Archive for the 'PA – Standing, Assignment or Outside Scope' Category

PERSONS NOT INSURED UNDER A POLICY CANNOT BRING A BAD FAITH CLAIM (Middle District)

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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.)

BAD FAITH CLAIM SURVIVES MOTION TO DISMISS WHERE DEFENSE AND INDEMNIFICATION MAY BE DUE FOR FAULTY PRODUCT CLAIM (Western District)

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This case involves an Indalex type claim where an insured’s defectively manufactured product causes damage to other property when used in a construction project. In this case, plaintiff-assignee alleged that the insured was negligent in manufacturing concrete used to build a bridge. The defective concrete caused components of the bridge to fail, and required replacing bridge columns.

The general contractor sued the insured. The insured lost a multi-million dollar arbitration, and incurred over $500,000 in defense fees and costs. The insured assigned any claims against its insurer to the general contractor, and the GC pursued breach of contract and bad faith claims.

The court rules providing a faulty product may state a claim for coverage.

The insurer denied a defense and coverage under the Pennsylvania Supreme Court’s Kvaerner decision, as well as pre-Indalex cases, on the basis that providing a faulty product was not an occurrence. The court applied the Superior Court’s 2013 decision in Indalex and held that damages resulting from a negligently manufactured product can be a covered “occurrence”. Judge Horan distinguished Kvaerner because that case only applied to faulty workmanship claims (which are not occurrences). By contrast, Pennsylvania’s Superior Court ruled that negligently making defective products, which later cause damages when incorporated into a construction project, are outside Kvaerner’s ambit.

The court further found that denying coverage based on six specific policy exclusions could not be determined at the motion to dismiss stage. These included the insured contract exclusion (exclusion b), workmanship exclusions (exclusions j(5-6)), the “your product” (exclusion k), the “your work” (exclusion l), and the impaired property exclusion (exclusion m).

The bad faith claim likewise survives a motion to dismiss.

The insurer had also moved to dismiss the bad faith claim on the theory that there was either no “occurrence” under Kvaerner, or because one or more of the exclusions cited above applied. In addressing this argument, rather than citing the Terletsky/Rancosky test for bad faith, the court relied upon the Superior Court’s 2012 Berg decision. The court stated that “42 Pa.C.S. § 8371 applies in any action in which an insurer is called upon ‘to perform its contractual obligations of defense and indemnification or payment of a loss that failed to satisfy the duty of good faith and fair dealing implied in the parties’ insurance contract.’”

Under this principle the court concluded that “[b]ecause the Court has determined that [plaintiff] has sufficiently pleaded, at this stage, the factual bases to sufficiently support its claim that [the insurer] breached its contractual obligations to defend and indemnify [the insured], [plaintiff] has sufficiently pleaded a statutory bad faith claim.” [Note: See the recent 1009 Clinton Properties decision on the notion that finding a breach of the insurer’s contractual obligation alone may be sufficient to survive a motion to dismiss a concomitant bad faith claim. It should also be noted here that the insurer’s sole argument to dismiss the bad faith claim was based on an absence of coverage, and not, e.g., a failure to allege facts sufficient to support a bad faith claim that the coverage denial was unreasonable and/or that the insurer knew or recklessly disregarded the fact that it was unreasonable, even if coverage was due.] 

Date of Decision: March 6, 2019

Brayman Construction Corp. v. Westfield Insurance Co., U. S. District Court for the Western District of Pennsylvania No. 2:18-CV-00457-MJH, 2019 U.S. Dist. LEXIS 36432 (W.D. Pa. Mar. 6, 2019) (Horan, J.)

 

A THIRD PARTY CANNOT CREATE A DUTY TO DEFEND SIMPLY BY PLEADING THE DEFENDANT HAD INSURANCE COVERAGE, WHERE THE FACTS AND CONTROLLING POLICY LANGUAGE SHOW NO COVERAGE (Philadelphia Federal)

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The insured’s boyfriend was at a family reunion with his daughter. The boyfriend was listed as an additional driver on the policy. His daughter went to retrieve some items from the insured’s car, and decided to move the car, resulting in injury to the underlying plaintiff.

The injured plaintiff sued the daughter, who claimed she was an insured. The insurer disagreed, and refused to defend or indemnify the daughter on the basis she was not an insured under the policy. The injured plaintiff, as assignee, sued for breach of contract and bad faith after settling with the daughter.

After a close look at the facts, the court agreed that the daughter was not an insured or a permissive user. Thus, the insurer had no duty of any kind to her. Further, no bad faith claim could exist where the person denied coverage was not an insured.

The assignee-plaintiff argued that the insurer still had a duty to defend because he had alleged facts in the underlying tort complaint implying she was an insured. Therefore, on the theory that the four corners of the complaint controls the duty to defend, the allegation that the defendant was an insured overcame the actual facts and policy language under which she was not insured.

The court found this issue had never been decided by Pennsylvania’s courts, and so the judge had to predict what the Pennsylvania Supreme Court would do. He found “the Pennsylvania Supreme Court would hold that an insurer is not required to defend someone it has determined is not an insured under the policy even if a subsequent third-party complaint suggests the person is an insured.” The complaint does not control because “the duty to defend stems directly from the insurance policy and should not apply where there is no possibility of coverage.” The court also cited case law from other jurisdictions supporting its conclusion.

The court granted summary judgment. Plaintiff appealed the following day.
Date of Decision: January 10, 2019

Myers v. Geico Casualty Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 17-3933, 2019 U.S. Dist. LEXIS 5093 (E.D. Pa. Jan. 10, 2019) (Rice, M.J.)

 

 

MAY 2018 BAD FAITH CASES: (1) THIRD-PARTY CLAIMANT CANNOT BRING BAD FAITH CLAIM, BUT (2) DID PLEAD PLAUSIBLE CLAIM BASED ON ALLEGED INTERPLAY BETWEEN THE SAME CARRIER’S FIRST PARTY AND THIRD PARTY CLAIMS HANDLING BY A SINGLE ADJUSTER (Middle District of Pennsylvania)

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After an auto accident, the insured submitted a (first-party) UIM claim to its insurer. The tortfeasor in the accident had a policy with the same insurer. Thus, the insured was also a third-party claimant with respect to the tortfeasor. The insurer assigned the same claim representative to manage both the first-party claim and the third-party claim. The insured eventually sued for bad faith as to the handling of both claims.

The insurer moved to dismiss aspects of the bad faith claim on the basis that Pennsylvania law precludes a third-party claimant from bringing a cause of action for bad faith against a tortfeasor’s insurer. The Court denied the motion in part and granted in part.

The Court found the insured sufficiently pleaded facts regarding the interplay between the claims handling of first-party and third-party claims to make out a plausible bad faith claim. However, where the insured only pleaded bad faith against the insurer solely for its actions regarding his third-party claim, the Court dismissed these allegations under Pennsylvania law.

Date of Decision: April 23, 2018

Vella v. State Farm Mutual Automobile Insurance Co., United States District Court, Middle District of Pennsylvania, Civil Action No. 17-1900 (SHR), 2018 U.S. Dist. LEXIS 67419 (M.D. Pa. Apr. 23, 2018) (Rambo, J.)

 

FEBRUARY 2018 BAD FAITH CASES: NO BAD FAITH WHERE NO ACTIVE INSURANCE CONTRACT EXISTED BETWEEN THE PARTIES (Middle District)

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The decedent-insured took out a life insurance policy and paid premiums on it for roughly six years, before cancelling the policy just ten months before her death. The decedent-insured’s husband, as executor of the estate, then submitted a claim under the policy. The insurer denied the claim, citing the decedent-insured’s cancellation as its justification. The husband sued for breach of contract and bad faith, and the insurer moved for summary judgment.

The husband argued benefits were owed because the decedent-insured meant to cancel her auto insurance policy with the insurer and not the life insurance policy. After listening to an audio recording of a telephone call, the Court was unconvinced, and ruled “no contract existed between the parties at the time of the decedent’s death.” Because no contract exited between the parties, the insurer had a reasonable basis for denying the claim, and the Court granted summary judgment in favor of the insurer on both the bad faith and breach of contract claims.

Date of Decision: January 29, 2018

Williams v. Hartford Life & Accident Ins. Co., No. 17-234, 2018 U.S. Dist. LEXIS 13693 (M.D. Pa. Jan. 29, 2018) (Munley, J.)

JANUARY 2018 BAD FAITH CASES: INSURER’S EMPLOYEES NOT SUBJECT TO BAD FAITH OR BREACH OF INSURANCE CONTRACT CLAIMS; INSURER CANNOT BE LIABLE UNDER UTPCPL FOR FAILURE TO PAY BENEFITS (Philadelphia Federal)

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Plaintiff is the beneficiary to two life insurance policies issued to her late husband. After the insured’s death, the insurer issued a check to the plaintiff, made payments to a funeral home, and withheld funds for purportedly outstanding debt. The plaintiff argues that the insurer owes her at least $70,000 in additional benefits under the two policies. After the insurer refused to pay further benefits, the plaintiff sued the insurer and three of its employees for breach of contract, violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”), and bad faith.

The action was removed to federal court, and the insurer and two of the employees argue that plaintiff fraudulently joined various non-diverse defendants to evade federal jurisdiction. The plaintiff moved to remand the action back to state court for lack of subject-matter jurisdiction, and the insurer moved to dismiss the UTPCPL claim per Rule 12(b)(6).

The Court first addressed the fraudulent joinder issue. The Court stated, “if there is a possibility that a state court could find that the complaint states a cause of action against any one of the non-diverse defendants, remand is necessary.” It held that none of the plaintiff’s claims could succeed against any of the non-diverse defendants.

There can be no breach of contract claim against the non-diverse defendants because the plaintiff only alleges a contract with the insurer, not its employees. No UTPCPL claim exists against the non-diverse employee defendants because the complaint contains no allegations of deceptive conduct committed by them. Lastly, regarding the bad faith claim, the non-diverse employee defendants are not “insurers” within the meaning of Pennsylvania’s bad faith statute. The Court thus denied the plaintiff’s motion to remand, dismissed the claims without prejudice against the non-diverse defendants, and retained jurisdiction to hear the insurer’s 12(b)(6) motion.

“As a matter of law, an insured may not bring a UTPCPL claim based on an insurer’s failure to pay a claim.” The complaint essentially alleged that the insurer did not pay benefits in an amount owed to the plaintiff. Because this allegation is not proper to allege a UTPCPL violation, the Court granted the insurer’s motion to dismiss the UTPCPL claim while giving the plaintiff leave to amend.

Date of Decision: January 16, 2018

Filippello v. Transamerica Premier Life Ins. Co., No. 17-5743, 2018 U.S. Dist. LEXIS 6980 (E.D. Pa. Jan. 16, 2018) (Beetlestone, J.)

SEPTEMBER 2017 BAD FAITH CASES: FEDERAL REMAND WHERE POLICY’S FORUM SELECTION CLAUSE ALLOWS INSURED OR ASSIGNEE TO CHOSE COURT; ANTI-ASSIGNMENT CLAUSE INEFFECTIVE WHERE ASSIGNMENT IS POST-OCCURRENCE (Philadelphia Federal)

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This action originated from a bad faith suit filed in the Philadelphia County Court of Common Pleas. The insured alleged that the insurer refused to defend and indemnify in a separate Lehigh County action which resulted in a judgment of $500,000 against the insured. The insured assigned its rights against the insurer to the instant plaintiff-assignee.

The insurer removed the matter to federal court. Plaintiff filed a motion to remand, arguing that the insurance policy contained a “Service of Suit Amendment” whereby the insurer agreed to litigate in any forum chosen by the insured. The insurer argued that the Service of Suit Amendment pertains only to the original insured party, and not to an assignee.

The insurer further argued that the policy contained an anti-assignment clause, which further limits the plaintiff-assignee’s rights to enforce the forum selection clause.

Courts in the Third Circuit had not previously decided the question of whether an assignee could enforce a forum selection clause against an insurer. The Court held that “where an assignment is effective, the assignee stands in the shoes of the assignor and assumes all of his rights.”

The Court further ruled that per Pennsylvania law, “an insurer may not limit an insured’s ability to assign his or her rights under a policy after the occurrence of the event which gives rise to the insurer’s liability.” Because the assignment here occurred after the event that created liability, the plaintiff-assignee could enforce the forum selection clause against the insurer, despite the presence of an anti-assignment clause in the policy.

Lastly, the Court denied plaintiff-assignee’s request for attorneys’ fees, because the insurer did not lack an objectively reasonable basis for seeking removal.

Date of Decision: August 25, 2017

Wimberly v. First Fin. Ins. Co., No. 5:17-cv-02952, 2017 U.S. Dist. LEXIS 137380 (E.D. Pa. Aug. 25, 2017) (Leeson, Jr., J.)

AUGUST 2017 BAD FAITH CASES: INJURED PARTY HAS NO STANDING TO BRING BAD FAITH CLAIM AGAINST TORTFEASORS’ INSURER (Middle District)

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An injured plaintiff attempted to assert bad faith claims against the tortfeasor’s insurer and its adjuster. In his Report and Recommendation, the Magistrate Judge observed that third-party claimants do not have a contractual relationship with such insurers, and thus have no standing to assert a bad faith claim. The District Court Judge agreed, and dismissed the putative bad faith failure to negotiate claim.

Dates of Decision: June 20, 2017 and August 9, 2017

Starrett v. Coe, No. 3:16-cv-02272, 2017 U.S. Dist. LEXIS 95793 (M.D. Pa. June 20, 2017) (Saporito, M.J.) (Report and Recommendation)

Starrett v. Coe, No. 3:16-cv-02272, 2017 U.S. Dist. LEXIS 126348 (M.D. Pa. August 9, 2017) (Caputo, J.)

AUGUST 2017 BAD FAITH CASES: CARRIER THAT DID NOT ISSUE POLICY STILL POTENTIALLY LIABLE FOR BAD FAITH ON A CLAIMS HANDLING THEORY (Western District)

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This case involved at least claims for breach of contract, breach of fiduciary duty, and breach of the contractual duty of good faith and fair dealing. The court also stated there was a statutory bad faith claim.

Two related insurers were named as defendants. One of the insurers did not issue the policy, but was alleged to have been involved in bad faith claims handling.

First, the court dismissed the breach of fiduciary duty claim under the gist of the action doctrine. The court found that any duty solely arose from the contract, so there could be no separate tort claim outside of the contract.

Second, the court agreed there could be no breach of contract claim against an insurance company that did not issue the policy. However, the court found that this did not automatically preclude a statutory bad faith claim against that insurance company based solely on its claims handling. [This holding runs up against the idea that statutory bad faith must be based on the denial of a benefit under the insurance contract, but is in general accord with case law finding that claims handling alone, without the denial of a benefit, can be the basis for a bad faith claim.]

Date of Decision: July 20, 2017

Golon, Inc. v. Selective Insurance Co., No. 17cv0819, 2017 U.S. Dist. LEXIS 113385 (W.D. Pa. July 20, 2017) (Schwab, J.)

 

JULY 2017 BAD FAITH CASES: COURT DECLINES TO CONSIDER MERITS OF ASSIGNED BAD FAITH CLAIM BECAUSE STATUTE OF LIMITATIONS HAD RUN (Western District)

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In 2007, the insured was involved in a motor vehicle accident, injuring another driver. The injured party filed a negligence action against the insured. The insurer sent a 2007 letter declining to defend or indemnify the insured. In 2008, the insurer filed a declaratory judgment action, claiming that it did not have a duty to defend or indemnify the insured. The court entered a consent order that the insurer owed no duty to defend or indemnify.

Around the same time-period, the injured party separately filed her own declaratory judgment against the insurer, arguing that the insurer was obligated to defend and indemnify the insured. This second declaratory judgment action did not assert claims for breach of contract or bad faith, and there was no assignment of such claims by the insured to the injured plaintiff. In February 2009, the injured party was given leave to withdraw this second declaratory judgment action, without prejudice.

The insured passed away in 2015. In 2016, after trial, the court entered judgment in favor of the injured party in the original 2007 negligence action, for a sum in excess of $1 Million. The estate assigned the injured party any and all of its rights, claims, demands, and causes of action against the insurer, including claims for breach of contract and bad faith.

The injured party subsequently filed an action against the insurer. The claims included breach of contract and statutory bad faith claim, as well as a request for declaratory relief. The court granted summary judgment on the assigned breach of contract and bad faith claims, though not as to the injured party’s own declaratory judgment count.

An assignee stands in the assignor shoes. Any causes of action the insured had for breach of contract and bad faith accrued when the insurer conveyed a letter denying any duty to defend and indemnify the 2007 negligence action (or, at the latest, in 2008, when the court entered the consent order). The court stated that any bad faith claim had to be raised no later than 2009 (under the two year statute of limitations governing statutory bad faith claims) or by 2011 for the breach of contract claim.

The court concluded: “In order to advance timely claims for breach of contract/bad faith, under the facts here, [the insured] would had to have filed suit and challenged that coverage denial in the 2008 ‘second’ declaratory judgment suit by seeking an assignment to include the breach of contract/bad faith claims at that time. Instead, [the insured] brought only a declaratory judgment action.”

As the bad faith claim was not filed within two years after the initial denial of coverage, the court found that the claim was time-barred.

Date of Decision: May 22, 2017

Falo v. Travelers Personal Insurance Co., No. 17cv0143, 2017 U.S. Dist. LEXIS 77425 (W.D. Pa. May 22, 2017) (Schwab, J.)