Archive for the 'PA – Declaratory Judgment' Category

POTPOURRI OF ISSUES ADDRESSED IN RESPONSE TO 11 COUNT COMPLAINT: (1) REMAND (2) GIST OF THE ACTION/ECONOMIC LOSS (3) UIPA; (4) DUTY OF GOOD FAITH AND FAIR DEALING; (5) UNFAIR TRADE PRACTICES AND CONSUMER PROTECTION LAW (6) DECLARATORY JUDGMENT ACTIONS BY BREACH OF CONTRACT PLAINTIFFS AND (7) ADEQUATELY PLEADING BAD FAITH (Philadelphia Federal)

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In this Opinion, Eastern District Judge Tucker addresses a wide range of fundamental legal issues in the context of ruling on a motion to dismiss the insured’s 11 count complaint. The complaint includes not only breach of contract and bad faith claims, but tort claims, UIPA claims, declaratory judgment claims, and injunctive relief claims, all arising out of the alleged failure to pay on an insurance claim. The court also addresses a motion to remand after removal.

We do not address all of the issues Judge Tucker discusses, but highlight a few of the key principles adduced in her opinion. Her full opinion can be found here.

  1. Motion to remand denied.  (i) In determining the jurisdictional minimum amount-in-controversy, the court may consider the possibility of punitive damages under the bad faith statute. (ii) Diversity of citizenship can be established by showing the defendant is not a citizen of plaintiff’s state, just as well as by affirmatively showing the state(s) in which defendant is a citizen.

  2. The gist of the action doctrine and/or the economic loss doctrine will typically bar tort claims based on violations of an insurance contract.

  3. Violating the Unfair Insurance Practices Act (UIPA) (i) does not create a private right of action, and (ii) some courts hold it may not be used to establish violation of statutory bad faith.

As the court states: “Plaintiff’s claim is also barred to the extent that it relies on an alleged violation of the Pennsylvania Unfair Insurance Practices Act (‘UIPA’) because the UIPA does not permit private recovery for a violation of its provisions. Plaintiff advances a claim for damages based, in part, on a theory that [the insurer] was negligent having breached duties imposed upon it by the UIPA, 40 Pa Const. Stat. Ann. § 1171.1, et seq. ‘Courts within the Third Circuit and the Commonwealth of Pennsylvania continue to recognize [, however,] that the UIPA does not provide plaintiffs with a private cause of action.’ Tippett, 2015 U.S. Dist. LEXIS 37513, 2015 WL 1345442 at *2 (quoting Weinberg v. Nationwide Cas. and Ins. Co., 949 F. Supp. 2d 588, 598 (E.D. Pa. 2013)) (internal quotation marks omitted). Indeed, in Tippett, the district court not only rejected a plaintiff’s attempt to state a separate claim under the UIPA, but also rejected the plaintiff’s arguments that proof of a UIPA violation might otherwise provide support for the plaintiff’s independent bad faith claim. Id. Plaintiff’s claim under the UIPA in this case is similarly barred.”

  1. Breach of the common law duty of good faith and fair dealing is subsumed in the breach of contract claim.

  2. The Unfair Trade Practices and Consumer Protection Law applies to the sale of insurance policies, not claims handling.

As the court states: “While Plaintiff rightly notes that the ‘UTPCPL creates a private right of action in persons upon whom unfair methods of competition and/or unfair or deceptive acts or practices are employed and who, as a result, sustain an ascertainable loss,’ … Plaintiff fails to note that ‘the UTPCPL applies to the sale of an insurance policy [but] does not apply to the handling of insurance claims.’” Thus, as the alleged “wrongful conduct under the UTPCPL relate[s] solely to [the insurer’s] actions after the execution of the homeowner’s insurance policy,” the UTPCPL claim was dismissed.

  1. Declaratory judgment count not permitted in light of breach of contract claim.

The court states: “Federal courts routinely dismiss actions seeking declaratory judgment that, if entered, would be duplicative of a judgment on an underlying breach of contract claim.” Judge Tucker cites case law for the propositions that “granting a defendant’s motion to dismiss a plaintiff’s independent cause of action for declaratory judgment because the claim for declaratory judgment was duplicative of an underlying breach of contract claim,” and “dismissing a plaintiff’s duplicative claim for declaratory judgment in the face of an underlying breach of insurance contract claim and observing that ‘pursuant to discretionary declaratory judgment authority, district courts have dismissed declaratory judgment claims at the motion to dismiss stage when they duplicate breach of contract claims within the same action.’”

  1. The insured pleads a plausible bad faith claim.

Judge Tucker highlighted the following allegations in ruling that the bad faith claim could proceed:

i the insurer “attempted to close her insurance claim despite never having sent an adjuster or inspector to evaluate the damage to the Property.”;

ii the insurer “engaged in intentional ‘telephone tag’ to delay and deny Plaintiff coverage under the homeowner’s insurance policy.”;

iii. the insurer never “scheduled an inspection of the Property or otherwise [took] any action to deny or grant coverage under the homeowner’s insurance policy.”

Thus, at the end of the day, after reviewing all of the claims and motion to remand, the insured was allowed to proceed on the breach of contract and bad faith claims.

Date of Decision: August 13, 2019

Neri v. State Farm Fire & Cas. Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-0355, 2019 U.S. Dist. LEXIS 136820 (E.D. Pa. Aug. 13, 2019) (Tucker, J.)

AN INSURER DOES NOT ACT IN BAD FAITH WHEN IT DOES NOT BREACH A DUTY TO DEFEND OR INDEMNIFY, EVEN WHEN DENIAL IS BASED ON LATE NOTICE (Western District)

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This case involves two bases for coverage denials: (1) late notice resulting in prejudice, and (2) first party claims are not covered under a commercial general liability policy.

The bad faith plaintiff is a general contractor. It was named as an additional insured on a subcontractor’s policy with the defendant insurer.

There was an explosion resulting in personal injury to a third party, and first party property damage to the contractor. The contractor was named as a defendant in the personal injury action, and claimed over against other parties, including the named insured subcontractor. The contractor also brought a property damage suit against others, including the subcontractor, for its own property damages.

Nearly 3½ years into the personal injury suit, the parties mediated a settlement. The contractor did not request a defense or indemnity from the insurer in the personal injury action until the day that suit settled. For the first time, during that mediation, the additional insured contractor orally requested a defense and indemnification from the defendant insurer.

A representative of the contractor’s own primary insurer was present at the mediation as well as a representative of the defendant insurer. However, the defendant insurer’s representative had only come to the mediation to represent the subcontractor’s interests, not the contractor’s interests.

There is no bad faith when the claim is plainly outside the scope of coverage.

The court readily found no coverage due for the contractor’s own property damage claims. The contractor was seeking coverage as an additional insured under the subcontractor’s CGL policy. CGL policies only apply to property damage claims raised by others against an insured, not to the insured’s own property damages.

An “insurer does not act in bad faith when the insurer does not breach its duty to defend or indemnify.” The property damage claim “was plainly outside the scope of coverage”. Thus, as there was no duty to defend or indemnify there could be no bad faith, and summary judgment was granted on both the first party property damage coverage and bad faith claims.

There could be no bad faith where late notice and prejudice also resulted in a coverage denial.

After extensive analysis, Judge Hornak concluded that there was no coverage due in the personal injury action because of the contractor’s late notice, and the actual prejudice resulting from the late notice. He granted the insurer’s summary judgment motion on any duty to defend or indemnify. The insurer lost the opportunity to retain counsel and pay a fee structure significantly less expensive than what was charged by the contractor’s counsel; lost “the opportunity to take control of the matter at an early stage and resolve it prior to the accumulation of those expenses”; lost the opportunity to advance potential defenses; and “was indisputably prejudiced by its inability to control [the] defense, or the costs incurred in furtherance of it, until the end of the underlying litigation—when [the contractor] expected payment for all of the expenses that they had accumulated up to that point along with what it ‘fronted’ for settlement.”

Absent that late notice and prejudice, there is no question the insurer had a duty to defend the personal injury claim against the contractor. Still, as no coverage was due because of the late notice and prejudice, there could be no bad faith under the same principles used in rejecting the bad faith claim on property damage, i.e., no coverage due = no bad faith.

However, the court went on to analyze the personal injury bad faith claim, assuming arguendo what would have happened if it allowed the issue of prejudice to go to the jury instead of granting summary judgment. Judge Hornak concluded that even under those circumstances, he would have rejected the bad faith claim. There was simply no basis in the record to show the insurer’s refusal to step in at the mediation, or its ongoing refusal to pay the contractor, was frivolous or unfounded.

The following facts were undisputed, and showed the insurer acted reasonably in believing it was prejudiced by late notice and would not have to provide any defense or indemnity payments. It did not choose counsel; the contractor had amassed years of legal fees and expenses over which the insurer had no control; the insurer “was not provided an accounting of the defense costs for which it would potentially have to indemnify” the contractor; the insurer “did not participate in early investigation or settlement discussions”; and the insurer “had no reason, until the moment that the oral demand was made, to believe that [the contractor] desired a defense or expected indemnification”.

The court also found it nonsensical to conclude the insurer could have made a decision in the midst of the mediation to provide indemnification and pay a settlement, or even could have stopped the mediation at which it was protecting the named insured’s interests. This was highlighted by the fact that the case had been going on for years, and the contractor had never before asked for defense or indemnification. Moreover, at that moment in time there remained legitimate coverage issues reasonably justifying a refusal to pay on demand.

Finally, the insurer’s ongoing refusal to pay for the subcontractor’s legal fees and settlement payment also had a reasonable foundation, and could not be deemed frivolous or unfounded. Thus, summary judgment on bad faith was granted even assuming it would not have been granted on the coverage claim.

Date of Decision: March 1, 2019

NVR, Inc. v. Motorists Mutual Insurance Co., U. S. District Court Western District of Pennsylvania No. 2:16-cv-00722, 2019 U.S. Dist. LEXIS 32802, 2019 WL 989393 (W.D. Pa. Mar. 1, 2019) (Hornak, J.)

DECEMBER 2018 BAD FAITH CASES: BAD FAITH CLAIMS STATED BASED ON UNREASONABLE INTERPRETATION OF POLICY EXCLUSIONS, AND PURSUIT OF DECLARATORY JUDGMENT PROCESS BEFORE ULTIMATELY SETTLING (Western District)

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The underlying suit involved negligence claims concerning a sexual assault by the insured’s father against others. The insurer defended under a reservation of rights, and brought a federal declaratory judgment action against the insured. The insured brought a declaratory judgment action in state court, and successfully had the federal claim dismissed on procedural grounds.

The insurer counterclaimed for declaratory judgment in state court, and filed a motion for judgment on the pleadings, which was denied. The insurer appealed to the Superior Court of Pennsylvania, and the appeal was quashed as interlocutory. The underlying action subsequently settled, and the declaratory judgment action was dismissed as moot.

The insured sued for common law contractual bad faith and statutory bad faith, and the insurer’s motion for judgment on the pleadings was denied.

The insured argued the reservation of rights letters were “manipulative”, that the insurer delayed settling the underlying action to improve its negotiating position, and that the insured suffered emotional distress and the expenses of having to bring and defend the declaratory judgment actions. The insured alleged the coverage positions were reckless or unwarranted, the appeal was unwarranted, and claim handling concerning coverage was unreasonable, inadequate, and was in conflict with the insured’s interests.

CONTRACTUAL BAD FAITH

The court first addressed the contractual bad faith claims. It observed that issuing reservation of rights letters is accepted practice, and that courts encourage the use of declaratory judgment actions.

However, bad faith allegations may be sufficient, even if policy limits are ultimately paid, where delaying resolution prejudiced the insured, and the insured pleads the insurer: (i) failed to conduct a complete and thorough factual or legal investigation; (ii) refused to enter good faith settlement negotiations; (iii) conducted “surface” settlement negotiations with no intent to settle; (iv) rejected settlement demands without counterproposals; or (v) pursued declaratory judgment actions with no reasonable basis, for an unreasonable time period.

In this case, the insured’s complaint put the investigation’s thoroughness at issue. Likewise, the exclusions the insurer relied upon, and propriety of settling the underlying case only after two years of actively pursuing the declaratory judgment action, were “unsettled questions of fact” on the bad faith claim. The court concluded: “Viewing the evidence in the light most favorable to [plaintiff], a reasonable jury could find that [the insurer’s] actions, in the aggregate, constituted a bad faith breach of its contractual duties … and could lead that jury to return a verdict in [plaintiff’s] favor.”

STATUTORY BAD FAITH

The court observed that statutory bad faith is not measured by whether an insurer ultimately fulfills its obligations. If payment is due and ultimately made, bad faith during the claim handling process in delaying that payment may be actionable. This is similar to a contractual bad faith claim where the court looks at the manner in which an insurer discharges its duties to the insured when payment is due, but that payment is delayed.

As the court was obliged to take the pleadings in the light most favorable to the insured in deciding a judgment on the pleadings, the complaint was sufficient. On the facts pleaded, a reasonable jury could conclude the alleged failures in investigation and claims handling were motivated by self-interest, despite the insurer’s ultimately settling the underlying case.

Date of Decision: November 27, 2018

Higginbotham v. Liberty Ins. Corp., U.S. District Court Western District of Pennsylvania Civil Action No. 18-747, 2018 U.S. Dist. LEXIS 199836, 2018 WL 6179024 (W.D. Pa. Nov. 27, 2018) (Mitchell, M.J.)

MAY 2017 BAD FAITH CASES: COURT DISCUSSES STAY AND SEVERANCE OF BAD FAITH CLAIMS, IN CONTEXT OF SETTING STANDARD FOR DISCOVERY OF EXTRINSIC EVIDENCE ON COVERAGE/CONTRACT CLAIMS (Middle District)

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This exhaustive opinion on discovery of extrinsic evidence sets forth a working standard for determining permissible discovery in declaratory judgment insurance coverage contract actions. After a detailed overview of pertinent case law and the 2015 rule amendments focusing on proportionality, the court held that “litigants who wish to discover extrinsic evidence in a contract interpretation case must (1) point to specific language in the agreement itself that is genuinely ambiguous or that extrinsic evidence is likely to render genuinely ambiguous; and (2) show that the requested extrinsic evidence is also likely to resolve the ambiguity without imposing unreasonable expense.”

In this case, the discovery sought did not fall within those aims and a motion to compel was denied.

To provide context by contrast, the court included an analysis of discovery in bad faith cases within its overall discussion. In instances where a plaintiff seeks underwriting files and claims manuals, the presence of a bad faith claim makes their “discoverability more likely, yet it by no means guarantees it.” In that context, “[t]he issue in a bad faith case is whether the insurer acted recklessly or with ill will towards the plaintiff in a particular case, not whether the defendants’ business practices were generally reasonable.”

By contrast, under Pennsylvania law, declaratory judgment actions for coverage are contract-based claims controlled by the express language in the contract, and the language of such integrated contracts will “often will suffice to dictate the proper outcome without reference to any external sources.”

To provide further contrast, the court looked at district court case law in the Third Circuit on stays, and severance of bad faith claims from coverage actions, where courts bifurcated the two claims and the different discovery related to them. These cases observe the differences between discovery and proof in bad faith cases and coverage cases, and that the coverage/contract claims can require less discovery in reaching resolution. [The court in this case had previously dismissed plaintiff’s bad faith claim].

Date of Decision: May 12, 2017

Westfield Insurance Company v. Icon Legacy Custom Modular Homes, No. 15-539, 2017 U.S. Dist. LEXIS 72624 (M.D. Pa. May 12, 2017) (Brann, J.)

 

FEBRUARY 2017 BAD FAITH CASES: COURT WOULD NOT REMAND DECLARATORY JUDGMENT ACTION WHERE JOINED WITH BAD FAITH CLAIM; BAD FAITH CLAIM ADEQUATELY PLEADED TO SURVIVE MOTION TO DISMISS (Western District)

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The district court refused to remand a declaratory judgment coverage action, principally because there was also a bad faith claim in the case. The court did look at some of the other Reifer factors before rendering its conclusion.

Having maintained jurisdiction, the court refused to dismiss the bad faith claim at the pleading stage. The insured had pleaded that a disclaimer letter prospectively denying a duty to defend was sent five months before any suit was filed. Further, this letter lacked an explanation of the carrier’s reasoning, and a later letter had the same failings in explaining the carrier’s position. The insured also alleged that the insurer failed to respond to the insured’s correspondence in another instance, and the insurer only conducted a cursory investigation into the claim. The insured further alleged that the insurer failed to provide a defense after the insured provided additional information and trial was approaching.

The court noted that the duty to defend is broader than the duty to indemnify, and it was not comfortable deciding the merits of potential coverage issues on a motion to dismiss, on the facts as pleaded. Rather, the court was persuaded that discovery was appropriate and the record should be further developed. The insurer could raise its defense later in the case, via summary judgment.

Date of Decision: January 30, 2017

Chester v. Utica First Ins. Co., No. 16-1671, 2017 U.S. Dist. LEXIS 12096 (W.D. Pa. Jan. 30, 2017) (Barry Fischer, J.)

 

NOVEMBER 2016 BAD FAITH CASES: NO BAD FAITH FOR FILING DECLARATORY JUDGMENT ACTION; AND WHERE RECORD SHOWS GENUINE INVESTIGATION AND NOT PUTATIVE PREDISPOSITION TOWARD DENIAL (Third Circuit, Pennsylvania) (Not precedential)

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This non-precedential Third Circuit opinion affirmed the trial court’s opinion granting summary judgment to the insurer on a statutory bad faith claim. (We will not repeat the facts, but instead link to our previous summary of the trial court opinion).

In reciting the elements of bad faith, among other things, the appellate panel stated that because the carrier “ultimately paid the full policy limit, Appellants’ bad faith claim is based on the company’s investigation of [the] claim.” The court cited the Superior Court’s decision Rancosky v. Wash. National Ins. Co., for the proposition that “Bad faith conduct includes lack of good faith investigation into the facts.” The court does not address the issue of whether poor claims handling alone, without the denial of a benefit, can be bad faith. The trial court had noted that a long enough delay in handling the claim can be treated as the equivalent of a denial of a benefit, but the Third Circuit did not address this nuance.

In Rancosky, Pennsylvania’s Supreme Court defined the elements of what constitutes a statutory bad faith claim, which do not require proof of motive of self-interest or ill will.)

In addressing the merits, the appellate court first looked at plaintiff’s assertions that there was a “predisposition toward denial” and that the insurer “focused upon exclusion and accepted no facts contrary to its initial conclusion” (theories that harken bank to the 2003 Luzerne County Corch decision). However, the Third Circuit agreed that “the claims file showed that [the insurer] evaluated [the]claim, consulted with legal counsel, and tried to determine” the key issue of employment status.

Moreover, the insurer did not deny the claim, but filed a declaratory judgment action to determine this key issue and how it affected coverage. The insurer’s ultimately paying the policy’s liability limit demonstrated its willingness to consider new evidence and adjust its position. The court added that: “In any event, [the insurer] had the right to investigate [the]claim and determine whether it was covered under the policy, regardless of whether [the insurer] initially sought to exclude the claim. Citing its own prior precedent: “[A]n insurer does not act in bad faith by investigating and litigating legitimate issues of coverage.”

The appellate court agreed that there was no bad faith under Pennsylvania law in filing a declaratory judgment action to seek a coverage determination, to resolve legal ambiguities after it had investigated the facts of the claim. The court observed that the insurer had consulted with in-house counsel before the decision to file the declaratory judgment action, showing that the insurer was still considering the insured’s claim.

The court affirmed the grant of summary judgment on the bad faith claim.

Date of decision: October 4, 2016

Bodnar v. Nationwide Mut. Ins. Co., No. 15-3485, 2016 U.S. App. LEXIS 17903 (3d Cir. Oct. 4, 2016) (Hardiman, McKee, Rendell, JJ.)

 

JULY 2016 BAD FAITH CASES: COURT RETAINED JURISDICTION OVER INSURER’S DECLARATORY JUDGMENT ACTION, REFUSING TO ABSTAIN UNDER SUMMY/REIFER (Western District)

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In Westport Insurance Corp. v. Hippo, the insured defendant was subject to a professional malpractice action in state court. The insurer brought a declaratory judgment action in federal court, seeking a ruling of no duty to defend or indemnify the state court action. The insured then brought its own declaratory judgment and bad faith action against the insurer in state court. The insured further asked the federal court to decline jurisdiction over the insurer’s declaratory judgment action. The court applied the 8 part Reifer test and decided to exercise jurisdiction over the insurer’s declaratory judgment action.  [Note: Reifer had seemed to indicate additional factors, beyond the Third Circuit’s seminal Summy decision, favoring the exercise of jurisdiction over declaratory judgment actions, though it was a matter clearly to be weighed carefully on either side].

Other 2016 post-Reifer decisions show most district courts declining jurisdiction over insurance declaratory judgment actions, at least in opinions available on Lexis. See, e.g., Kline v. Travelers Personal Security Ins. Co. (Middle District), Rachel II, Inc. v. State National Ins. Co. (Eastern District), Liberty Insurance Corp. v. Higgenbotham, No. 2:16-cv-38 (Western District March 24, 2016), Firemen’s Insurance Co. v. B. R. Kreider & Son, Inc. (Eastern District), Steadfast Insurance Co. v. Environmental Barrier Co. (Western District), Easterday v. Federated Mutual Ins. Co. (Eastern District), State Farm Mutual Automobile Ins. Co. v. Biddle (Western District).

In one other Western District case, the court did retain jurisdiction, Rafferty v. Metropolitan Life Ins. Co.

Date of Decision: April 28, 2016

Westport Ins. Corp. v. Hippo, 2016 U.S. Dist. LEXIS 56573 (W.D. Pa. April 28, 2016) (Gibson, J.)

 

MARCH 2016 BAD FAITH CASES: IN EASTERDAY V. FEDERAL MUTUAL, COURT REMANDS DECLARATORY JUDGMENT ACTION INVOLVING NOVEL ISSUE OF STATE LAW (Philadelphia Federal)

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Easterday v. Federated Mutual Insurance Company involved a class action claim for a declaratory judgment concerning underinsured motorist, coverage, breach of contract and bad faith.  Applying the Third Circuit’s analysis in Reifer on when a district court should entertain a declaratory judgment action, the federal district court remanded the case to state court.  It found the heart of the case would be decided in the declaratory judgment action, and the results of the contract and bad faith claims were entirely dependent on that decision.

The court found that the plaintiffs were seeking a declaration that they are entitled to underinsured motorist benefits under the business insurance policy at issue. Thus, “[t]he outcome of the bad faith and breach of contract claims depends on the resolution of the declaratory judgment claims. This action neither presents a federal question nor does it promote a federal interest. The dispute over the scope of coverage of the insurance contract is purely a matter of state law and there are no federal interests at stake. In fact, this action involves novel issues involving purely state law. As this action is inherently one for declaratory judgment, coupled with claims for breach of contract and bad faith, I will exercise my discretion to decline jurisdiction and grant the motion to remand this matter to state court.”

Date of Decision:  February 8, 2016

Easterday v. Federated Mut. Ins. Co., 2016 U.S. Dist. LEXIS 15440 (E.D. Pa. Feb. 8, 2016) (Stengel, J.)

DECEMBER 2015 BAD FAITH CASES: (1) ISSUES OF DISPUTED FACT ON CLAIMS HANDLING AND COVERAGE SUPPORTED INSURER’S CASE THERE WAS NO BAD FAITH; (2) AN INSURER’S INVESTIGATION INTO WHETHER EXCLUSION APPLIES IS NOT BAD FAITH; AND (3) FILING A DECLARATORY JUDGMENT IS NOT THE EQUIVALENT OF DENYING COVERAGE (Middle District)

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In Bodnar v. Amco Insurance Company, the insured sought reconsideration of the court’s decision granting the insurer summary judgment on bad faith.  The insured repeated a litany of facts in arguing that the court made credibility determinations, which were inappropriate on summary judgment.

The court rejected, this argument, pointing out that the insured misconstrued the prior decision.  It was not that the court made creditability determinations on disputed issues, but that the very existence of so many disputed issues established that the insurer’s decisions were not unreasonable, and therefore the first element of any bad faith case – that there was no reasonable basis to deny coverage — could not be met.  “It was precisely because so many pieces of contradictory evidence existed that we concluded that it could not.”

The court also reiterated the bases for portions of its prior decision.  The court observed that an insurer has a duty to determine whether coverage exists.  It makes no difference whether this duty is framed positively as searching for coverage or negatively as searching for the application of exclusion.  The only issue is whether the investigation into coverage is done in good faith. “In other words, even if [insurer] ‘searched for an exclusion,’ this would not necessarily be in bad faith if the exclusion actually applied … and did in fact bar … coverage.”

The court also addressed the argument that its prior decision was based upon the insurer’s relying on advice of counsel.  There was no advice of counsel put at issue by the insurer, and the court expressly did not rely upon materials that were redacted in reaching its decision.  In this vein, the court stated that whatever the lawyer’s advice had been, it only led to a determination to file a declaratory judgment action, not to deny coverage. “[A] decision to seek a judicial determination on whether coverage existed is not indicative of bad faith or breach of contract, especially when, as here, the implications of the background facts at issue are legally ambiguous.”

Date of Decision:  December 3, 2015

Bodnar v. Amco Insurance Co., No. 3:12-CV-01337, 2015 U.S. Dist. LEXIS 162169, December 3, 2015 (M.D. Pa. December 3, 2015) (Mariani, J.)

NOVEMBER 2015 BAD FAITH CASES: COURT DECLINES TO EXERCISE JURISDICTION OVER COVERAGE DISPUTE, AND REMANDS BECAUSE NATURE OF INSURED’S STATE CLAIMS OUTWEIGHED PRESUMPTION OF JURISDICTION (Philadelphia Federal)

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In Rarick v. Federated Service Insurance Company, the court declined to exercise its discretionary DJA [Declaratory Judgment Act] jurisdiction over a suit filed by an insured against an insurer after applying the “heart of the matter” test to the insured’s claims for declaratory relief, breach of contract, and bad faith, and ultimately found that the novelty of the state law issues outweighed the rebuttable presumption in favor of jurisdiction.

The insured originally sought relief after sustaining injuries in a car accident he was involved in while driving a vehicle covered under a policy issued to the insured’s employer, the owner of the vehicle. The insurer denied the insured’s claim for recovery of uninsured motorist benefits on the basis that the insured did not fall under any of the categories of persons covered under the policy, and the insured filed the instant action.

The Judge issued an Order to Show Cause concerning the Court’s jurisdiction, and noted that the case involved claims for declaratory and coercive relief. Before reaching the merits of the case, the Judge observed that “federal courts must resolve questions of jurisdiction and justiciability.”

In determining whether jurisdiction was appropriate in this mixed claim action, the Court applied the “heart of the matter” approach. In doing so, the Court determined that because the essence of the claim was a declaratory judgment dispute, a rebuttable presumption in favor of jurisdiction existed to allow the Court to hear the insured’s bad faith and breach of contract claims, which depended on the resolution of the declaratory judgment claims.

The Court next determined whether good reasons existed for overriding the presumption in favor of jurisdiction. After considering eight factors enumerated the Third Circuit’s Reifer decision, the Court gave significant weight to one in particular, “the likelihood that a federal court declaration will resolve the uncertainty of obligation which gave rise to the controversy.”

The Court ultimately found that this factor weighed against retaining jurisdiction, “in light of the fact that [the insured] has raised additional claims beyond his request for declaratory relief.” Thus, because of the “nature and novelty of the state law issues” raised by the insured, specifically violations of the Pennsylvania Bad Faith Statute and whether the insurer’s failure to produce a valid Rejection of Uninsured Motorist Coverage as required by the Pennsylvania Motor Vehicle Financial Responsibility Law entitled the insured to coverage, the Court declined jurisdiction and remanded the case to the Court of Common Pleas of Philadelphia County.

Date of Decision:  September 28, 2015

Rarick v. Federated Serv. Ins. Co., CIVIL ACTION NO. 2:13-cv-03286, 2015 U.S. Dist. LEXIS 129860 (E.D. Pa. September 28, 2015) (Leeson, J.)