Archive for the 'PA – Standing, Assignment or Outside Scope' Category
In this case, the Third Circuit upheld the principle that a statutory bad faith claim can only be assigned to the underlying plaintiff or a judgment creditor. As the bad faith plaintiff in this case was neither, the case was dismissed.
Date of Decision: December 24, 2020
Feingold v. Palmer & Barr, U.S. Court of Appeals for the Third Circuit No. 19-2621, 2020 WL 7663209 (3d Cir. Dec. 24, 2020) (Ambro, Matey, Roth, JJ.)
The insured brought suit over a $500 valuation dispute. The carrier valued the insured’s car at $2,500 ($3,000 less at $500 deductible), and repairs were estimated in excess of $3,000. The car being a total loss, the insurer offered $2,500, but the insured wanted $3,000. This led to a 10 count complaint against the insurer and its claim handler. We only address the two bad faith counts against the insurer and/or the claim handler, and the Unfair Trade Practices and Consumer Protection Law (UTPCPL) claims against the insurer.
No statutory bad faith.
The court dismissed the statutory bad faith claim. There were simply no allegations of fact that could support a plausible bad faith claim. The complaint itself showed the carrier appropriately investigated the claim, and gave a prompt damage assessment. Plaintiff did not allege the repair cost estimate was incorrect, or the inspection faulty. There was no allegation that the insurer’s valuation was unreasonable. There was no claim denial, just a dispute over the sum due.
The court found this simply a “normal dispute” that did not amount to bad faith. “An insurer’s failure to honor its insured’s subjective value of his claim does not—without more—give rise to a bad faith claim.” The court, however, did allow leave to amend.
No common law bad faith against the insurer or the claim handler.
The insured brought common law bad faith claims against the insurer and claim handler. The court observed there is no tort common law bad faith cause of action; rather, in Pennsylvania common law bad faith is subsumed in the breach of contract claim. Thus, the common law claim against the insurer was dismissed with prejudice.
As to claim handler, Pennsylvania law (1) does not support a statutory bad faith claim against claim handlers; nor (2) does it recognize a bad faith claim in contract against adjusters (who are clearly not party to any contract). These claims were dismissed with prejudice.
A mixed result under the UTPCPL.
The court also dismissed one UTPCPL claim on the basis that it alleged poor claim handling, not deceptive inducement to enter the insurance contract. However, the insured also alleged the carrier’s representative originally made false representations causing him to purchase the insurance in the first place. This was sufficient to state a UTPCPL claim under its catch-all provision.
Date of Decision: December 14, 2020
Ke v. Liberty Mutual Insurance Company, U.S. District Court Eastern District of Pennsylvania No. CV 20-1591, 2020 WL 7353892 (E.D. Pa. Dec. 14, 2020) (Pratter, J.)
Published on
December 17, 2020 in
PA - Claims Handling (reasonable), PA - Common Law Bad Faith (contractual or fiduciary basis), PA - Coverage Issues, PA - Discovery and Evidence, PA - Insurer wrong, but reasonable, PA - Law unsettled, PA - No coverage due, bad faith still possible, PA - No coverage duty, no bad faith and PA - Standing, Assignment or Outside Scope.
The Third Circuit addressed the central issue of whether the defendant was an insured, and how to analyze that factual issue in ruling on coverage and bad faith claims.
The named insured went with his girlfriend to a picnic, where they met up with the mother of the named insured’s child. The girlfriend was also a named insured, but the mother was a stranger to the insurance contract. The mother decided to move the named insureds’ car, and struck plaintiff while driving the car. The injured plaintiff sued the two named insureds and the mother.
The carrier covered the named insureds, but took the position that the mother was not a permissive user and therefore was not an insured under the policy. The mother stipulated to a judgment and assigned her bad faith and breach of contract claims to the injured plaintiff, who sued the carrier.
The trial court granted summary judgment to the insurer, and the Third Circuit affirmed.
The Four Corners Rule does not Apply to Determining if a Party is an Insured for Duty to Defend Purposes
The Third Circuit first addressed the issue of whether the four corners rule encompasses determinations of whether a party is an insured in the first instance.
The issue has never been addressed by Pennsylvania’s Supreme Court.
The insurer argued it could not be bad faith to take the position the mother was not an insured, even if the complaint indicated otherwise, because the law on the issue is unsettled. The carrier asserted it could use extrinsic evidence to show the mother was not an insured, and denied coverage on that basis. The Third Circuit agreed that “because Pennsylvania courts have not ruled on this issue, [the insurer] did not act in bad faith after it ‘reasonably determined that [mother] was not an insured under the Policy.’”
On the merits of coverage itself, the court concluded “that, when the insurer determines a claim is outside the scope of the insurance policy before a suit is filed, it has no duty to defend because it has effectively ‘confine[d] the claim to a recovery that the policy [does] not cover.’” Here, the insurer investigated the claim, and determined the mother was not an insured because she was not a permissive user. “After that determination, the four corners rule no longer applied. [The insurer] did not have a duty to defend, and its actions do not show bad faith.”
Bad Faith Investigation
The court then went on to examine whether a bad faith claim could be stated solely on the basis that the insurer’s investigation was conducted in bad faith. As repeated on this blog ad naseum, there is a genuine issue as to whether there is an independent bad faith claim for poor investigation practices when no coverage is otherwise due. For example see this post from January 2020, this post from August 2020, and this post from earlier in August 2020. A close examination in this case, however, shows the lack of investigation bad faith claim is actually intertwined with the coverage issue. Thus, this is not a case where a party is trying to prove bad faith even though no coverage is due.
Treating investigation based bad faith as a separate cause of action, rather than merely evidence of bad faith, the court observed “[g]ood faith in this context requires that an insurance determination be ‘made diligently and accurately, pursuant to a good faith investigation into the facts’ that is ‘sufficiently thorough to provide [the insurer] with a reasonable foundation for its actions.’” The mother argued the record showed she had “implied permission” to use the car, and the carrier acted in bad faith by unreasonably failing to recognize she had implied permission. The court disagreed, finding no adequate evidence to defeat summary judgment on the issue.
No Common Law Bad Faith Claim
“Finally, although the standard for common law bad faith diverges from statutory bad faith … the common law action for bad faith is a contract claim. Thus, because [the mother] was not an insured, she was not party to the contract, and she had no common law contract claim to assign….”
Date of Decision: December 8, 2020
Myers v. Geico Cas. Co., U. S. Court of Appeals for the Third Circuit No. 19-1108, 2020 WL 7230600 (3d Cir. Dec. 8, 2020) (Fisher, Restrepo, Roth, JJ.)
In this non-precedential decision, Pennsylvania’s Superior Court followed federal case law out of the Eastern District, Feingold v. Liberty Mutual, in holding that a client’s bad faith claim could not be assigned to her former attorney. [Note: In Allstate v. Wolfe, Pennsylvania’s Supreme Court did find it possible to assign bad faith claims within certain parameters. The holding in that case identified two proper classes of assignees: “We conclude that the entitlement to assert damages under Section 8371 may be assigned by an insured to an injured plaintiff and judgment creditor….”]
The court also found that “the complaint does not include sufficient factual averments regarding how [the insurer] acted unreasonably and in bad faith. … the complaint contains ‘either simple reiterations of the standard of proving bad faith or bald allegations that the standard has been breached.’”
Date of Decision: August 14, 2020
Feingold v. McCormick & Priore PC, Superior Court of Pennsylvania No. 3273 EDA 2019, 2020 WL 4728111 (Pa. Super. Ct. Aug. 14, 2020) (King, Lazarus, Strassburger, JJ.) (Not precedential)
Plaintiff asserted that the insurer breached a fiduciary duty. The insurer moved to dismiss, alleging plaintiff was not a named insured. Rather the policy was issued to his mother. The court rejected plaintiff’s argument that because he was a co-owner of the underlying asset he should be treated as an insured, and the claim was dismissed with prejudice.
The court observed that under Pennsylvania law:
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“[A]n insurer does not have a fiduciary duty to an insured, except in limited circumstances such as where the insurer asserts a right to defend claims against the insured.”
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“[T]he existence of a fiduciary duty . . . is predicated upon an existing contractual relationship between the insurer and the insured.”
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“To determine who is an insured under a given policy, the Court ‘must look to the terms of the [p]olicy.’”
Applying these principles, the plaintiff could not claim a breach of fiduciary duty when he was not a named insured. “Notwithstanding his alleged co-ownership of the underlying asset, plaintiff cannot claim that the defendants owed him a fiduciary duty or that he was entitled to recover under the terms of the policy.”
Date of Decision: July 13, 2020
Deckard v. Steven Emory, U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-5182, CIVIL ACTION NO. 19-2001, 2020 U.S. Dist. LEXIS 122720 (E.D. Pa. July 13, 2020) (DuBois, J.)
This case involved breach of contract and bad faith claims against the insurer based on its decision not to cover the alleged theft of jewelry. The insurer engaged an investigation firm to look into the theft. The individual investigator assigned to the claim raised questions about either the ownership of the jewelry, or whether it was actually stolen in a burglary.
The insurer was granted judgment on the pleadings as to the breach of insurance contract claim. The policy had a one-year limitations period for brining suit, and the insured failed to file her action within one year.
Even though there was no coverage due because of the contractual limitations period, however, the court denied summary judgment on the bad faith claim. The insurer argued that the insured’s “deposition testimony shows that she cannot meet her burden of establishing bad faith.” The court found this argument premature.
The case had been removed to federal court and immediately placed in the arbitration track. There were no formal discovery requests from any party. The court found that the “litigation that has ensued does not preclude full and fair discovery on fact-driven claims that remain on the bad-faith count.” Thus, summary judgment was premature, and the motion was dismissed without prejudice. Judge Rufe added a requirement that the parties had to report jointly regarding to the court on what discovery was being pursued, if any, heading into the arbitration.
[Note: The insurer apparently did not attempt to argue that if the contract claim was dismissed, then the bad faith claim necessarily failed. There is some case law holding if the contract claim is dismissed on the basis of a contractual limitations period, the bad faith claim can still proceed. See, e.g., Doylestown Electrical Supply Co. v. Maryland Casualty Ins. Co., 942 F. Supp. 1018 (E.D. Pa. 1996) and March v. Paradise Mutual Ins. Co., 646 A.2d 1254 (Pa. Super. 1994), appeal denied, 540 Pa. 613, 656 A.2d 118 (1995).]
Finally, the insured attempted to amend the complaint to add claims against the insurer’s claim adjustor, the company it hired to investigate the claim and the individual investigator. The court found these claims meritless and would not allow amendment.
An individual adjustor working for an insurer is not an insurer. Thus, the individual adjustor was not subject to (i) a breach of contract claim because he was not a party to the contract; or (ii) the bad faith claim because Pennsylvania’s bad faith statute only applies to insurers. The same reasoning applied to the investigators.
Date of Decision: April 30, 2020
Holden v. Homesite Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-2167, 2020 U.S. Dist. LEXIS 75904 (E.D. Pa. April 30, 2020) (Rufe, J.)
The insurer issued a policy to the plaintiff’s lender, the mortgage holder. The plaintiff sought relief under the policy, and the insurer argued plaintiff was not a party or third party beneficiary to the policy. The plaintiff brought breach of contract and bad faith claims. The insurer successfully moved to dismiss both claims.
The court first ruled that plaintiff was not an insured or third party beneficiary to the policy. Thus, the breach of contract claim failed.
The court then held that plaintiff could not bring a statutory bad faith claim when he had no rights under the policy. Thus, it was “immaterial that [the plaintiff] may have sufficiently alleged facts to support the other elements of the bad faith cause of action.”
Finally, plaintiff asserted a “common law” bad faith claim. The court observed that Pennsylvania has no common law bad faith tort remedy. Pennsylvania does recognize a contract based claim for breach of the implied duty of good faith and fair dealing, separate from statutory bad faith. However, this common law contact claim also failed.
As already stated, the plaintiff was not a party or a third party beneficiary to the insurance contract, thus there could be no contract based bad faith claim. Further, the breach of the contractual duty of good faith and fair dealing is not separate from the breach of contract claim. In alleging the insurer “violated the duty of good faith and fair dealing by denying benefits under the policy, his bad faith claim is subsumed into the breach of contract claim and fails with that claim.”
Date of Decision: April 13, 2020
Weiser v. Great American Insurance Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-1218-KSM, 2020 U.S. Dist. LEXIS 63839 (E.D. Pa. April 13, 2020) (Marston, J.)
Though not clearly pleaded, the court assumed the plaintiff was suing the carrier for insurance bad faith. The plaintiff, however, was not the insured. Rather, plaintiff had obtained a judgment against the insured for reimbursement of $276,000 in attorney’s fees and legal costs, per a contract between the plaintiff and the insured.
The court found the plaintiff had no standing to bring a claim against the insurer. It was not a third party beneficiary to the insurance contract, nor could it bring a direct action aginst the insurer. Thus, the court dismissed the complaint.
Date of Decision: January 23, 2020
Hensley v. CNA, U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-2837, 2020 U.S. Dist. LEXIS 11040 (E.D.Pa. Jan. 23, 2020) (Baylson, J.)
The excellent Tort Talk Blog posted a summary of a recent Monroe County decision dismissing statutory and common law bad faith claims because the plaintiffs had no contractual relationship with the insurer. A link to this post can be found here. The link to the opinion in Jones v. Ritchie can be found here.
This case involved a forced placed insurance policy. The mortgagee lender, not the homeowner, was the name insured on the policy at issue. The homeowner was not a named insured.
After suffering a loss, the homeowner brought breach of contract and bad faith claims against the insurer. The court held that both claims failed since the homeowner was not a covered insured under the policy. The court further rejected third party beneficiary and equitable estoppel arguments.
Date of Decision: May 3, 2019
Richard v. Finance of America Mortgages, LLC, U. S. District Court Middle District of Pennsylvania 3:18-CV-559, 2019 U.S. Dist. LEXIS 75156, 2019 WL 1980693 (M.D. Pa. May 3, 2019) (Mariani, J.)
