Archive for the 'PA – Insurer wrong, but reasonable' Category

JULY 2017 BAD FAITH CASES: NO BAD FAITH WHERE INSURER’S DENIAL WAS BASED ON AN EXPLICIT AND CLEAR POLICY EXCLUSION, AND CONFUSION OVER NATURE OF CLAIM DID NOT CONSTITUTE BAD FAITH (Philadelphia Federal)

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In this case, the plaintiff leased office space to the insured for day-to-day use. In exchange for a rent reduction, the insured agreed to store corporate documents and other assets belonging to the plaintiff in a secured filing cabinet on the property. During a later cleaning and reorganizing project undertaken by the insured, the contents in the filing cabinet were mistakenly disposed of. Plaintiff’s accountant estimated the intrinsic value of the filing cabinet contents at $262,045.

Defendant insurer issued an insurance policy to the insured that covered the office space property. The plaintiff took various informal attempts to settle the loss directly with the insurer. The insurer offered to process plaintiff’s claim as a first-party claim, and required plaintiff to submit certain documentation substantiating the loss. Furthermore, the insurer advised plaintiff that the policy limit for a first-party claim was only $100,000.00, well below plaintiff’s $262,045 claim.

Plaintiff advised the insurer that it would be pursuing a third-party claim, upon learning of the $100,000 first-party claim limit. The insurer, however, had already investigated and analyzed coverage for the loss as a third-party claim, and concluded that the insurance policy excluded coverage for property in the care, custody, and control of the insured. Based on this analysis, the insurer had previously issued the insured a denial letter to the insured on the third-party claim.

The plaintiff brought suit against the insured in the Court of Common Pleas. The insurer denied any duty to defend and indemnify, per the above reasoning. The insured later assigned plaintiff its contract and bad faith rights against the insurer. Plaintiff, as assignee, alleged breach of contract and bad faith.

Specifically, plaintiff alleged the insurer refused to cover the third-party claim, and continually treated plaintiff as a first-party claimant. The court granted the defendant insurer’s motion for summary judgment on the contract claim. The court found that an explicit policy exclusion precluded coverage for the third-party claim because the contents of the filing cabinet were in the care, custody, and control of the insured.

As to the bad faith claim, the court stated that statutory bad faith “is not restricted to an insurer’s bad faith in denying a claim, but rather may extend to a variety of actions such as the insurer’s investigative practices or failure to communicate with the insured.” Still, as the court had ruled the insurer “correctly determined that plaintiff’s claim fell within a policy exclusion … [that] conclusion compels the finding that defendant’s denial of coverage does not constitute bad faith.”

Further, to “the extent that plaintiff alleges that defendant willfully misinterpreted plaintiff’s claim to be requesting first-party property coverage rather than third-party liability coverage, the undisputed evidence of record does not support a reasonable inference that defendant acted in bad faith.” The court concluded: “Plaintiff produced no evidence that defendant lacked reasonable basis for its initial understanding or persisted in this position despite clarification to the contrary. To the contrary, the evidence of record clearly establishes that defendant’s initial confusion was nothing more than mere error. Indeed, defendant’s mistaken characterization of the claim as seeking first-party coverage actually subjected it to more liability exposure—up to $100,000—than it would have under the third-party liability provisions. Given the complete absence of bad faith evidence, I find that this claim fails on summary judgment review.”

Date of Decision: June 27, 2017

Wugnet Publications, Inc. v. Peerless Indemnity Insurance Company, No. 16-4044, 2017 U.S. Dist. LEXIS 98948 (E.D. Pa. June 27, 2017) (O’Neill, Jr., J.)

JANUARY 2017 BAD FAITH CASES: UNSUCCESSFUL, BUT REASONABLE, LEGAL ARGUMENT CANNOT BE THE BASIS FOR A BAD FAITH CLAIM (Western District)

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The insureds won a legal argument as to whether they were entitled to stacking. The insureds later argued that the court should find bad faith against the insurer, on the basis of the insureds’ legal argument prevailing on coverage.

The bad faith claim failed, however, because the carrier’s position was reasonable, even though unsuccessful. “The crux of the Parties’ disagreement – – whether the [vehicle] was added to the [insureds’] policy by endorsement or by the ‘newly acquired vehicle’ clause of the policy – -was resolved in the [the insureds’] favor by this Court, but the authority for both Parties’ positions was reasonably supported by the cases they respectively cited.” Summary judgment was granted to the insurer on the bad faith claim.

Date of Decision: November 28, 2016

Trustgard Ins. Co. v. Campbell, No. 16cv1013, 2016 U.S. Dist. LEXIS 163606 (W.D. Pa. Nov. 28, 2016) (Schwab, J.)

 

 

JUNE 2016 BAD FAITH CASES: COURT RECOMMENDS ALLOWING INSURED TO REPLEAD ITS BAD FAITH CLAIM FOR UNREASONABLE POLICY INTERPRETATION, WHICH INTERPRETATION WAS LATER ABANDONED BY INSURER (Middle District)

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In Long v. New Jersey Manufacturers Insurance Company, the insured brought a bad faith claim based upon the insurer’s allegedly unreasonable interpretation of the policy. The insurer did originally take the position complained of, limiting coverage to $100,000, but eventually dropped that position and came to agreement with the insured on there being greater coverage, $500,000. The insurer brought a motion to dismiss the bad faith claim based upon the insurer’s original position.

The pleadings showed the parties’ agreement that the insurer did for a period of time assert the more restrictive view, but later abandoned this interpretation. The bad faith case “involved an inquiry into the nature, magnitude, and reasonableness of this initial, and admittedly erroneous, interpretation of the policy….”

The court recognized “that an unreasonable, unwarranted, and unjustified interpretation of policy language may form the basis for a bad faith claim, but [there are] particularly exacting standards for such claims.” “Thus, an insurance company’s reliance on an incorrect interpretation of the law will not necessarily yield a finding of bad faith. If that interpretation of the law and policy language was erroneous, but reasonable, a bad faith may still claim fail. …. Likewise, if the insurance company had a number of bases for a legal position, some of which are objectively unreasonable, it may nonetheless defeat a bad faith claim by citing to any reasonable rationale for its action.”

The complaint itself was “spare” in its allegations of bad faith, and in the motion to dismiss process, both parties pointed to facts beyond the pleading in disputing whether the insurer’s position was reasonable. The court recognized that such factual disputes were properly addressed via a summary judgment motion. However, citing Rule 12(e), which allows a defendant to move for a more definite statement of facts in the complaint, the magistrate judge recommended dismissing the complaint without prejudice to allow plaintiff to set out a more definite statement in support of the bad faith claim in the complaint.

Date of Decision: May 17, 2016

Long v. N.J. Mfrs. Ins. Co., Civil No. 3:14-CV-2428, 2016 U.S. Dist. LEXIS 65575 (M.D. Pa. May 17, 2016) (Carlson, U.S.M.J.)

JANUARY 2016 BAD FAITH CASES: COURT REFUSES TO GRANT INSUREDS’ MOTION FOR RECONSIDERATION AFTER DETERMINING THAT INSURER DID NOT ACT IN BAD FAITH BY RELYING ON UNPERSUASIVE LEGAL POSITION (Middle District)

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In Douglas v. Discover Property & Casualty Insurance Company, the court was asked to reconsider its recent decision granting summary judgment in favor of an insurer on a bad faith claim brought by insureds.

The motion arose out of the parties’ cross motions for summary judgment, in which both parties sought judgment on the insureds’ claims for bad faith. In granting summary judgment in favor of the insurer, the court originally articulated two reasons for determining that ample evidence existed to show that the insurer acted reasonably in handling the insured’s claim.

First, the court reasoned that even if the insurer’s rejection form was invalid under case law, the insurer had other justifications for denying coverage. Second, the court noted that even if the insurer relied on unavailing legal theories, no evidence existed that would indicate that the insurer raised these arguments dishonestly or in bad faith. The insureds filed the instant motion for reconsideration, arguing that the court’s two grounds for granting judgment in favor of the insurer were legally erroneous.

While the insureds did not explicitly say so, the court observed that the insureds were claiming that the court’s decision contained a clear error of law or manifest injustice. Specifically, the insureds argued that the court never set forth the justifications that the insurer had in denying coverage. However, the court stated that its prior opinion addressed how issues of fact existed as to whether the insureds had been adequately compensated, and as such, it could not be “frivolous or unfounded” for the insurer to refrain from paying the claim.

Finally, the court reiterated its original position that the insurer’s decision to litigate a reasonable but unpersuasive legal position could not amount to bad faith under the existing case law.

Date of Decision:  December 7, 2015

Douglas v. Discover Prop. & Cas. Ins. Co., 3:08-cv-01607, 2015 U.S. Dist. LEXIS 163781 (M.D. Pa. December 7, 2015) (Mariani, J.)

 

OCTOBER 2015 BAD FAITH CASES: ASSUMING THAT SUBJECTIVE BAD FAITH IS THE STANDARD OF REASONABLENESS, THE INSURER’S INTERPRETATION OF GOVERNING CASE LAW DURING LITIGATION WAS REASONABLE, EVEN IF WRONG (Middle District)

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In Douglas v. Discover Property & Casualty Insurance Company, Judge Mariani again identified the issue that there is a split in authority on whether an objectively reasonable basis to deny coverage can per se defeat the first prong of a plaintiff’s statutory bad faith claim, and preclude such a claim from going forward on an “objective” basis.  Put another way, if an insurer delays in paying a claim or denies a claim based on specific reasoning which is incorrect, but it is later determined that no coverage was due under the policy for a different reason, is it still possible to bring a bad faith claim even though no coverage was ever due under the policy.

The majority of cases stated stand for the proposition that a bad faith claim could not be pursued in those circumstances, because there is an objectively reasonable basis for denying coverage; and thus the plaintiff/insured cannot meet the first prong of the Terletsky test.  However, as in the prior cases identifying this issue, the court did not have to decide the issue, because there was no actionable bad faith claim in any event, and summary judgment was granted to the insurer on the basis that the insured could not even establish subjective unreasonableness.

In that UIM case the insured argued that the insurer relied upon a rejection form it knew to be invalid in denying coverage.  However, the insurer had other independent justifications for denying coverage even if the form was invalid.  Further, although an earlier decision went against the insurer on this issue, under the Superior Court’s Vaxmonsky decision, the insurer’s arguments distinguishing that case as to the form’s validity, asserted repeatedly during the litigation process, was not unreasonable.

On the later point, the court stated: “It does not matter that these arguments have been unsuccessful in court so far. ‘[T]o recover under a claim of bad faith, the plaintiff must show that the defendant did not have a reasonable basis for denying benefits under the policy and that defendant knew or recklessly disregarded its lack of reasonable basis in denying the claim,’ which requires some sort of dishonest purpose on the part of the Defendant. …. The record contains no reason to believe that Defendant’s legal arguments have been raised dishonestly. Instead, it simply appears that Defendants have hewn to good faith but unavailing legal theories. This does not qualify as bad faith conduct under the standards set forth above.”

Date of Decision: September 29, 2015

Douglas v. Discover Prop. & Cas. Ins. Co., 3:08-CV-01607, 2015 U.S. Dist. LEXIS 131601 (M.D. Pa. September 29, 2015) (Mariani, J.)

MAY 2015 BAD FAITH CASES: SUMMARY JUDGMENT GRANTED BECAUSE PRIOR WORKERS’ COMPENSATION DECISION ESTABLISHED REASONABLE BASIS FOR INSURER’S APPLICATION OF EXCLUSION (Philadelphia Federal)

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In Gibble v. Cincinnati Insurance Companies, the court found that the plaintiff did not produce sufficient evidence from which a reasonable jury could find in his favor on a bad faith claim, and granted the insurer summary judgment.

In this case, the policy exclusion relied upon by the carrier to exclude coverage was that the person driving the insured’s truck, i.e., the employee-plaintiff in this case, was “without a reasonable belief that they have authority to do so.” The court found that the insurer had a reasonable basis to exclude payment to the an employee of the insured, even if that basis ultimately proves incorrect.

There had been a prior workers’ compensation decision, finding that the plaintiff-employee of the insured was not acting in the scope of employment at the time he was injured, while driving his employer’s truck. The testimony and evidence in that matter provided a reasonable basis for insurer to believe that unless the injured employee was acting within the scope of his employment, he was not permitted to drive the truck; and that the employee knew that to be the case.

This provided the insurer with a reasonable basis to deny coverage, because the employee arguably appeared to lack a reasonable belief that he was entitled to be driving the truck at the time of the accident. Thus, the statutory bad faith claim could not get beyond Terletsky’s reasonableness prong.  Nor was there any evidence in the record of reckless disregard, to meet the second prong.  The court’s finding was further bolstered the plaintiff’s need to meet the clear and convincing evidence standard, if the case were to proceed.

Date of Decision:  April 30, 2015

Gibble v. Cincinnati Ins. Cos., CIVIL ACTION No. 14-0739, 2015 U.S. Dist. LEXIS 57190 (E.D. Pa. April 30, 2015) (Pratter, J.)

MARCH 2015 BAD FAITH CASES: EVEN WHERE COURT RULES AGAINST INSURER’S INTERPRETATION OF POLICY LANGUAGE, NO BAD FAITH CAN EXIST WHERE THAT INTERPRETATION IS REASONABLE (Middle District)

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In Gray v. Allstate Indemnity Company, the insured asserted breach of contract claim and bad faith claims due to the insurer’s alleged wrongful denial and refusal to pay insurance benefits for his fire loss claim, which was the result of vandalism.  The insurer asserted that the property was vacant and unoccupied from the time the last tenant left the property until the time of the vandalism and resulting fire, and therefore, as a matter of law, no coverage was due.  It moved for summary judgment on both claims.

The insurer relied upon a policy exclusion providing: “Vandalism. However, we do cover sudden and accidental direct physical loss caused by fire resulting from vandalism unless your dwelling has been vacant or unoccupied for more than 90 consecutive days immediately prior to the vandalism.”  It further relied upon a policy endorsement which provided that the insurer “shall not be liable for loss occurring [] while a described building, whether intended for occupancy by owner or tenant is vacant or unoccupied beyond a period of [60] consecutive days.”  The insured claimed to have periodically done work on the property, within the 60 and 90 day periods before the vandalism and fire.

The court found the policy terms “vacant” and “unoccupied” to be ambiguous, relying on Third Circuit precedent. It concluded that there were disputed facts “as to whether plaintiff was sufficiently present at the subject property after the tenants moved out … to personally rehabilitate and rebuild parts of the property such that the property was neither vacant nor unoccupied for purposes of the policy.” Thus summary judgment on the breach of contract claim was denied.

As to the bad faith claim, the court reiterated the principles that an insurer “need not demonstrate its investigation yielded the correct conclusion, or that its conclusion more likely than not was accurate.” Nor is an insurer “required to show that ‘the process by which it reached its conclusion was flawless or that the investigatory methods it employed eliminated possibilities at odds with its conclusion.’” Rather, “an insurance company must show it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action.” Moreover, it is the plaintiff-insured that must provide clear and convincing evidence of bad faith, i.e., “that

the evidence is so clear, direct, weighty and convincing as to enable a clear conviction, without hesitation, about whether or not the defendants acted in bad faith,” a standard that likewise applies at the summary judgment stage.  Under that standard, summary judgment is proper “when there is no clear and convincing evidence that the insurer’s conduct was unreasonable and that it knew or recklessly disregarded its lack of a reasonable basis in denying the claim.”

In this case, the insured’s bad faith claim amounted to an argument that the insurer drafted an ambiguous policy, and then construed the ambiguous language to deny coverage.  The court rejected that argument because the record showed that the insurer “had a factual basis to conclude that the subject property was vacant or unoccupied for more than the specified number of days before the vandalism, and that [the insurer] had a reasonable basis for denying plaintiff’s claim for coverage of the fire loss caused by the vandalism.”

Moreover, as to the policy language, while the court ruled against the insurer’s interpretation of the terms “vacant” and “unoccupied”, the insurer’s interpretation was still reasonable.  In this regard, the court also “found that relevant Pennsylvania state law is unsettled on the matter,” and “[b]ad faith cannot be found where the insurer’s conduct is in accordance with a reasonable but incorrect interpretation of the insurance policy.” A reasonable basis is sufficient to defeat a bad faith claim. Thus, summary judgment was granted to the insurer on the bad faith claim.

Date of Decision:  February 23, 2015

Gray v. Allstate Indem. Co., CIVIL ACTION NO. 3:13-CV-1232, 2015 U.S. Dist. LEXIS 21109 (M.D. Pa. February 23, 2015) (Mannion, J.)

OCTOBER 2014 BAD FAITH CASES: NO BAD FAITH CLAIM WHERE INSURER CARRIED OUT REASONABLE INSPECTION AND CAME TO CONCLUSION THAT RESULT OF THE INSPECTION FELL WITHIN AN EXCLUSION, & INSUREDS DID NOT OFFER MATERIAL FACTS TO SHOW, EVEN IF WRONG, THAT POSITION WAS UNREASONABLE OR THE RESULT OF INTENT SUFFICIENT TO MEET THE BAD FAITH STANDARD (Middle District)

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In Focht v. State Farm Fire & Casualty Company, the homeowner insureds brought breach of contract and bad faith claims centering on a water based loss.  The coverage issue centered on whether the damage at issue was caused by flood damage arising up inside the house, or water penetrating the house during a storm and causing damage from above.  The former was not covered.  The insurer investigated and found that the storm damage in the upper part of the house did not correlate with water damage, but the water damage was consistent with flooding.  The insured’s public adjuster found evidence to support that the water did infiltrate from above.

The court ruled that while a reasonable jury could find for the insureds, there was no evidence to support a bad faith claim.  The insureds’ allegations at most added up to negligence or bad judgment, not bad faith.  That the insurer covered a water damage claim 8 years earlier that was arguably excluded, did not help the insureds make out a case.

Even if the exclusion had applied and the insurer paid anyway, “all that could mean is that Plaintiffs received money … to which they were not entitled.”  Such an oversight by the carrier 8 years earlier could not be evidence of bad faith in a separate claim, “when Plaintiffs’ policy specifically excludes the damage that [the insurer] determined was at issue [8 years later] and when there is no evidence in the record that that determination was motivated by dishonesty or a breach of known duty as would be required to establish bad-faith liability under Terletsky.”

In addressing the factual assertions the insureds made to defend against summary judgment, it was significant to the court that a number of facts or issues raised were not actually relevant to the coverage dispute actually at issue, particular observing that the dispute over surface vs. subsurface water was immaterial as neither was covered.  The court also found that the length of time the insurer’s inspector took with the property, 25-30 minutes, did not create an issue where there was no other evidence to indicate it should have taken longer.

Date of Decision:  September 5, 2014

Focht v. State Farm Fire & Cas. Co., 3:12-CV-01199, 2014 U.S. Dist. LEXIS 124561 (M.D. Pa. September 5, 2014) (Mariani, J.)

 

JULY 2010 BAD FAITH CASES
NO BAD FAITH WHEN THE INSURER DID NOT LACK REASONABLE BASIS FOR DENYING CLAIM, EVEN IF COURT EVENTUALLY DETERMINES THAT THE BASIS IS INCORRECT (Philadelphia Federal)

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In Spector v. Fireman’s Fund Insurance Company, the insureds noticed that the paint on many of the windows in their house was peeling.  They hired a construction consultant to inspect their house, and he concluded that there were problems with the window and door frames, as well as signs of leakage in the master bedroom on the ceiling.  He recommended that the insureds hire an expert to inspect the area between the stucco walls and internal drywalls, and they did that.  The stucco inspector told them that moisture levels in different areas of the house revealed potential problems, but only a deconstruction of the walls would reveal the true condition of the substrate.

The insureds proceeded to hire a plastering company, the owner of which notified them that the house’s roof was incorrectly installed.  The insureds decided to have their roof redone and windows replaced before the stucco was removed for inspection.

Once the stucco was removed, the insureds learned the extent of the water damages, and they gave notice to the insurer by filing a claim.  The insurer sent a claims adjuster to evaluate the property, but upon his arrival, about 90% of the work had already been completed.

The insureds’ homeowner’s insurance policy specifically provided a coverage exclusion for water damage resulting from “continuous or repeated seepage or leakage of water or stream from any source over a period of weeks, months, or years.”  There was an exception to this exclusion, as the insurer would provide coverage if, due to water damage, loss was sudden and accidental and the insured reported the loss no later than 30 days after the date the loss was detected or should have been detected.  The policy also included an exclusion for “faulty, inadequate, or defective…workmanship, repair, construction,” or the materials used therein.

After inspecting the house, the claims adjuster notified the insureds that the insurer was denying their claim, citing the policy’s exclusion for defective construction and the thirty day notice provision for water damage.  The insureds filed a complaint, alleging both breach of contract and bad faith on the part of the insurer.

The court ruled in favor of the insureds on the breach of contract claim, holding that a contract existed and that the insureds complied with the rolling 30 day requirement that accompanied the exception to the water damage exclusion.  Because the insureds did not learn of the damage until less than a month before filing the insurance claim, the insurer incorrectly denied coverage.

However, the court also ruled that the insureds did not establish that the insurer lacked a reasonable basis for denying the claim and knew or recklessly disregarded the reasonable basis.  Therefore, the insurer prevailed on the bad faith claim against it.

Date of Decision:  July 15, 2010

Spector v. Fireman’s Fund Ins. Co., Civil Action No. 09-1311, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 71072 (E.D. Pa. July 15, 2010) (Tucker, J.)

The district court’s decision was upheld on appeal as to damages, and the bad faith decision was not appealed.

May 2010 BAD FAITH CASES
NO BAD FAITH WHEN INSURERS REASONABLY BELIEVE THEY ARE VALIDLY DENYING A CLAIM BASED ON A POLICY EXCLUSION (Philadelphia Federal)

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In Kao v. Markel Insurance Company, the insureds owned adjacent multi-unit properties in South Philadelphia.  The properties contained commercial units on the first floor and a total of six residential apartments on the second third floors.  The insureds purchased an insurance policy with the insurers.  The policy contained a “Government Acts Exclusion” that relieved the insurers of obligations to pay for “loss or damage caused directly or indirectly by . . . seizure or destruction of property by Order of Governmental Authority.”

One day, police forcibly entered the insureds’ property with a search warrant, as they had reason to believe one of the tenants was selling drugs from his apartment.  The searches caused damage to the doors of all six residential apartments and one of the first floor offices.  After the insureds made a claim, the insurance adjuster told the insurers that the police search was the reason for the damages.  The insurers then denied coverage under the Government Acts Exclusion before obtaining a copy of the warrant or police report.

While the breach of contract claim survived summary judgment, the bad faith claim did not.  The court noted that there is a high standard for showing bad faith, and the insurers’ interpretation of the exclusion was “not devoid of a reasonable basis.”  At worst, the insurers were negligent in failing to wait to receive a copy of the warrant and/or police report before denying coverage, but there was no knowledgeable lack of a reasonable basis for denying the insureds’ claim.  Therefore, the court granted summary judgment to the insurers with respect to the bad faith claim.

Date of Decision: April 12, 2010

Kao v. Markel Ins. Co., Civil Action No. 09-CV-3249, United States District Court for the Eastern District of Pennsylvania, 708 F. Supp. 2d 472, 2010 U.S. Dist. LEXIS 40400 (E.D. Pa. Apr. 12, 2010) (Brody, J.).