Archive for the 'PA – No coverage duty, no bad faith' Category

WHERE THERE IS NO DUTY TO DEFEND THERE IS NO STATUTORY BAD FAITH; NO COMMON LAW BAD FAITH WHERE NO BREACH OF CONTRACT (Western District)

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The court determined there was no coverage due under an additional insured endorsement. Thus the insured lost on its breach of contract and declaratory judgments claims. It likewise failed to salvage its bad faith claims.

In addressing the bad faith claim, the court relied on the Third Circuit’s recent decision in 631 N. Broad Street v. Commonwealth Land Title, observing “that where there is ‘no duty to defend, there could be no [statutory] bad faith claim against’ the insurer.”

The insured tried to evade this result by asserting it still had a common law bad faith claim. However, the only common law bad faith cause of action available in Pennsylvania arises out of the insurance contract. If the contract claim fails, the common law bad faith claim fails of necessity. Thus, “[b]ecause the Court dismisses [the] breach-of-contract claim based on lack of potential for coverage, so too must it dismiss a subsumed claim of common law bad faith.”

On the common law bad faith holding, the court relied upon the Eastern District decisions in CRS Auto Parts and Tubman, and the Middle District decisions in Bukofsi and Porter.

Date of Decision: March 13, 2020

NVR, Inc. v. Mutual Benefit Insurance Co., U.S. District Court Western District of Pennsylvania No. 2:19-cv-26-NR, 2020 U.S. Dist. LEXIS 44135 (W.D. Pa. Mar. 13, 2020) (Ranjan, J.)

WHERE POLICY DOES NOT COVER CLAIM, INSURER HAS A REASONABLE BASIS TO DENY BENEFITS AS A MATTER OF LAW (Philadelphia Federal)

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The case involved a policy interpretation dispute, specifically focusing on an exception to an exclusion. The carrier denied coverage, and the insured sued for a declaratory judgment, breach of contract, and bad faith.

The exclusion at issue plainly applied to condominiums, but also included an exception for single-family dwellings that were not tract homes, condominiums, or townhouse projects. The insured argued that the exception encompassed three types of structures: single family homes that are not tract homes, and condominiums, and townhouse projects. The insurer argued that the exception only applied to single family dwellings that were not part of tract homes, condominiums or townhouse projects.

The court agreed with the insurer. It would be unreasonable to read the policy as excluding coverage for condominiums, and then excepting condominiums from the exclusion in the next breath. Otherwise, this would make the exclusion language surplussage.

After making this finding, the court determined that there was no breach of contract, and that the insurer should be granted a declaratory judgment in its favor.

The court then granted judgment to the insurer on the bad faith claim. “Given that the policy does not cover the … claim, [the insurer] did not, as a matter of law, lack a reasonable basis for denying benefits under the policy.”

Date of Decision: February 25, 2020

Elite Restoration, Inc. v. First Mercury Ins. Co., U.S. Dist. Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-2215, 2020 U.S. Dist. LEXIS 31611 (E.D. Pa. Feb. 25, 2020) (Joyner, J.)

LACK OF COVERAGE CONSTITUTES UNDISPUTED EVIDENCE OF REASONABLE BASIS TO DENY CLAIM, AND WARRANTS REJECTION OF BAD FAITH CAUSE OF ACTION (Philadelphia Federal)

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The loss at issue was the result of intentional conduct by the named insured’s son, in this tragic matter. The son was also an insured under the policy.

The court found the named insured (actually his estate) could not make out a prima facie case for coverage because the loss was not accidental, and the intentional conduct was the act of an insured. Alternatively, the court found the intentional loss exclusion applied. For these reasons, the court granted summary judgment on the breach of contract claim.

As to bad faith count, the court first reiterates that the insurance coverage claims are barred under the policy. Next, “[t]he Court therefore concludes that undisputed evidence demonstrates that defendant had a reasonable basis for denying plaintiff’s claim. The bad faith claim is therefore rejected.”

Thus, summary judgment was granted on all counts.

Date of Decision: January 30, 2020

Tartour v. Safeco Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-1896, 2020 U.S. Dist. LEXIS 16271, 2020 WL 489467 (E.D. Pa. Jan. 30, 2020) (DuBois, J.)

NO BAD FAITH WHERE EXCLUSION APPLIES AND NO COVERAGE DUE (Western District)

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Plaintiff loaned her car to her boyfriend. Unknown to her, the boyfriend’s license was suspended. He got into an accident, and the carrier denied coverage based on an exclusion for drivers with suspended licenses. Plaintiff sued for bad faith and breach of contract. The parties filed cross motions for summary judgment. The court granted the insurer’s motion.

The dispute centered on the policy exclusion. The court analyzed the exclusion in detail based on the policy language and facts of the case, finding the exclusion applied. The court rejected the insured’s piecemeal policy reading as contrary to governing standards requiring the policy to be viewed “in its entirety, giving effect to all of its provisions,” with the policy’s words “construed in their natural, plain, and ordinary sense”.

Thus, the insured’s “attempts to read ambiguity into [policy] sections where none exist [] cannot demonstrate bad faith or breach of contract as a matter of law.”

Date of Decision: December 20, 2019

Lewandowski v. Nationwide Mutual Insurance Co., U.S. District Court Western District of Pennsylvania Civil Action No. 18-1441, 2019 U.S. Dist. LEXIS 218713, 2019 WL 7037587 (W.D. Pa. Dec. 20, 2019) (Bissoon, J.)

BAD FAITH REQUIRES DENIAL OF A BENEFIT, EXCEPT IN LIMITED CIRCUMSTANCES; NO SEPARATE BREACH OF GOOD FAITH ACTION (Philadelphia federal)

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To paraphrase from the summary below: Though courts have extended the concept of bad faith beyond an insured’s denial of a claim in several limited areas, the essence of a bad faith claim must be the unreasonable and intentional or reckless denial of benefits.

A dispute between the insured and insurer settled for $237,000. During the post-settlement drafting process, the insurer included a term in the settlement agreement making the insured’s mortgagee a payee on the settlement check. The insured objected, but the carrier responded the policy required it to include the payee. It refused to issue the settlement check without the mortgagee and the parties were at loggerheads.

The insured filed a new action against the carrier, seeking to enforce the settlement agreement without the mortgagee’s inclusion. The insured brought a breach of contract claim, as well as a separate breach of the duty of good faith and fair dealing in connection with the settlement agreement. The carrier moved to dismiss the good faith and fair dealing count.

The court dismissed that count, following the principle a breach of the covenant of good faith and fair dealing is subsumed within the contract claim, and cannot state a distinct cause of action. “Such subsuming occurs when ‘the actions forming the basis of the breach of contract claim are essentially the same as the actions forming the basis of the bad faith claim.’” Here, both counts arose out of the refusal to remove the mortgagee from the settlement payment.

The court also noted there was no separate tort claim for bad faith in Pennsylvania.

Finally, the court rejected the notion that the good faith count could survive if treated as a statutory bad faith claim. It observed that the case arose from an alleged breach of a settlement agreement, not a violation of the insurance policy. The issue here was the insurer’s including the mortgagee on the payment check, not the denial of a benefit, i.e., the carrier was ready and willing to make a payment under the policy.

As the court states:

Critically, while Plaintiff does claim that [the carrier] “refus[ed] to make payment of a settlement amount within 60 days as required by the policy of insurance,” it is clear from Plaintiff’s own recitation of the facts that what Plaintiff means by “refus[al] to make payment” amounts to Plaintiff’s refusal to accept a settlement check naming the mortgagee as a payee, rather than a denial of benefits under the policy. Though “Courts have extended the concept of ‘bad faith’ beyond an insured’s denial of a claim in several limited areas,” … “the essence of a bad faith claim must be the unreasonable and intentional (or reckless) denial of benefits….” [Emphasis in original] As such, Section 8371 “do[es] not apply to [mere] disputes over contract terms.” … Tellingly, Plaintiff identifies no case in which a Pennsylvania court or a court interpreting Pennsylvania law has found that Section 8371 encompasses the type of settlement dispute at issue here. Count II of Plaintiff’s Amended Complaint is therefore dismissed for failure to state a claim.

Date of Decision: November 18, 2019

Purvi, LLC v. Nat’l Fire & Marine Insurance Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-4250, 2019 U.S. Dist. LEXIS 199469 (E.D. Pa. Nov. 18, 2019) (Beetlestone, J.)

AS RACCOONS ARE NOT PEOPLE, THERE IS NO COVERAGE, AND NO BAD FAITH (Western District)

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The insured argued the carrier’s policy provided coverage for property damage caused by raccoons. Specifically, it asserted the policy’s language covering vandalism and malicious mischief applied, i.e., the raccoons should be treated as vandals having malicious intent in wreaking havoc inside the insured dwelling.  This reading was possible because the terms vandalism and malicious mischief were undefined in the policy, and Pennsylvania’s courts had never determined if those terms could apply to animals.

The court rejected these arguments, and the notion that the absence of definition in the policy could open the door to meanings outside of commonly understood usage.

The court analyzed, at significant length, common law, dictionary definitions, and statutes using the terms vandalism or malicious mischief.  The court concluded that vandalism could only be the act of human beings. Likewise, animals could not have malicious intent. Rather, malice as used in an insurance contract, or anywhere in the law, is a human quality. As the court observed, “[b]y its very language criminal mischief, like all crimes, requires a human actor. Animals are subject only to the laws of nature, not the Pennsylvania Crimes Code or law governing human conduct.”

The court cited a New Mexico case, involving a bobcat, reaching a similar conclusion. The  court quoted the New Mexico judge’s poetic conclusion summarizing his opinion on feline mentation, which the Pennsylvania court found good for raccoons too:

“Alas, it is written in the law

That an animal with the paw

Does not have the mind

To do the damage of this kind.

And so, I’m sorry, the Plaintiff won’t get paid.

That’s how the contract was made.

This policy does not apply

When the bobcat runs awry.”

In sum, there was no coverage. Thus, there could be no bad faith.

[The court did not mention that the original “Vandals” were human beings, most famous for sacking Rome in 455 (hence the term vandalism).

For some interesting reading on raccoons, this recent article describes the destructive risks raccoons pose to the world, and how they too have now reached Italy.]

Date of Decision: September 19, 2019

Capital Flip, LLC v. American Modern Select Insurance Co., U. S. District Court Western District of Pennsylvania Civil Action No. 2:19-cv-180, 2019 U.S. Dist. LEXIS 165422, 2019 WL 4536164 (W.D. Pa. Sept. 19, 2019) (Stickman, J.)

THERE CAN BE NO BAD FAITH IF THE POLICY WAS NOT IN EFFECT (Superior Court of Pennsylvania) (Non-precedential)

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The trial court had determined a life insurance policy was not in effect at the time plaintiff’s husband died, and dismissed breach of contract and bad faith claims on summary judgment. The insured appealed, and the Superior Court affirmed.

The Superior Court closely scrutinized the facts and the policy language to determine whether the policy was in effect at the time of death. The panel concluded it was not, and affirmed the trial court’s rejection of plaintiff’s breach of contract claim.

As to bad faith, the court affirmed in short order: “In sum, the trial court properly concluded that the policy was not in effect when the decedent died and that Appellee was entitled to summary judgment on Appellant’s claims of breach of contract. …. For the same reason, we agree with the trial court that Appellant could not establish that Appellee acted in bad faith when denying her claim for death benefits.”

Thus, as there was no policy in effect there could be no bad faith. The Superior Court cited the Supreme Court’s Rancosky decision to support this conclusion.

Date of Decision: September 11, 2019

O’Hara v. Metlife, Superior Court of Pennsylvania No. 3477 EDA 2018, 2019 Pa. Super. Unpub. LEXIS 3456 (Pa. Super. Ct. Sept. 11, 2019) (Nichols, Shogan, Strassburger, JJ.)

 

PENNSYLVANIA SUPERIOR COURT FINDS NO BAD FAITH WHERE NO BREACH OF CONTRACT (Pennsylvania Superior Court) (Not Precedential)

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This UIM case involved two policies, a garage/auto policy and an umbrella policy. The crux of the issue was the insureds’ position that a UIM exclusion in the umbrella policy should not apply.

The same carrier issued both policies. After an accident in 2010, it paid $1 million under the garage policy, but nothing under the umbrella policy. (There is some discussion about the garage policy no longer providing UIM benefits at the time of the accident, though it appears the carrier did pay $1 million under this garage policy.)

The insured brought claims for negligence, fraud, breach of contract, bad faith and claims under the Unfair Trade Practices and Consumer Protection Law. The contract, bad faith, and UTPCPL claims were dismissed with prejudice on preliminary objections. Summary judgment was granted on the fraud claim, and the insured was non-suited on the negligence claim at trial.

The court found the umbrella policy’s UIM exclusion applied. As no coverage was due under the umbrella policy, there could be no bad faith in denying benefits under the policy. (There could be no UTPCPL claim because the policy was not issued to a consumer for personal, household or family use).

The court also addressed the insured’s claims of bad faith conduct during litigation. The alleged bad faith conduct during litigation consisted of the insurer filing a summary judgment motion to frighten the insured, making ethical claims against the insured’s counsel, acting in a dilatory manner by threatening a Dragonetti action, and slandering the insured’s counsel.

As stated above, the bad faith claims had been dismissed on preliminary objections, and the trial court never addressed these assertions. In upholding the trial court’s dismissal, the Superior Court noted that the summary judgment claim was partially successful, and that the trial court later dismissed all claims against the insurer.

Date of Decision: August 21, 2019

Lewis v. Erie Insurance Exchange, Superior Court of Pennsylvania No. 2115 EDA 2018, 2019 Pa. Super. Unpub. LEXIS 3209 (Pa. Super. Ct. Aug. 21, 2019) (Murray, Nichols, Shogan, JJ.)

NO BAD FAITH WHERE NO BENEFIT IS DENIED (Philadelphia Federal)

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In this property damage case, a policy endorsement placed defined limits on the scope of covered property damage. For example, the insured might have to pay for work covering 400 square feet to accomplish repairs needed to correct a problem, but the endorsement might only cover 200 square feet out of that 400. In this case, the insurer was only willing to pay for a portion of the insured’s overall repair costs, per the endorsement, but the insured wanted coverage for the entire amount. The insured brought breach of contract, bad faith, and unfair trade practices claims, and was now on his second amended complaint. The insurer moved to dismiss.

There is no breach of contract

Judge Kearney agreed that the insurer’s limited payment comported with the endorsement, and there was no breach of contract. He rejected the notion that the underlying policy could be kept in play, while striking off the endorsement on an unconscionability theory. Unconscionability is an affirmative defense and not a cause of action. Thus, the insured could not use this theory as a plaintiff. The court also rejected the insured’s reasonable expectations argument in refusing to rewrite the policy and strike the endorsement.

Although not pleaded in either the original complaint or two subsequent amendments, the insured argued against dismissal on the basis that a key word in the endorsement was ambiguous. Construing that ambiguity for the insured would purportedly allow for broader coverage. The court gave leave for another amendment, with the admonition to the insured and counsel that any amendment asserting this new position had to comply with Rule 11.

There is no actionable bad faith claim when there is no denial of a benefit

On the bad faith claim:

  1. The court could not infer the insurer lacked a reasonable basis to deny benefits, or acted with intent or reckless disregard in doing so. The insured himself alleged that benefits were not denied on the policy with the endorsement, only that the endorsement should be stripped from the policy, which would then allow additional benefits. As the court rejected that position, no benefits were denied under the policy as actually written.

The court noted that leave was given to replead the contract claim on the new ambiguity theory. Judge Kearney extended this possibility to re-pleading the bad faith on an ambiguity theory, if such a claim could be properly pleaded. He reminded the insured, however, that simply re-pleading the breach of contract on the basis of ambiguity “does not automatically equal statutory bad faith.”

  1. The court observed that “Pennsylvania’s bad faith statute does not extend to conduct unrelated to the denial of a claim for benefits.” To quote Judge Kearney at length:

Bad faith claims do not remedy an insurer’s allegedly insufficient performance of its contractual obligation or to indemnify losses. [citing Toy v. Metro. Life Ins. Co., 593 Pa. 20, 928 A.2d 186, 198-200 (Pa. 2007).] Our Court of Appeals has affirmed “legislative intent. . . makes clear that the [bad faith] statute was intended specifically to cover the actions of insurance companies in the denial of benefits.” [citing Wise v. Am. Gen. Life Ins. Co., No. 02-3711, 2005 U.S. Dist. LEXIS 4540, 2005 WL 670697 (E.D. Pa. Mar 22, 2005), aff’d, 459 F.3d 443 (3d Cir. 2006).] The General Assembly did not intend bad faith liability to extend to an insurer’s solicitation of customers or to regulate insurance policies generally. [Id.] For example, [the insured] argues [the insurer] acted in bad faith when it bargained with [the insured] for his insurance plan. We cannot recognize a bad faith claim for actions unrelated to the handling or denial of benefits. [The insured] also fails to plead a single fact evidencing delay or unreasonable treatment of his claim other than a disagreement over whether the Endorsement should govern. We cannot locate a fact suggesting a frivolous or unfounded refusal to pay the insurance proceeds. [The insured] does not plead a lack of good faith investigation into the facts or a failure to communicate. Instead, we must disregard conclusory allegations unsupported by facts, including the catch-all “acting unreasonably and unfairly.”

Finally, the court observed that any claim that the carrier interpreted an ambiguous policy term in bad faith would need many more facts than found in plaintiff’s current arguments.

Unfair Trade Practices and Consumer Protection Law (UTPCPL) claim dismissed, and insured admonished as to nature of any future amendment

As to the putative deceptive conduct in including the endorsement, the court found that the complaint failed to allege intent or justifiable reliance. Thus, the catch-all UTPCPL deceptive practices claim failed, lacking these two necessary elements. Moreover, the alleged claim constitutes nonfeasance (failure to pay), rather than misfeasance, and thus fails on this additional ground.

While leave to amend remained on the table, the court admonished the insured that any new UTPCPL claim based on misfeasance would be scrutinized in light of existing judicial admissions indicating the claim is only one for nonfeasance.

Date of Decision: August 9, 2019

Boring v. State Farm Fire & Cas. Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-1833, 2019 U.S. Dist. LEXIS 134242 (E.D. Pa. Aug. 9, 2019) (Kearney, J.)

 

TWO THIRD CIRCUIT OPINIONS ON PA BAD FAITH STATUTE : (1) NO BAD FAITH WHERE NO DUTY TO DEFEND; (2) BAD FAITH CLAIM CAN GO FORWARD WHERE JURY COULD FIND: (A) CONTRACT COVERAGE BREACH AND (B) UNREASONABLE CONDUCT IN INTERPRETING POLICY AND DETERMINING LENGTH OF COVERAGE OBLIGATIONS (Third Circuit)

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Case 1. No bad faith possible where no coverage or defense due.

In this title insurance case, the Third Circuit affirmed the district court’s grant of summary judgment to the insurer. A summary of the district court’s decision can be found here.

On the bad faith claim, after agreeing there was no coverage obligation and thus no duty to defend, the Third Circuit stated: “Moreover, since the [District] Court correctly concluded that [the insurer] had no duty to defend, there could be no bad faith claim against [the insurer].”

Date of Decision: July 26, 2019

631 N. Broad St. v. Commonwealth Land Title Ins. Co., U. S. Court of Appeals for the Third Circuit No. 18-3094, 2019 U.S. App. LEXIS 22319 (3d Cir July 26, 2019) (Fuentes, McKee, Schwartz, JJ.)

Case 2. After reversing on breach of contract claim, bad faith claim is found actionable based on insurer’s allegedly misrepresenting its contractual duties and failing to reasonably calculate length of its policy obligations, to the insureds’ detriment.        

In this case, the Third Circuit reversed the grant of summary judgment to the insurer. A summary of the district court’s opinion can be found here.

The matter involved car rental rights under a policy, in the event the insureds’ vehicle was totaled. The Third Circuit reviewed the facts, and recited the following.

The insureds’ vehicle was totaled. Their policy provided up to 30 days for car rental, unless the carrier reasonably determined alternative transportation could be had earlier. However, in practice, the carrier’s conduct allegedly led the insureds to believe that the carrier could cut off the right to rent a car after only 5 days, in the carrier’s discretion, unless the rental was renewed for ensuing 5-day spans. Fearing they would lose their car rental through the carrier, the insureds entered a two-year car lease prematurely; leasing an inferior car due to the carrier’s pressuring them into thinking their rental would end. This, they claimed, resulted in damages to them both in paying more for the lease, and in obtaining a car that was worth less than their totaled vehicle.

The Third Circuit found this conduct arguably constituted a breach of the policy’s express 30-day provision, both in terms of: (1) the carrier’s internal guidelines to its adjusters in setting 5-day rental periods, and (2) the adjuster’s actual conduct toward the insureds in following the 5-day practice instead of the policy’s 30-day language.

The Third Circuit rejected the district court’s finding that the 5-day notices were merely mistakes and miscommunications rather than a breach, concluding this was a matter for the factfinder. The Third Circuit also concluded discrepancies between the 30-day language in the policy, and the 5-day rule used internally by the carrier, should go to the fact finder.

On the bad faith claim, the Third Circuit stated: “While the District Court focused on the fact that the [the insureds] technically received the full 30 days of coverage of the policy, the appropriate inquiry under §8371 is the “manner in which insurers discharge their duties of good faith and fair dealing during the pendency of an insurance claim, not whether the claim is eventually paid.”

The bad faith claim was based on alleged “misrepresentation of … benefits” in correspondence from the carrier, and in the carrier’s “failing to conduct the analysis needed to determine the amount of time its insureds reasonably required to replace their vehicle without terminating [rental] benefits as required by [the] insurance policy.”

In reversing summary judgment on the bad faith claim, the appellate court found that “[a] reasonable fact finder could conclude on this record that the manner in which the claim was handled evidenced … bad faith. However, that conclusion is not mandated by this evidence and there is therefore a genuine issue of material fact as to [the insurer’s] liability under 42 Pa C.S.A. § 8371.”

Date of Decision: August 2, 2019

Stechert v. Travelers Home and Marine Insurance Co., U. S. Court of Appeals for the Third Circuit No. 18-2305, 2019 U.S. App. LEXIS 23243 (3d Cir. Aug. 2, 2019) (Fuentes, McKee, Roth, JJ.)