Archive for the 'PA – Cooperation with insurer' Category

AUGUST 2017 BAD FAITH CASES: NO BAD FAITH WHERE THE INSURED OBFUSCATED THE CLAIMS HANDLING PROCESS AND REFUSED TO COOPERATE WITH INSURER (Philadelphia Federal)

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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.)

 

APRIL 2017 BAD FAITH CASES: ON REMAND TRIAL COURT MUST REVIEW POTENTIAL BAD FAITH CLAIMS FOR: (1) DENIAL OF COVERAGE, (2) INDEPENDENT CLAIMS HANDLING ALLEGATIONS, (3) PLEADING DEFENSES IN BAD FAITH, AND (4) DENIAL OF DUTY TO DEFEND (Pennsylvania Superior Court)

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In this case, among other things, the Superior Court stated the principle that statutory bad faith can exist independently of the insurer’s denying a benefit under the policy. The Court relied upon its earlier decisions in Condio (2006) and Nealy (1997). It did not address what effect, if any, that the Supreme Court’s 2007 decision in Toy v. Metropolitan Life Insurance Company had on those opinions, or to what extent Toy might limit the scope of cognizable claims for statutory bad faith to denial of benefits or conduct that is intertwined with a denial of benefits.

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.)

MARCH 2017 BAD FAITH CASES: COURT DENIES CARRIER SUMMARY JUDGMENT ON VOIDING POLICY FOR FRAUD, AND DENIES BOTH PARTIES’ MOTIONS ON BAD FAITH CLAIM BECAUSE NUMEROUS ISSUES REMAINED OPEN FOR FACT-FINDERS, INCLUDING LITIGATION CONDUCT CLAIMS (Western District)

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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.)

 

NOVEMBER 2015 BAD FAITH CASES: COURT DISMISSES INSURED’S BAD FAITH CLAIM AFTER INSURER SHOWS REASONABLE BASIS FOR (1) REQUESTING INDEPENDENT MEDICAL EXAMINATION, (2) REFUSING TO PROCEED TO ARBITRATION WITHOUT AN EXAMINATION, AND (3) DENYING INSURED’S CLAIM (Third Circuit)

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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.)

 

SEPTEMBER 2015 BAD FAITH CASES: SUMMARY JUDGMENT DENIED ON ARGUMENT INSURED FAILED TO MEET PREDICATES OF “SUIT AGAINST US PROVISION” WHERE INSURED REFUSED TO APPEAR IN PERSON FOR EXAMINATION UNDER OATH BUT AGREED TO APPEAR BY VIDEO CONFERENCE (Middle District)

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In Royce v. Erie Insurance Exchange, the insured brought breach of contract and bad faith claims against an insurer for the insurer’s purported failure to fairly evaluate the insured’s claim and to promptly offer payment of the claim. The insurer sought summary judgment on the basis that the policy included a “suit against us” provision, which precluded the insured from bringing suit against the insurer unless the insured had fully complied with the policy.

The underlying claim involved a burglary to the insured property. Two days after his home was burglarized, the insured reported the burglary to the insurer and submitted a personal property inventory form as requested by the insurer, as well as a list of personal property stolen and lost from the burglary.

The policy at issue provided that the insurer could not be sued unless the insured complied with all the terms of the policy, which included the duty to submit to examinations and statements under oath at the request of the insurer. After the insurer requested that the insured and his wife submit to an examination under oath (“EUO”), counsel for the insured stated that while his clients were willing to submit to the EUO, it may be necessary to schedule the EUO by video conference as the insured and his wife were now residents of the state of Florida.

Counsel for the insurer responded by e-mail and explained that the insurer “could not agree to an EUO by video conference because a video conference would make the use of exhibits extremely difficult, if not impossible.” The insurer’s counsel further stated that because the claim arose out of a Pennsylvania contract and claim of loss, the EUOs would properly be taken in Pennsylvania. The insured’s counsel did not respond to this e-mail.

Over the next several months, the insurer’s counsel sent periodic e-mails to the insured’s counsel inquiring as to possible dates to schedule the EUOs in Pennsylvania. The insured’s counsel did not respond to any of these e-mails, and maintained that a response was not necessary because the insured and his wife had “previously made their position clear [that they would appear by video conference for the EUO] and any follow up letter was only repetitive and unnecessary given the [insurer’s] refusal to cooperate and act in good faith to investigate the loss given [the insured’s] physical condition.”

Subsequently, the insured’s counsel e-mailed the insurer’s counsel a doctor’s note restricting the insured’s travel due to the insured’s medical condition. Sometime prior to the burglary, the insured had allegedly been involved in a car accident, which caused him severe physical injury that prevented him from traveling. However, no mention had been made of this accident or the insured’s medical condition in his counsel’s previous request to the insurer for an EUO by video conference. In its reply brief to its motion for summary judgment, the insurer questioned the legitimacy of the doctor’s note and travel restrictions, specifically, “how [the insured] was able to travel from the Commonwealth of Pennsylvania to his current residence in Florida after the purported motor vehicle accident that caused his physical injuries.” The insurer also questioned how a “Pennsylvania physician was able to issue an ‘Excuse Slip’ noting [the insured’s] physical condition and travel restrictions when [the insured] was living in Florida and therefore, had not been physically examined by the Pennsylvania physician.” To date, there is no evidence in the record that the insured ever submitted to an EUO.

The insured filed suit and asserted breach of contract and bad faith claims against the insurer “on the basis that [the insurer] purportedly failed to, inter alia, fairly evaluate [the insured’s] claim and promptly offer payment of the claim.” The insured asserted that the insurer acted in bad faith “by failing to accommodate [the insured’s] disability in scheduling an EUO by video conference.” The insurer moved for summary judgment, and argued that because the insured failed to fully comply with the policy, he was precluded from bringing suit under the Policy’s “suit against us” provision. Specifically, the insurer alleged that the insured failed to comply with the Policy by “failing to (1) submit to an EUO in Pennsylvania and (2) provide documentation relating to his claim that [the insurer] had previously requested.”

The Court first acknowledged that the “suit against us” provision was enforceable under Pennsylvania law. The Court also noted that the insured had complied with the Policy in several ways, but at issue was whether the insured complied with the Policy’s requirements to (1) provide all supporting documentation related to his claim as [the insurer] may reasonably require and (2) submit to an EUO.” More specifically, at issue was whether the insured complied with three provisions of the Policy.

The first required the insured to submit certain documentation relating to his claim. The insurer asserted that the insured failed to submit this documentation, while the insured asserted that he did in fact produce the requested documents. The Court determined that it was unclear what other documentation had been requested by the insurer that had not been provided by the insured. Thus, a genuine issue of material fact existed with regards to this issue.

The second required the insured to submit to an EUO. The Court noted that “[r]egardless of whether or not [the insured’s] medical condition restricts him from traveling to the Commonwealth of Pennsylvania to physically appear for an EUO, he agreed to submit to an EUO by video conference, and it is not clear from the terms of the Policy that this constitutes a failure to fully comply ….” The Court further acknowledged that the provision only required the insured to submit to an EUO, but did not reference where the examination must take place. Thus, a genuine issue of material fact existed as to whether the insured’s offer to submit to an EUO by video conference was in full compliance with the Policy.

The third required the insured to “cooperate with [the insurer] in [their] investigation of a loss and any suits.” The Court determined that it was a question for the fact-finder as to whether the insured’s offer to submit to an EUO by video conference satisfied this provision to “cooperate” with the insurer in its investigation. In addition, the Court found that “a reasonable juror could find that the repeated failure by [the insured] and his counsel to respond to [the insurer’s] letters and e-mails over a course of four (4) months requesting an EUO and additional documentation also fails to satisfy this provision.” Thus, genuine issues of material fact existed as to whether or not the insured fully complied with the Policy such that he would be precluded from filing suit, and the Court denied the insurer’s motion for summary judgment.

Date of Decision: August 21, 2015

Royce v. Erie Ins. Exch., Case No. 3:15-CV-00058, 2015 U.S. Dist. LEXIS 110656 (M.D. Pa. August 21, 2015) (Caputo, J.)

JUNE 2015 BAD FAITH CASES: BAD FAITH UIM CASE PROPERLY PLEADED WHERE INSURED DETAILED HISTORY OF COOPERATION WITH INSURER, AND INSURER REFUSED TO PAY POLICY LIMITS (Western District)

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In Vankirk v. State Farm Mutual Automobile Insurance Company, the Court found that the insurer was not entitled to Rule 12(b)(6) dismissal of the insured’s bad faith claim.

The case arose out of a car accident in which the insured was struck by another motorist insured by the same carrier. During litigation against the other driver for her insurance policy limits, the insured provided her own medical records. She and her treating physician were both deposed. The tortfeasor was underinsured.

The insured demanded the policy limits and provided her insurer with updated medical records and documentation. The insurer requested, and was provided with, a Statement under Oath, an additional deposition of the insured, another expert report from the insured’s treating physician concerning ongoing treatment and a second surgery, and additional imaging studies. After the insurer only offered $5,000, below the coverage limit of $25,000, the insured filed an action for underinsured motorist (“UIM”) benefits and damages for bad faith.

The insurer argued that the insured’s bad faith claim should be dismissed because she failed to plead sufficient facts to support such a claim. The Court disagreed, and noted the insured’s Amended Complaint provided specific information as to the insurer’s “five-year involvement in this case, the nature of [the insured’s] injuries, the medical evidence provided, the chronology of events, the parties’ course of conduct, and the factual bases for [the insured’s] allegation of statutory bad faith as to [the insurer’s] handling of her UIM claim.”

The insurer further maintained that “allegations regarding the underlying litigation should be stricken because (a) Pennsylvania is not a “direct action” state (i.e., an injured party cannot directly sue the insurance company of the alleged tortfeasor) and an injured party may not “bring a direct action for bad faith against the tortfeasor’s liability carrier.” The Court held this argument to be facially inapposite, and concluded that an assessment into the handling of the UIM claim must be properly informed by a “factual understanding of its conduct, an understanding which necessarily includes, e.g., the history of [the insurer’s] knowledge regarding [the insured’s] injury and treatment.” The Court let the case go forward.

Date of Decision: May 11, 2015

Vankirk v. State Farm Mut. Automobile Ins. Co., Civil Action No. 15-199, 2015 U.S. Dist. LEXIS 62067 (W.D. Pa. May 11, 2015) (Lenihan, J.)

SEPTEMBER 2014 BAD FAITH CASES: STATE TRIAL COURT, FOLLOWING SUPERIOR COURT, HOLDS THAT BAD FAITH CAN GO BEYOND A PURE DENIAL, AND CAN INCLUDE BAD FAITH IN INVESTIGATING AND COMMUNICATING WITH INSURED; THEN FINDING THAT SOME OF THESE CLAIMS WERE TIME BARRED, BUT OTHERS MUST BE DETERMINED BY THE TRIERS OF FACT, IN ONLY GRANTING PARTIAL SUMMARY JUDGMENT TO EXCESS CARRIER (Centre County Common Pleas)

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In Mountainside Holdings, LLC v. American Dynasty Surplus Lines Ins. Co., the defendant insurers were excess directors and officers liability insurance carriers at the tertiary level, with primary coverage and the first layer of excess coverage providing $10,000,000 in coverage.  The dispute arose out of underlying claims against the insureds in a qui tam action.  They raised bad faith and breach of contract claims against the insurers.

The court observed that bad faith claims can include more than the pure denial of the claim.  “An action for bad faith may extend to the insurer’s investigative practices. Bad faith conduct also includes lack of good faith investigation into facts, and failure to communicate with the claimant.”  The court then cited an online dictionary definition: “To investigate is ‘to observe or study by dose examination and systematic inquiry.’”

Further, bad faith plaintiffs can attempt to prove bad faith by demonstrating that the insurer violated provisions of Pennsylvania’s insurance statutes or regulations, “even if those provisions do not provide for private rights of action.”

The first legal issue was whether the bad faith claims were time barred, and what acts caused the statute of limitations to begin running.  Plaintiffs attempted to argue that the statute couldn’t begin to run until the $10,000,000 had been paid by the first two lawyers of coverage, and the carrier refused to pay on the third layer, i.e., denied that benefit.  The court looked to the wider definition of bad faith cited above, and the plaintiffs’ own complaint which alleged various failures to investigate, a failure to communicate, interference with plaintiffs’ defense in the qui tam action, as well as a denial.  The court found that these acts triggered the statute of limitations, and these claims were time barred.

As to the remaining bad faith claims which were not time-barred, the court applied the same reasoning, i.e., that pure denial is not the sole source of bad faith, to reject the insurers’ summary judgment motion as to some of the bad faith claims.

First the court agreed that plaintiffs’ claims of interference with the defense in the qui tam case and interference with the other two layers of insurance carriers were attempts to circumvent the court’s prior ruling dismissing their tortious interference claims.  However, on the claims of an “alleged failure to promptly acknowledge and investigate” and alleged wrongful denial of coverage on the basis of a failure to cooperate, issues of fact remained. Going back to the dictionary definition cited that investigate means “to observe or study by close examination and systematic inquiry,” the court found that: “It remains unanswered whether Defendants’ request for more information was a systematic inquiry, or if more was required.”

Date of Decision:  June 30, 2014

Mountainside Holdings, LLC v. Am. Dynasty Surplus Lines Ins. Co., No. 2003-127, COMMON PLEAS COURT OF CENTRE COUNTY, 2014 Pa. Dist. & Cnty. Dec. LEXIS 73 (C.C.P. Centre County June 30, 2014) (Grine, J.)

MARCH 2014 BAD FAITH CASES: BAD FAITH CLAIM SURVIVES SUMMARY JUDGMENT WHERE DENIAL OF COVERAGE BASED ON NON-COOPERATION HAD MATERIAL ISSUES OF FACT OPEN AS TO THE SUBSTANTIALITY OR PREJUDICE OF MATTERS ON WHICH INSURED DID NOT TIMELY PROVIDE INFORMATION (Philadelphia Federal)

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In Page v. Infinity Indemnity Insurance Company, the insured’s car was destroyed in a fire, which resulted from arson.  The insurer investigated the claim at great length, on the possibility that the insured’s were responsible for the fire, including pursuit of financial records and the insured’s history of shopping for a new vehicle.  The court found that the investigation itself could not be the basis for a bad faith claim.  However, at one point, the carrier denied the claim for failure to cooperate in producing certain information, with a statement that the claim could be reopened if there was future cooperation.

The insured was deposed, and later provided bank statements and a police report, and the carrier spoke with representatives of car dealerships identified by plaintiffs.  The carrier ultimately paid the claim.  The insured still brought a bad faith claim.

The court allowed the bad faith claim to proceed on the basis of the denial for non-cooperation.  The court observed that the non-cooperation had to be both substantial and prejudicial to provide a legitimate basis to deny a claim.  The court found there was an issue for the trier of fact on the substantial and prejudicial nature of the putative failures to provide the bank statements and police report; but that the failure to identify car dealerships was not substantial non-cooperation as a matter of law.  Thus, the carrier motion for summary judgment on the bad faith claim was denied.

Date of Decision:  January 31, 2014

Page v. Infinity Indemnity Insurance Company, CIVIL ACTION No. 13-1118, 2014 U.S. Dist. LEXIS 13790 (E.D. Pa. Jan. 31, 2014) (Shapiro, J.)

MARCH 2014 BAD FAITH CASES: COURT GRANTS MOTION FOR SUMMARY JUDGMENT WHERE PLAINTIFF FAILED TO SUBMIT TO INDEPENDENT MEDICAL EXAMINATION BASED ON VIOLATION OF COOPERATION CLAUSE IN INSURANCE POLICY (Philadelphia Federal)

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In Goddard v. State Farm, plaintiff brought suit against his insurer alleging breach of contract and bad faith arising from the insurer’s refusal to pay UM/UIM benefits to plaintiff for an accident which took place on August 6, 1998.  Although the claim was timely submitted to the insurer, plaintiff refused or failed to submit to an independent medical examination following his submission of the claim.  In 2001, plaintiff filed a motion to compel arbitration.  An arbitrator was selected for the case in June of 2005.

At the time the arbitrator was selected, the insurer conditioned the arbitration on plaintiff’s completion of a medical examination.  Between September 2005 and February 2007, the insurer continued its attempts to acquire a medical examination of plaintiff to no avail. Plaintiff obtained a new attorney in February 2007, who requested to proceed to arbitration, but the insurer instead denied the claim and closed the file, citing plaintiff’s failure to submit to a medical exam, and the insurer’s belief the statute of limitations on plaintiff’s claim had expired.  Plaintiff did not file suit until October of 2011.

The insurer filed a motion for summary judgment, asserting plaintiff violated the cooperation clause in his policy by refusing to submit to a medical examination after the accident.  The insurer further asserted it had been deprived of its opportunity to assess plaintiff’s condition following the accident, determine the legitimacy of his injuries, and in the interim between the accident and closing of the file, had lost the ability to determine whether any separate injuries might have occurred.

The insurer also asserted plaintiff’s bad faith claim was time barred by the two-year statute of limitations on such claims, because the alleged bad faith action took place in 2007, and plaintiff did not file his cause until October 7, 2011.  Plaintiff argued his motion to compel arbitration tolled the statute of limitations on the claim.

While the parties argued about which action triggered the statue of limitations, the judge considered such a determination irrelevant, as plaintiff’s motion to compel arbitration in 2001 effectively tolled the statute of limitations, regardless of when it was triggered.  Therefore, the statute of limitations had not run, and there were no grounds to grant summary judgment on that issue.

The court did, however, grant summary judgment on the issue of plaintiff’s breach of the cooperation clause in his insurance policy.  The court found prejudice as a matter of law because the insurer was irrevocably denied the opportunity to evaluate the state of plaintiff’s health at the time of his claim, as well as the opportunity to determine whether all of the conditions for which he sought treatment were from the accident.

Furthermore, plaintiff’s refusal to participate in the examination prevented the insurer from determining whether it could seek contribution under the policy, and resulted in prejudice to the insurer.  Therefore, the court granted defendant’s motion for summary judgment.

Date of Decision: January 16, 2014

Goddard v. State Farm Mut. Auto. Ins. Co., Civil Action No. 11-6309, 2014 U.S. Dist. LEXIS 5974 (E.D. Pa. Jan. 16, 2014) (O’Neill, Jr., J.).

JULY 2013 BAD FAITH CASES: SUPERIOR COURT ISSUES OPINION CREATING NEW STANDARD FOR RESERVATION OF RIGHTS LETTERS (Superior Court)

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THIS DECISION WAS REVERSED BY THE PENNSYLVANIA SUPREME COURT ON JULY 21, 2015.

The Pennsylvania Superior Court created new law by holding an insured may decline an insurer’s defense tendered under a reservation of rights and later seek to be indemnified for any settlement and defense costs deemed fair, reasonable, and non-collusive.

This case stems from over 300 underlying claims alleging personal injury and property damage from radioactive emissions at two nuclear fuel processing facilities owned by Babcock & Wilcox and its predecessor Atlantic Richfield Company (collectively “B&W”). Beginning in March 1958, American Nuclear Insurers and Mutual Atomic Energy Liability (collectively “ANI”) provided coverage to B&W, with limits beginning at $3 million and increasing to $160 million per facility as of February 1979.

In 1998, the district court tried eight “test cases,” with the jury returning verdicts in favor of all eight plaintiffs and an aggregate of over $36 million in damages. The trial court subsequently granted a motion for a new trial based on evidentiary errors made in the test case trials. While the new trials were pending, ANI filed a declaratory judgment action in the Court of Common Pleas in Allegheny County against B&W. Before the court ruled on the declaratory judgment action, B&W reached a settlement agreement with all 300-plus plaintiffs and provided the agreed upon $80 million in settlement funds. ANI opposed the settlement.

Following the settlement, B&W sought reimbursement for the $80 million paid in settlement funds as well as counsel fees. ANI resisted, claiming it had no obligation to make any payment because B&W violated the consent to settlement clauses in the insurance policies. In trying to resolve this dispute, an issue regarding the appropriate standard to apply in determining ANI’s insurance coverage obligations arose. The trial court determined the Cowden standard should apply, requiring B&W to plead and prove the four-part test to be entitled to reimbursement.

The litigation progressed as expected until two years later when the trial court issued a new memorandum and order instructing the standard described in Alfiero v. Berks Mutual Leasing Co., 500 A.2d 169 (Pa. Super. 1985) be used in the pending trial. Despite previously being reserved for cases where a defendant sought indemnification for settlement funds following a bad faith action by the insurer, under the Alfiero standard, B&W would be entitled to reimbursement “if the settlement was fair, reasonable, and non-collusive.”

The Babcock trial court chose to break precedent and apply the Alfiero standard because it felt “there was no principled distinction between a case in which an insurer provides a defense subject to a reservation of rights… and a case where the insurer denies both defense and coverage.” The trial court further opined, “the insurance company should not be the sole decision maker where there is a possibility that only the insured’s interests will be affected by the outcome of the underlying litigation,” as is the circumstance when a defense is tendered under a reservation of rights. Id. Following this determination, the court directed the parties to trial to determine whether the $80 million settlement entered into by B&W was “fair and reasonable.” The jury determined that the settlement was fair, reasonable, and non-collusive, and the trial court entered an order reflecting the same.

ANI appealed the order, presenting a single issue to the Superior Court:

“Whether ANI had the right to deny coverage for B&W’s unauthorized $80 million payments to settle the [underlying] Action where: (1) the ANI Policy, which had combined limits of $320 million, unambiguously afforded ANI the right to control settlement and exclude coverage for unauthorized payments; (2) ANI was fully performing its policy obligations by funding B&W’s $40 million-plus defense in the underlying Action; and (3) ANI’s decision to continue defending the [underlying] Action comported with the Pennsylvania Supreme Court’s decision in Cowden.”

On appeal, ANI contended that by adopting Alfiero as the appropriate standard, the trial court had effectively adopted the standard articulated in United Services Auto. Ass’n v. Morris, 741 P.2d 246 (Az. 1987), and its progeny. In Morris, the Arizona Supreme Court held when an insurer tenders a defense under a reservation of rights it “[does] not breach any of its policy obligations” but “neither [does] it accept full responsibility for the insured’s liability exposure.” As such, it held “the cooperation clause prohibition against settling without the insurer’s consent forbids an insured from settling only claims for which the insurer unconditionally assumes liability under the policy… The insurer’s reservation of the privilege to deny the duty to pay relinquishes to the insured control of the litigation, almost as if the insured had objected to being defended under a reservation.” The Superior Court felt this mischaracterized the trial court’s ruling. Furthermore, such a ruling would be incongruous with Pennsylvania’s contract law because the Morris court found “the insurer’s defense with a reservation did not constitute a breach of contract,” yet still “relieved the insured of its own corresponding contractual duty.” Instead, the Superior Court chose to rely on Taylor v. Safeco Insurance Company, 361 So.2d 743 (Fla. Ct. App. 1978). In Taylor, the insurer tendered its defense under a reservation of rights, then withdrew its defense, only to retender the defense at trial, again under a reservation of rights. The insured rejected the defense, and, without counsel, consented to “a substantial judgment, assigning its right to seek reimbursement from its insurer to the plaintiff in exchange for a release from all personal liability for the judgment.” When the plaintiff sought reimbursement, the trial court granted the insurer summary judgment based on the insured’s failure to comply with the consent to settlement clause of the policy. The appeals court reversed that holding, finding “because the insured had rejected the insurer’s defense… if coverage were established, the insurer would be obligated to indemnify the insured for the amount of settlement up to the policy limit if the settlement was “reasonable” and was not entered into “in bad faith, fraudulently, collusively, or without any effort to minimize his liability.”

Following the Taylor line of case law, Pennsylvania’s Superior Court held:

“When an insurer tenders a defense subject to a reservation, the insured may choose either of two options. It may accept the defense, in which event it remains unqualifiedly bound to the terms of the consent to settlement provision of the underlying policy. Should the insured choose this option, the insurer retains full control of the litigation, consistently with the policy’s terms. In that event, the insured’s sole protection against any injuries arising from the insurer’s conduct of the defense lies in the bad faith standard articulated in Cowden.

Alternatively, the insured may decline the insurer’s tender of a qualified defense and furnish its own defense, either pro se or through independent counsel retained at the insured’s expense. In this event, the insured retains full control of its defense, including the option of settling the underlying claim under terms it believes best. Should the insured select this path, and should coverage be found, the insured may recover from the insurer and the insured’s defense costs and the costs of settlement, to the extent that these costs are deemed fair, reasonable, and non-collusive.”

After making this ruling, the Superior Court held that the trial court erred in constraining the trial to the question of whether B&W’s settlement was “fair and reasonable.” Rather, the questions presented to the jury should have been, “(1) whether B&W in fact rejected ANI’s defense; and, if so, (2) whether ANI acted in bad faith in declining to settle, or, as alleged by B&W, to participate in settlement negotiations with the [underlying] plaintiffs.”  Based on this finding, the court vacated the underlying jury verdict and judgment and remanded to allow the trial court to conduct a new trial in conformity with the new standard derived from Taylor.

Date of Decision:  July 12, 2013

Babcock & Wilcox Co. v. Am. Nuclear Insurers & Mut. Atomic Energy Liab. Underwriters, 2013 Pa. Super. LEXIS 1633 (Pa. Super. Ct. 2012) (Wecht, J.)