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

BAD FAITH CLAIM CAN PROCEED EVEN THOUGHT CONTRACT CLAIM DISMISSED AS UNTIMELY; ADJUSTOR AND INVESTIGATOR NOT SUBJECT TO BAD FAITH STATUTE (Philadelphia Federal)

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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.)

 

STATUTORY BAD FAITH CLAIMS ONLY AVAILABLE TO INSUREDS; COMMON LAW DUTY OF GOOD FAITH SUBSUMED IN CONTRACT CLAIM (Philadelphia Federal)

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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.)

 

PARTY WITH JUDGMENT FOR ATTORNEY’S FEES AGAINST AN INSURED DID NOT HAVE STANDING TO PURSUE THAT JUDGMENT AGAINST THE INSURER IN A BAD FAITH ACTION (Philadelphia Federal)

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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.)

THIRD PARTIES LACK STANDING TO BRING BAD FAITH CLAIMS (Monroe County Common Pleas)

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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.

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.)