaint “regarding Defendants’ pre-litigation investigation and document requests further buttress[ed] the Court’s prior decision.”
Judge Horan states:
“Defendants undertook an investigation upon the initial loss of the [damaged equipment] and made an offer. [The insured] rejected that offer and made its own claim of value for payment. … In response, Defendants continued the investigation by seeking documents and an examination under oath, as permitted by the Policy. Such conduct is not bad faith.”
Further, in once again rejecting the insured’s complaint over the document requests’ relevance, Judge Horan reiterates that “[e]xpecting an insurer to both investigate claims placed at issue by the insured and to do so only in a manner that is acceptable to the insured, is untenable.”
“Finally, as to the remaining allegations, they speak to a general disagreement over Defendants’ estimate of … damages. The Second Amended Complaint continues to support that an offer was made and that further effort at investigation was attempted by Defendants. These allegations of valuation and investigation disagreements do not support that Defendants engaged in bad faith.”
Date of Decision: April 30, 2021
Integral Scrap & Recycling, Inc. v. Conifer Holdings, Inc., U.S. District Court Western District of Pennsylvania No. 2:20-CV-00871-MJH, 2021 WL 1720713 (W.D. Pa. Apr. 30, 2021) (Horan, J.)
On April 16 and 21, 2021, Western District Judge Wiegand issued bad faith opinions. In the first case, she allowed the claim to proceed, denying a motion to dismiss. In the second, the conduct at issue did not involve any benefit denial, but only alleged pre-contract deception, which is not subject to Pennsylvania’s bad faith statute, 42 Pa.C.S. § 8371.
CASE 1: BAD FAITH CLAIM STATED
In Maronda Homes, LLC v. Motorists Mutual Insurance Company, Judge Wiegand allowed an additional insured’s statutory bad faith claim to proceed, denying the insurer’s motion to dismiss.
The insurer rejected additional insured coverage, asserting (1) that the additional insured endorsement was not triggered through any alleged conduct of the named insured, and (2) that even if triggered, an exclusion applied. The additional insured raised claims for breach of contract, contractual bad faith, and statutory bad faith. The insurer moved to dismiss all claims.
Judge Wiegand first rejected the insurer’s argument that the complaint did not allege any wrongdoing by the named insured that could trigger coverage under the additional insured endorsement. She also found factual issues remained open as to whether coverage was excluded because the work was (1) completed or (2) put to its intended use. This could not be decided at the motion to dismiss state.
Judge Wiegand did dismiss the breach of the implied covenant of good faith and fair dealing count. “[U]nder Pennsylvania law, a ‘claim for breach of the implied covenant of good faith and fair dealing is subsumed in a breach of contract claim.’” Thus, “a claim for breach of the implied covenant of good faith and fair dealing ‘separate and distinct from a breach of contract claim’ cannot be maintained because ‘the covenant does nothing more than imply certain obligations into the contract itself.’”
By contrast, Judge Wiegand allowed the statutory bad faith claim to proceed. First, she observed that the policy exclusion at issue remained open and undecided, so the insurer could not argue the coverage denial was per se reasonable based on the policy exclusion language. She then found the insured’s allegations that the insurer “failed to investigate Plaintiff’s tender of the claims, denied coverage despite cooperatively participating in attempts to settle the Underlying Actions, and rejected settlement offers … within the limits of the Policy … are sufficient at this stage to survive Defendant’s Motion.”
Date of Decision: April 16, 2021
Maronda Homes, LLC v. Motorists Mutual Insurance Company, U.S. District Court Western District of Pennsylvania No. 2:20-CV-01526-CCW, 2021 WL 1518009 (W.D. Pa. Apr. 16, 2021) (Wiegand, J.)
CASE 2: NO STATUTORY BAD FAITH POSSIBLE FOR PRE-POLICY CONDUCT
The second case involved a first party property damage claim, where a swimming pool popped out of the ground due to subsurface water pressure. A policy exclusion clearly excluded coverage for subsurface water pressure causing damages, but the insureds still pursued the claim. They alleged that prior to purchasing the policy, the insurer’s agent led them to believe the policy would cover them for damages to in-ground pools “from foreseeable types of harm,” which equated to a promise concerning subsurface water pressure damage being covered.
After the coverage denial, the insureds brought claims to reform the policy to cover “pool popping,” for statutory bad faith, and for violation of the Unfair Trade Practices and Consumer Protection Law (UTPCPL). The insurer successfully moved to dismiss all claims.
First, Judge Wiegand found that the policy could not be reformed based on mutual mistake, unilateral mistake, or fraud. She further found that this was not a case where the reasonable expectations doctrine would permit reformation of clear policy language.
Second, she dismissed the statutory bad faith claim. As the Pennsylvania Supreme Court made clear in Toy v. Metropolitan Life, the bad faith statute only applies when the insurer had denied a policy benefit. Deceptive practices used to induce an insured to enter an unfavorable insurance policy do not fall within the bad faith statute’s ambit.
Finally, because the insureds did not plead justifiable reliance, there could be no UTPCPL claim.
Date of Decision: April 21, 2021
Palek v. State Farm Fire & Casualty Company, U.S. District Court Western District of Pennsylvania No. 2:20-CV-00170-CCW, 2021 WL 1561507 (W.D. Pa. Apr. 21, 2021) (Wiegand, J.)
The injured plaintiff had UIM insurance stacked for four vehicles. With stacking, this UIM coverage amounted to $60,000. The insured agreed to settle his claim for $50,000.
After that settlement, the plaintiff brought to the carrier’s attention that his stepson also had an auto policy with the same carrier. Plaintiff took the position that he was an insured under the stepson’s policy as they resided in the same household. If true, this would considerably increase potential UIM coverage from $60,000 to $160,000.
The stepson’s policy, however, listed a different home address. The stepfather told this carrier this was not accurate and an investigation into the stepson’s address ensued. The carrier ultimately agreed to the additional $100,000 in available UIM coverage, but did not find a factual basis to increase the $50,000 paid to settle the case.
The Insurer’s Claim Handling Concerning Valuation
The court accepted the carrier’s factual recitations from the record. The insured twice agreed with the carrier on the claim’s value, only later to change course and increase his demand. Instead of arguing over these reversals, the carrier “re-opened, re-evaluated and continued to negotiate with Plaintiff in a prompt and reasonable manner.” Moreover, the carrier did so “despite [the plaintiff’s] repeated refusal for over a year to participate in an SUO [statement under oath], and resistance to providing authorizations for the release of medical records, both of which are investigative tools to which [the insurer] is contractually entitled.”
The court also agreed the insured only gave the carrier “unreasonably small windows of time to respond to his demands, and refused to grant any extensions. … Nevertheless, [the insurer] continued to work with Plaintiff and to explain to him what [the insurer] needed, why [the insurer] needed it, and the basis for [its] determinations regarding his claim.”
The insurer obtained an independent medical examination, years after the injury, from which it concluded there was no basis to increase the settlement sum. This evaluation was done at a time when the insured repeatedly said he was going in for additional surgery, and this was a basis to increase the claim’s value. As of the time the record was created in the case, however, this surgery had not taken place.
Judge Cercone stated the insurer “reasonably valued Plaintiffs UIM claim … and reasonably took the position that, if Plaintiff did in fact undergo surgery, the claim could be again be re-evaluated at that time.”
Alleged Failure to Determine the Stepson’s Address
The bad faith claim focused on the insurer’s alleged failure to disclose the insured was also covered under the stepson’s policy, as well as his own policy. This in turn boiled down to where the stepson actually resided at the time of the accident at issue, and what information the insurer had about the stepson’s residence in underwriting the stepson’s auto policy.
The record shows the stepson used his biological’s father’s home address in applying for insurance, not his stepfather’s address. Further, there was nothing on the face of the stepson’s underwriting file to indicate the stepson resided with plaintiff and not his biological father. After considerable investigation, the insurer did agree plaintiff was an insured under the stepson’s policy, thus accepting that the stepson in fact resided with plaintiff and not his biological father. As stated above, however, the insurer refused to increase its settlement sum pending any actual additional surgery and an evaluation thereof.
Bad Faith Analysis
The insured sued for breach of contract and bad faith. The bad faith claim was based on the notion that it was the carrier, not the stepfather, that had a duty to disclose the additional $100,000 in coverage under the stepson’s policy. Thus, the plaintiff alleged the carrier misled the stepfather-insured into thinking there was only $60,000 in coverage, and this created a basis for a statutory bad faith recovery.
The insurer successfully moved for summary judgment on this bad faith claim.
Judge Cercone found “[t]he matter presented to defendant and this court falls far short on the showing needed to permit the finder of fact to arrive at a finding of bad faith.” The stepfather did nothing more than insinuate the carrier: (1) should have been more astute in determining the stepson’s actual address, (2) questioned the stepson on his address, (3) discovered inconsistencies in his address, which (4) “would have and should have detected that [stepson] lived with plaintiffs,” and then (5) would have necessarily resulted in the carrier realizing that the stepson’s policy should have been added to the stepfather’s applicable policy limits.
The court rejected this speculative narrative as falling far short of the kind of reckless or intentional misconduct needed to prove bad faith. The putative failure to uncover the extra $100,000 in coverage was at most negligent, and “an insurer’s mere negligence or bad judgment is not bad faith.”
Moreover, the court clearly did not believe there was even negligence in this case. Judge Cercone described plaintiff’s effort to convert the stepson’s underwriting history “into an unfounded and unreasonable basis for failing to detect [stepson’s] actual residence [as] nothing more than an attempt to insinuate an evidentiary basis for a finding of bad faith.” The plaintiff failed to identify any procedure the carrier failed to follow in concluding the stepson’s address to be with his biological father, which was the address submitted by the stepson and his biological father when originally obtaining the policy, and the address used on the policy.
The court described the case as actually boiling down to a valuation dispute.
As described above, the insurer’s claims handling was reasonable. It considered multiple demands to reevaluate the claim, even after settlement. It also agreed to the additional $100,000 in coverage limits “without meaningful delay once [stepson’s] actual address … was made known … and it verified…”
Judge Cercone states, “[a]gainst this backdrop it is rank speculation to infer that the [insurer’s] principals involved here engaged in a course of conduct with the intent to promote [the insurer’s] financial interest over its fiduciary obligations to plaintiffs, or that they recklessly pursued a course of conduct that had the ability to do so. As noted above, plaintiffs’ attempts to establish the lack of good faith fall woefully short of the mark and are insufficient.” Nothing was identified in the insurer’s claim handling that “even remotely raises a specter of self-dealing.”
Judge Cercone found “no evidence whatsoever that defendant did not investigate, valuate and negotiate with plaintiffs in good faith or stopped doing so during the adjustment process.”
In summing up, Judge Cercone states:
In short, plaintiffs have failed to advance sufficient evidence to permit a finding in their favor on a bad faith insurance practices claim. Plaintiffs’ evidence pertaining to defendant’s failure to uncover [stepson’s] policy during a search for household policy holders in conjunction with [plaintiff’s] UIM claim cannot bear the weight plaintiffs seek to have it shoulder. [The insurer] straightforwardly requested plaintiffs to identify the automobiles owed by any family member residing in their household. They did not identify or even allude to [stepson] and his motor vehicle when so requested. The evidence reflecting the address used in issuing [stepson’s] policy has every appearance of being consistent with honoring the representations and billing requests of its insureds and does not in any event supply clear and convincing evidence that defendant engaged in self-dealing or other similar measures in order to thwart its good faith obligations in adjusting and negotiating [plaintiff’s] UIM claim.”
Date of Decision: November 30, 2020
Bogats v. State Farm Mutual Automobile Insurance Company, U.S. District Court Western District of Pennsylvania No. 2:18CV708, 2020 WL 7027480 (W.D. Pa. Nov. 30, 2020) (Cercone, J.)
Published on
April 30, 2020 in
PA - Claims Handling (unreasonable), PA - Communication with insured, PA - Cooperation with insurer, PA - Damages, PA - Delay (Investigation/Claims handling), PA - Delay (Payment), PA - Estimates, Valuation or Appraisal, PA - Experts, PA - Federal Pleading Adequate and PA - UIM/UM Cases.
This is one of the few recent cases finding that a bad faith plaintiff met federal pleading standards, surviving a motion to dismiss.
In this UIM case, the plaintiffs alleged the insured husband suffered serious and permanent bodily injuries, requiring ongoing treatment. The tortfeasor’s carrier paid $250,000, and the insureds sought the full UIM coverage limit, $1,000,000, from the insurer. The insurer’s highest offer was $200,000, only made nearly three years after the original claim. The insureds brought breach of contract and bad faith claims.
The complaint alleged the insureds cooperated with the carrier, providing information over a 32-month period, “with the necessary liquidated and unliquidated damages information from which Defendant could fairly evaluate and make a timely and reasonable offer on the claim.” The insureds estimated their damages in excess of $1,000,000, “based on Plaintiffs’ unchallenged medical records, narrative reports, and vocational loss and medical prognosis reports, which they provided to Defendant.” They further alleged the carrier “failed to timely respond or comply with Plaintiffs’ counsel’s request for Defendant to fairly evaluate the underinsured motorist claim.”
The insureds focused their bad faith arguments on the insurer’s alleged conduct over the 32-month time period. They alleged the carrier failed to properly respond to the claim and/or failed to evaluate the UIM claim; failed to offer a payment or to pay in good faith; and failed to inform the insureds of its evaluation of their claim. The insureds asserted the carrier “did not have a reasonable basis for delaying and/or denying underinsured motorist benefits or a partial tender of such under the policy” for nearly three years. The insureds labeled the refusal to pay policy limits as frivolous and unfounded, adding that the insurer “lacked a legal and factual basis” for its valuation of the claim.
The insurer moved to dismiss for failing to adequately plead a bad faith claim.
The court first focused on delay. Delay is a bad faith factor, but standing alone does not make out an automatic case for bad faith. In evaluating whether delay might constitute bad faith, “’[t]he primary consideration is the degree to which a defendant insurer knew it had no basis to deny the claimant: if delay is attributable to the need to investigate further or even to simple negligence, no bad faith has occurred.’” (Court’s emphasis)
In beginning his analysis, Judge Jones took cognizance of the potential negative impact of a 32-month window between the claim’s submission and the carrier’s first offer, though again, standing alone this could not prove bad faith. However, as pleaded in the complaint, there were additional factual allegations fleshing out the bad faith delay argument. These included the absence of any facts suggesting the husband was at fault, or that there was any question the UIM policy limit was $1,000,000. The insureds further pleaded: (i) the husband suffered multiple injuries with ongoing expenses; (ii) they provided medical records, reports, vocational loss information and medical prognoses over the 32-month period; and (3) their liquidated and unliquidated damage estimates to the insurer exceeded the $1,000,000 policy limit.
As to the carrier’s conduct, the insureds alleged that during the 32-month period the insurer did not seek an independent medical examination, and did not conduct a records review to properly evaluate the claim. The insureds added that the carrier’s motion to dismiss did not include any argument that the “delay was attributable to the need to investigate further or even to simple negligence.”
On these facts, Judge Jones found the plaintiffs set forth a plausible bad faith claim, focusing on a lack of investigation and failure to communicate. He distinguished this pleading from numerous other cases dismissing conclusory bad faith claims. He stated, “[i]n particular, it is wholly plausible that Defendant did not have a reasonable basis for denying Plaintiffs’ monies owed based upon the information Plaintiffs provided Defendant. Additionally, viewing the time lapse in conjunction with the lack of an independent medical evaluation by Defendant, it is plausible that Defendant knew of, or recklessly disregarded, its lack of a reasonable basis for denying Plaintiffs’ benefits of the policy.”
Judge Jones also rejected the argument that this was merely a disagreement over fair valuation. On a motion to dismiss, the court had to assume the truth of the plaintiffs’ factual allegations. The allegations set out a plausible case the insurer made an unreasonably low offer, or no offer, potentially constituting bad faith conduct. Judge Jones looked to Judge Stengel’s 2017 Davis decision to support this finding.
Date of Decision: April 17, 2020
Lowndes v. Travelers Property Casualty Co. of America, U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-5823, 2020 U.S. Dist. LEXIS 67620 (E.D. Pa. April 17, 2020) (Jones, II, J.)
The court denied the insurer’s motion for summary judgment on plaintiff’s UIM bad faith. Key issues were the insurer’s having failed to adduce evidence explaining the basis for its denial, and not sufficiently adducing facts contrary to the claims handling allegations in the insured’s complaint. The carrier focused on the fact that the insured did not take discovery, but this was not as detrimental to plaintiff’s case as the insurer believed.
The insured received $50,000 from the tortfeasor’s carrier, and had $250,000 in UIM coverage under his own policy. The complaint alleged detailed facts supporting the position that the insured was highly cooperative in producing information, both independently and upon the insurer’s request. Moreover, the insured submitted to an examination under oath and an independent medical examination, and follow up requests after both.
The claim/investigation process went on for eight months, with the insured’s counsel repeatedly making policy limits demands, with no counteroffer. Ultimately, the insurer offered no payment of any kind to the insured.
During the claim/investigation process, the insured filed a writ of summons. The insurer ultimately responded with a rule to file a complaint, and after the complaint was filed it removed the action to federal court. [Note: Among the various legal principles governing bad faith claims the court recites, is “[t]he Third Circuit has also recognized that ‘using litigation in a bad faith effort to evade a duty owed under a policy [is] actionable under [Pennsylvania’s bad faith statute].’” The court did not amplify on that principle in this case.]
The court observed the carrier did not develop a factual record refuting the detailed claims handling history in the complaint. Thus, “[w]hether the undisputed facts in the Complaint are sufficient for Plaintiff to prove by clear and convincing evidence that [the insurer] acted in bad faith is for the jury to determine.” Further, there was no evidence in the record as to how, or if, the insurer provided the basis for its claim denial to the insured. At most, the rule to file a complaint functioned as the notice of denial; but even then, the insurer never gave the insured “any information about the basis for its decision.”
The insurer did include a copy of its medical expert’s reports in moving for summary judgment. These reports concluded that the insured “required no further care, treatment or limitations as a result of his motor vehicle accident.” On the other hand, the court found that the insured had apparently produced his own medical expert report during the litigation, opining that significant medical issues resulted in a “no work” restriction.
The court stated: “It may well be that [the insurer] relied upon the results of the independent medical examination or other valid grounds, but the record does not reflect that [this] report was supplied to Plaintiff or that [the insurer] relied on this report in denying Plaintiff’s claim.”
Generally, the court accepted that there might a been a reasonable basis for evaluating the claim for eight months and then denying it, but that reasoning was not disclosed in the record. The insurer attempted to frame the issue as merely a disagreement over value (apparently $250,000+ on the insured’s end and $0 on the insurer’s end).
However, “to prevail on its motion on the ground that the parties had a legitimate value disagreement, it is [the insurer’s] burden, [1] initially, to point to evidence illustrating not only that there was indeed a disagreement over the value of Plaintiff’s claim (as opposed to an outright denial), but [2] also that [the insurer] communicated that disagreement to Plaintiff, for example, by making a counter-offer. [The insurer] has not done so.”
In sum, “[b]ecause there are genuine issues of material fact regarding Plaintiff’s bad faith claim based upon the current state of the record, [the insurer] is not entitled to judgment as matter of law.”
Date of Decision: February 10, 2020
Baldridge v. Geico Insurance Co., U.S. District Court Western District of Pennsylvania, Civil Action No. 18-1407, 2020 U.S. Dist. LEXIS 22311 (W.D. Pa. Feb. 10, 2020) (Dodge, M.J.)
On April 1, 2020, Magistrate Judge Dodge denied the insurer’s motion for reconsideration. A copy of her opinion can be found here.
Today’s post summarizes Lehigh County Judge Melissa Pavlack’s Findings of Fact and Conclusions of Law in this breach of contract and bad faith case.
The Court’s Factual Findings
The insureds’ car was stolen. It was recovered, but with considerable damage. The insureds’ license plate was replaced with a stolen plate. The court found that the thieves never intended to return the vehicle. The insureds sought coverage based on the theft and vandalism, relying on policy language covering theft, larceny, vandalism, and malicious mischief.
The court found the insureds were not involved in any way with the theft or vandalism, nor was there any fraud on their part. The car was deemed a total loss, and valued at around $13,000. There were additional costs for hauling and storage, bringing the total claim to approximately $17,000.
The insurer denied the claim, citing insufficient evidence the car had been stolen. It refused to consider a separate vandalism claim because the damages arose out of an alleged theft. Thus, the insurer did not investigate the vandalism claim, and the denial letter never addressed the vandalism claim’s merits. The insurer never cited any policy exclusions applying to the vandalism claims. There was also no denial based on fraud.
The insurer’s investigation included a claim’s adjuster and supervisor, a fraud investigator, an appraiser, an appraisal report, an investigator and three investigator reports, an examination under oath over the telephone and in person, document requests, and a site visit to the loss location. At trial, the adjuster could not recall which of the insured’s statements under oath led to the claim denial.
The investigator reported to the carrier that one of the insureds was uncooperative because she did not bring unredacted tax returns and cell phone records to her examination under oath. Relying on this alleged lack of cooperation, the claims supervisor wrote to the insured that she had failed to cooperate by not bringing these tax returns and records, and failed to cooperate with the insurer’s investigation. However, the investigator was not aware that another of the insurer’s representatives had actually instructed the insured to bring redacted copies of the tax returns to the examination under oath, which she did.
As to other document issues allegedly evidencing a failure to cooperate, it was made clear during the examination under oath that the insured was a medical professional. She could not simply produce her phone records without violating HIPAA. She attempted to cooperate during the examination under oath by showing some messages in her phone from the days in question; but the adjuster was also concerned about HIPAA, and was hesitant to proceed with looking at her phone. Further, the court found the insured could not respond to the insurer’s request for the car purchase documents because these had been stolen from the glove compartment.
Moreover, in contrast to assertions that the insureds failed to cooperate, the court found that the insurer’s fraud investigator conceded the insureds had cooperated, and had provided documents requested in the manner requested.
As to the allegation there was insufficient evidence of theft, the insurer relied upon its expert report. The expert opined there was no forced entry, and that the car only could have been moved using a key. The court found (1) the insurance policy did not require forced entry as a condition precedent to establish theft, and (2) the car could be moved without a key. Further, the insurer’s fraud investigator testified that cars can be stolen without noticeable signs of forced entry, and there was other testimony to the same effect. The court also found that the fraud investigator never communicated with the claim adjuster that forced entry was not required to steal a car.
In sum, the court found these conclusions (forced entry and use of a key) were not reasonable bases to deny the very existence of a theft.
Most significantly, the expert only opined the car was not stolen by means of forced entry, and that a key had to have been used. Whether or not these conclusions were correct was irrelevant in the court’s view, because the expert never opined the car was not stolen. Thus, it was an error to make the leap that the car was not stolen, as it could have been stolen by some means other than forced entry, or could have been moved without a key.
There was Coverage for Theft, Vandalism, and Malicious Mischief
In addressing the breach of contract claim, the court looked at the policy’s plain language. The policy expressly covered theft, larceny, vandalism, and malicious mischief. There were no applicable exclusions in this case, so the court only had to interpret the coverage language.
The court looked at the dictionary definition of these terms, rather than any criminal statutes or case law defining vandalism, theft, etc. It concluded the facts of the case fell within these coverage terms, and the insureds claims were covered. As to bad faith, it was unreasonable to conclude the facts at hand did not fall within the policy’s plain and unambiguous language. Further, the court found the insurer’s conduct unreasonable in failing to consider coverage for vandalism and malicious mischief when denying the claims.
Court uses Unfair Insurance Practices Act and Unfair Claim Settlement Practices Regulations as Standards
The court cited (1) Unfair Claim Settlement Practice regulations (UCSP), 31 Pa. Code § 146.4, on obligations to fully disclose coverages and benefits; and (2) the Unfair Insurance Practices Act (UIPA), 40 Pa.S.A. § 1171.5(a)(10)(iv), on failing to reasonably explain a claim denial.
The court cited these UCSP and UIPA provisions in the context of the first bad faith prong, lack of a reasonable basis to deny benefits. The court then observed the insurer had completely failed to consider the vandalism and malicious mischief claims covered under the policy. This supported the existence of bad faith, though it is not wholly clear whether the UCSP and UIPA violations were evidence of bad faith conduct, or were bad faith per se.
Erroneous Red Flags
The insurer justified its conduct by identifying certain “red flags” that caused legitimate doubt in the insureds veracity. When scrutinized, however, the court found these red flags were based on factual errors or erroneous assumptions.
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The insured was deemed uncooperative for failing to attend a unilaterally scheduled examination under oath. In fact, however, the court found the insured gave sufficient notice she could not attend on that date, and cooperated in rescheduling the examination under oath on another date, at which she appeared. She also had agreed to, and participated in, an examination over the phone.
As to the original date for the in-person examination, the court observed that the insurer knew in advance the insured was not going to appear on the first scheduled date, but still had its representatives appear to make a record against the insured for failing to appear.
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The insurer also asserted the insured was uncooperative because she provided redacted tax returns. As stated above, the insurer’s own representative had informed the insured in writing that certain redactions could be made. Further, when the insurer later requested an unredacted return, the insureds provided it.
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As to the alleged lack of cooperation on cell phone records, this was fully addressed during the examination under oath. As stated above, the insured was a medical professional and there were certain items on her phone records that could not be produced under HIPAA. That being said, she still offered to let the insurer’s representative look at her cell phone during the examination under oath, regarding non-HIPAA messages from the date the car was stolen. The adjuster was concerned about violating HIPAA, and was hesitant to do so.
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The insurer also deemed it a red flag that the loss came shortly after the policy’s purchase. This turned out to be an error. The court found the policy was purchased at least six months earlier. Another suspicion surrounded alleged excessive mileage on the car, which the court found was likewise not factually the case.
Failure to Fully Investigate the Red Flags
The court observed that while the insurer took the insured’s examination under oath, and conducted various investigations based on these alleged red flags, it failed to contact the police. Nor did the insurer follow up on evidence that drugs reportedly were found in the glove compartment. Though not expressly stated in the conclusions of law, this implies that the presence of drugs, under all the facts, favored the idea that strangers had stolen the car for nefarious purposes.
The Insurer Relied on its Expert Report for the Wrong Conclusion
For the court, the coverage issue concerning the insurer’s expert was simple: Was the car stolen? The issue was not: How was the car stolen?
The expert opined on two means by which the car was not stolen. The court found the expert never opined, however, that the car was not stolen. Moreover, the insurer never argued that the insureds faked a theft or lied about it.
The court pointed out that other means could have been used to steal the car, including non-intrusive and non-mechanical means. For example, after the car was recovered it was towed twice. The court found this demonstrated the car could be moved without forced entry and/or without a key.
Thus, the insurer’s reliance on the expert report to deny the fundamental existence of theft was unreasonable. The court found relying on the expert report to reach a conclusion (no theft) on which the report did not render an opinion, amounted to a knowing or reckless unreasonable denial of benefits, i.e. bad faith.
After finding bad faith on all the foregoing grounds, the court stated it would schedule a hearing on attorney’s fees, interest, and punitive damages.
Date of Decision: December 27, 2019
Thanks to Daniel Cummins of the excellent and extremely useful Tort Talk Blog for bringing this case to our attention.
This 95-page opinion granting the insurer summary judgment provides an extremely detailed review of the facts, and considerable exposition of bad faith case law concerning investigation and claims handling.
As set forth in the Opinion, the insured owned multiple rental properties that she leased out to college students. Beginning in 2005, she purchased landlord property insurance policies from the insurer. In 2014, tenants moved into the properties and alerted township police to deplorable conditions.
The police report catalogued broken windows, buckled hardwood floors, water damage, ceiling damage, removed and damaged fixtures and doors, detached ceiling lights and smoke alarms, peeling paint, an overgrown lawn, broken appliances, trash, and mice droppings. The tenants then broke their leases, citing a breach of the implied warranty of habitability.
A township code official inspected and photographed the properties and prepared a list of code violations. The official posted violation notices, and revoked the insured’s student rental licenses. The insured notified both the insurer and her insurance broker, and made a claim for the property damage and lost rent.
The insurer mistakenly filed the insured’s communication in a preexisting file related to another claim with the same insured. However, an employee of the insurance broker immediately called the insured to request more facts relevant to the claim. The insured did not pick up the call and did not return the voicemail.
The township later brought a code violation action against the insured in the Court of Common Pleas, as well as for the insured’s failure to allow mandated property inspections over several years. The insured then reached out to the insurer, and repeatedly claimed that her earlier communications went unanswered.
The insured’s story changed, however, after the insurer produced evidence of phone calls and emails from claims adjusters. The insured conceded that she did in fact speak to someone, but she only “sort of” recalled the conversation.
Even after the rental license revocations, the insured again rented properties to two other college students. Similar physical problems arose, and the new tenants were likewise unable to reside at the properties. The township locked the insured out of the properties.
Throughout this period, the insurer’s claims handlers continually attempted to communicate with the insured to gather more facts concerning the insured’s claim. The insured received an email stating “‘it is imperative that I make voice to voice contact with you to get accurate loss facts regarding the claim that you submitted’ since ‘the claims process is reliant on the information that is shared between ‘you’ the insured and ‘me’ the claims adjuster.’”
Several days after the insured received that email, the adjuster had a telephone call with the insured, but the insured said she could not speak with the adjuster due to ongoing litigation. The insured then hung up the phone.
The insurer took the position that the policy did not provide coverage for property damage, lost rents or the township’s suit against the insured.
The insured sued the insurer for breach of contract, bad faith, and alleged violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”). The Court granted the insurer’s motion for summary judgment on the breach of contract claim, stating that the insurance policies were not “all risk” policies whereby coverage is automatically triggered in the event of loss.
Furthermore, the insured failed to show that the losses occurred suddenly and accidentally, and the insured had no reasonable expectation of coverage. The court also found that the insurer had no duty to defend the insured in the state court action. Additionally, the court granted the insurer summary judgment on the UTPCPL claim, finding no fraud or misrepresentations to the insured with regard to the policies.
As to the bad faith claim, the insured alleged that the insurer intentionally delayed opening a claim, delayed commencing its investigation, and that it lacked a reasonable basis for refusing to pay the insured benefits under the policies.
The Court found that there existed no clear and convincing evidence that the insurer acted in bad faith. The Court stated that “the record makes clear that [the insurer’s] delays are attributable to mistake, possible confusion between [the insurer] and [the broker,] and [the insured’s] obfuscation and refusal to cooperate with [the claims] representatives.”
The Court further opined that the bad faith claim must fail because the evidence shows the insurer conducted an adequate investigation and had a reasonable basis for denying coverage. Any delays on the part of the insurer were attributable to the insured’s “repeated failures to provide the information necessary to open a claim….”
The Court granted the insurer’s motion for summary judgment in its entirety.
Date of Decision: April 6, 2017
Doherty v. Allstate Indem. Co., No. 15-05165, 2017 U.S. Dist. LEXIS 52795 (E.D. Pa. April 6, 2017) (Pappert, J.)
This decision was affirmed on appeal.
Doherty v. Allstate Indem. Co., U. S. Court of Appeals Third Circuit No. 17-1860, 2018 U.S. App. LEXIS 13900 (3d Cir. May 25, 2018) (Fuentes, Greenaway, Rendell, JJ.)
As to the particulars, this case involved title insurance. The insured believed she purchased two parcels, but the deed and title insurance policy only set out the legal description for one parcel. When she attempted to sell the properties years after her initial purchase, the potential buyer withdrew from the agreement and sued for damages because she had promised to convey both properties, but could not. She brought a third party action against the title insurer.
The Court found that the error in describing only one parcel in the original deed was in no way the insured’s fault. The insured alleged “that she … entered into a contract under which [the insurer] agreed to provide ‘real estate transactional services’ — including title searches and the drafting and filing of a deed — for her purchase of the property, and to issue a policy insuring title to the property.” The insured alleged that the title insurer was liable to her because the erroneous description on the deed and “in the Policy resulted from [the insurer’s] failure to conduct a proper title search and to provide a policy covering all of 4 Mill Street and the entire premises covered by her Agreement of Sale.”
In terms of insurance coverage, the Court looked at case law on reasonable expectations and estoppel. It cited numerous cases where mistakes in property descriptions could not be used to avoid coverage.
It also looked to general case law on reasonable expectations, where the insurer could not evade the consequences of promises or conduct of its own agents in leading the insured to believe that certain coverage was being provided. (The Court cited the seminal Tonkovic case. It also cited Pressley v. Travelers, 817 A.2d 1131 (Pa. Super. Ct. 2003), where the agent at issue had authority to bind the insurer as its agent, but apparently was the insured’s agent as well).
Thus, the court reversed the trial court’s finding that no coverage was due as a matter of law based on the policy language.
As to the bad faith claim, the finding of potential coverage undermined much of the insurer’s argument that it could not have acted in bad faith.
In addition, the court found there could be distinct claims for “claims handling conduct which occurred over a six month period before finally advising” that coverage was denied. This would need to be addressed on remand.
The Court further stated that the insured made bad faith allegations that the insurer improperly raised defenses alleging that the insured failed to cooperate and that the insured’s own actions, or that of her counsel, were the proximate cause of her own losses. The Court instructed the trial court to review these claims for bad faith on remand.
Finally, the Court remanded the bad faith claim on the insured’s argument that the insurer failed in its duty to defend the insured from the buyer’s claims for breach of the sales agreement.
Date of Decision: April 11, 2017
Michael v. Stock, No. 1229 EDA 2017, Pa. Super. LEXIS 245 (Pa. Super. Ct. Apr. 11, 2017) (Fitzgerald, Olson, Solano, JJ.)
The insured, as an administrator of the estate of his son, filed suit against the insurer. His son was injured by a drunk driver, and later died of an accidental heroin overdose. The father alleged that the injuries suffered in the accident led his son into a downward spiral, eventually resulting in the son’s death.
Initially, the insured settled for the $10,000 limit of his medical payments coverage, and submitted a claim for underinsured motorist (“UIM”) coverage. The insurer set reserves at $30,000. During the lengthy claim process, the insured sought to settle for the $400,000 policy limit, relying on his son’s history of medical treatment, and the effect of the accident on the insured’s mental and physical health. The insurer never made a settlement offer.
The court went through the detailed history of the claim process in its 77 page opinion, reciting the back and forth between the insured’s counsel and the insurer’s agents and various counsel, identifying gaps in insurance activity, among other things, and identifying questions concerning communications among the insurer’s agents and counsel. The court also considered the conduct of the litigation at hand when eventually evaluating the bad faith claims.
The matter did not resolve, and the insured brought breach of contract and bad faith claims. The insurer asserted an affirmative defense that the claims were barred because the son intentionally misrepresented or concealed material facts concerning his illegal drug use during the claim investigation.
The insured filed for summary judgement on its breach of contract claim and bad faith claims. The insurer filed a cross motion for summary judgment: claiming the son violated the policy’s fraud provision, failure to cooperate, heroin use should bar recovery as a matter of public policy, death was not proximately caused by the accident, and the record did not reach the clear and convincing evidence standard on bad faith.
In addressing the insurer’s claim that the son violated the concealment or fraud provision, the court stated that “in the context of an insurer’s post-loss investigation, the materiality requirement is satisfied if the false statement concerns a subject relevant and germane to the insurer’s investigation as it was then proceeding.”
However, even though the son misrepresented his drug use and criminal record, at the time of the misrepresentations drug use was not part of the UIM claim. Thus, it “could not have been germane to the investigation as it was then proceeding.”
The court also rejected the duty to cooperate argument, and that heroin use should bar recovery as a matter of public policy. Additionally, the court held proximate cause was an issue for trial.
In addressing the insured’s bad faith claims, the court relied on Terletsky, and the current state of the law that self-interest and ill-will are not elements of the claim (a matter now pending before Pennsylvania’s Supreme Court). Under the applicable standards, genuine issues of fact existed precluding summary judgment for either side, which the court went through seriatim.
Among other issues, the fact-finder had to determine the reasonableness of the insurer’s refraining from making a settlement offer, and whether there was an intent to delay the claim process. In addition, there was an issue concerning the level of investigation of the son’s living situation in relation to the insured father as to whether the policy extended to the son, and the propriety of the carrier’s determining he was not covered.
Further, there was an issue as to whether simply mailing a copy of the policy to the insured’s attorney qualified as meeting the carrier’s obligation to inform the insured about available coverage under a policy. The court also left open the possibility that the insurer’s pursuing the concealment and fraud defense was unreasonable and done in bad faith.
Moreover, the court discussed the investigation conduct of the insurer’s attorneys and agents in the claim handling process, including both conduct toward the insured and his attorney, and communications internally among each other.
Date of Decision: September 28, 2016
Paul v. State Farm Mut. Auto. Ins. Co., No. CV 14-1382, 2016 U.S. Dist. LEXIS 133699 (W.D. Pa. Sept. 28, 2016) (Conti, J.)
In Feingold v. State Farm Mutual Automobile Insurance Company, the insured brought breach of contract and bad faith counts in a suit brought approximately thirteen years after a vehicular accident. In August 1998, the insured was involved in a motor vehicle accident and filed a personal injury protection claim with his insured. Over the next few months, the insurer made multiple attempts to schedule an independent medical examination (“IME”). Despite the fact that the policy required the insured to cooperate with the insurer by submitting to reasonable requests for medical examination, the insured failed to attend multiple scheduled appointments and refused to provide the insurer with other convenient dates.
The insurer eventually obtained peer reviews of the insured’s medical reports, which determined that the insured had reached maximum medical improvement. In contrast, the insured produced a doctor’s report that discussed additional treatment options.
Two years after the insurer’s last request for an IME, the insured filed a petition to appoint arbitrators for uninsured/underinsured motorist claims, which the insurer eventually agreed to. Nevertheless, the insured refused to submit to an IME, and the insurer warned that it would refuse to proceed to arbitration until the examination occurred. The insurer eventually informed the insured that it was closing his file because his failure to submit to an IME indicated that he did not intend to pursue a claim.
In December 2010, twelve years after the accident occurred, the insured’s newly hired counsel requested that the insurer proceed to arbitration, which the insurer refused to do and responded that the file was closed and the claim was time-barred. In October 2011, the insured filed the instant suit for breach of contract and bad faith. The District Court granted summary judgment in favor of the insurer after finding that the insured’s failure to submit to an IME constituted a material breach of the agreement that had prejudiced the insurer, and the insured appealed.
In affirming summary judgment on the insured’s bad faith claim, the Court found that the insurer had a reasonable basis for requesting an IME, refusing to proceed to arbitration without an examination, and denying the insured’s claim. Specifically, the Court reasoned that an IME was needed to determine the cause of the insured’s injuries and to clarify inconsistencies in the prognosis.
Date of Decision: October 27, 2015
Feingold v. State Farm Mut. Auto. Ins. Co., CIVIL ACTION NO. 14-1414, 2015 U.S. App. LEXIS 18700 (3d Cir. Pa. October 27, 2015) (Ambro, Roth, Scirica, JJ.)
