Archive for the 'PA – Who is an Insurer?' Category

AUGUST 2018 BAD FAITH CASES: BAD FAITH ACTION CANNOT BE BROUGHT AGAINST CLAIM REPRESENTATIVE WHO IS NOT AN INSURER (Philadelphia Federal)

Print Friendly, PDF & Email

A UIM insured brought a breach of contract, loss of consortium, and bad faith action against both the claim representative and the insurer. The insurer argued that the claim representative was “fraudulently joined” to defeat diversity. The insurer asserted that bad faith actions against claim representatives are impermissible.

The court noted that the “removing party has a heavy burden of persuading a court that joinder is fraudulent.” However, “[t]he claims against [the claim representative] are wholly insubstantial and frivolous.” The court concluded as a matter of law “there is no basis to support a contract” against the claim representative because “only the principal, [insurer], may be held liable.” The claim representative was only an agent, who did not have a separate contract with the insured.

Further, the court concluded the insured could not state a bad faith claim against a claim representative. “The bad faith statute applies only to insurance companies.” The claim representative was not an insurer because she identified as an insurer in the policy, and the insured did not plead that claim representative acted as an insurer.

Thus, the court concluded the insured improperly joined the claim representative.

Date of Decision: August 8, 2018

Reto v. Liberty Mutual Insurance, U. S. District Court Eastern District of Pennsylvania, CIVIL ACTION NO. 18-2483, 2018 U.S. Dist. LEXIS 133336 (E.D. Pa. Aug., 8, 2018) (Savage, J.)

OCTOBER 2017 BAD FAITH CASES: BAD FAITH STATUTE DOES NOT APPLY TO INSURANCE AGENTS (Common Pleas Lackawanna County)

Print Friendly, PDF & Email

The excellent Tort Talk Blog has posted an opinion from Judge Nealon in Lackawanna County reiterating that the bad faith statute does not apply to insurance agents.

JUNE 2017 BAD FAITH CASES: FINANCIAL ADVISOR RECOMMENDING INSURANCE PRODUCTS HAS NO FIDUCIARY DUTY TO CLIENT/INSURED ABSENT INSURED HAVING ACTUALLY OR FUNCTIONALLY CEDED ALL CONTROL IN DECISIONMAKING TO ADVISOR (Pennsylvania Supreme Court)

Print Friendly, PDF & Email

This case involves the existence of a fiduciary duty between financial advisor and his clients. The facts include recommendations to buy certain life insurance policies, which the insureds later claimed were fraudulently represented to them. They brought various claims, including breach of fiduciary duty claims.

Those claims were rejected by the trial court, which found no fiduciary duty existed in the absence of the financial advisor having control over the insureds’ decisionmaking. The Superior Court reversed, finding the existence of a fiduciary duty based on the facts concerning the relationship between the advisor and his clients, rather than as a matter of law. The Supreme Court reversed that decision. It ruled, along the lines of the trial court, that in the absence of a traditional type of controlling and overmastering relationship, there is no fiduciary duty simply because the financial advisor has greater expertise where the clients made the ultimate investment decisions.

Among other things, the Supreme Court stated:

“While cases involving fiduciary relationships are necessarily fact specific, they usually involve some special vulnerability in one person that creates a unique opportunity for another person to take advantage to their benefit.”

“The Superior Court, in the case before us, erred in relying on our case law involving undue influence to support its conclusion that a fiduciary relationship can be established without evidence that decision-making power was effectively ceded to another. Its view misses the point that the exercise of undue influence, at its core, indicates that an individual so influenced has lost the ability to make an independent decision.”

“We conclude that the … summary judgment evidentiary record falls far short of establishing a fiduciary …. Fiduciary duties do not arise ‘merely because one party relies on and pays for the specialized skill of the other party.’ …. If this were the law in Pennsylvania, ‘a fiduciary relationship could arise whenever one party had any marginal greater level of skill and expertise in a particular area than another party.”

“The superior knowledge or expertise of a party does not impose a fiduciary duty on that party or otherwise convert an arm’s-length transaction into a confidential relationship. In this regard, the analysis is no different in a consumer transaction than in other fiduciary duty cases decided by this Court.”

“’[T]he critical question is whether the relationship goes beyond mere reliance on superior skill, and into a relationship characterized by ‘overmastering influence’ on one side or ‘weakness, dependence, or trust, justifiably reposed’ on the other side,” which results in the effective ceding of control over decisionmaking by the party whose property is being taken.”

“A fiduciary duty may arise in the context of consumer transactions only if one party cedes decision-making control to the other party.” Thus, “’a business transaction may be the basis of a confidential relationship only if one party surrenders substantial control over some portion of his affairs to the other.’”

The case before the court did not fall into these categories. Rather, it presented “an arm’s-length consumer transaction in which the [clients/insureds] accepted [the financial advisor’s] advice with respect to the purchase of the … whole life insurance policy[, and they] made the decision to purchase this policy, but also decided to reject other proffered products and services.” The complicated nature of the premium structure did not change the character of the transaction between the parties. The clients “purchased an insurance product from a captive financial advisor with whom they had a business relationship for a little more than a year, initiated by a cold-call. [Their] lack of post-secondary high school educations is not indicative of a weakness, dependence, or trust, justifiably reposed, nor is [the advisor’s] advanced training sufficient to establish an overmastering influence.”

“The record here establishes that [they] made the decision to purchase Appellants’ advice and financial products. Reliance on another’s specialized skill or knowledge in making the purchase, without more, does not create a fiduciary relationship. We acknowledge that [they] may have become comfortable with the Appellants’ expertise before deciding to purchase the … whole life insurance policy, which is to be expected when making a financial decision. It is part of the development of any business relationship — consumer or otherwise. It does not, however, establish a fiduciary relationship.”

“There is no evidence to establish that [they] were overpowered, dominated or unduly influenced in their judgment….” “[They] never ceded any decision-making authority….” Over the course of the relationship, they followed some of his recommendations and rejected others. Prior to the proposal for the whole life policy at issue, Appellants proposed a different whole life product that [they] did not purchase.”

It was of some significance to the Court that under appropriate circumstances, consumers “have various common law tort remedies (with burdens of proof less stringent than those required in fiduciary duty cases), as well as claims for common law fraud and the statutory relief provided by the current version of the UTPCPL, which provides a remedy for deceptive conduct. 73 P.S. § 201-2(4)(xxi).”

The majority “decline[d] to modify the law of fiduciary duty to encompass the particular pitfalls involved in the sale of insurance products by commissioned agents or financial advisors to less savvy customers. Moreover, we do not hold that a fiduciary duty cannot arise in a case with facts not present here, but absent evidence that a consumer of financial services and goods cedes control over the decision to purchase, either explicitly or implicitly because of over-mastering or undue influence, no fiduciary relationship arises.”

Date of Decision: June 20, 2017

Yenchi v. Ameriprise Financial, Inc., No. 8 WAP 2016, 2017 Pa. LEXIS 1405 (Pa. June 20, 2017) (Pennsylvania Supreme Court)

The dissenting opinion can be found here.

MARCH 2017 BAD FAITH CASES: STATUTORY BAD FAITH CLAIMS CANNOT BE BROUGHT AGAINST ADJUSTERS; ISSUING PAYMENT CHECK PER POLICY LANGUAGE CANNOT BE BAD FAITH (Pennsylvania Superior Court)

Print Friendly, PDF & Email

This case involved coverage for a fire loss on a property where a father and daughter were named insureds. Suit was brought solely by the daughter and her husband, with the father, the insurer, and the claim adjuster named as defendants. The insurer’s loss payment check was issued to both the father and daughter. The daughter and her husband included in their bad faith claims that the insurer intended to wrongly pay 100% of the proceeds to the father; and that there was a conspiracy to this effect among the insurer, the claim adjuster and the father.

On the bad faith issues addressed by the court, the insureds had brought bad faith claims against the adjuster, as well as their insurer. The Superior Court held that statutory bad faith claims can only be made against insurers, and dismissed the claim against the adjuster.

The daughter and her husband also brought a bad faith claim over the manner in which the insurance company issued its check to the insureds, with both the father and daughter on the same check. However, this payment was made consistently with the policy language. The insurer instructed the daughter to have her father (both named insureds) give written consent to the issuance of two separate reimbursement checks, and the insurer was even willing to interplead the funds into court so the father and daughter could determine their entitlement to the funds.

However, the daughter and her husband did not proceed on either option, and “[a]s a result, the check could only issue in both [the daughter’s and father’s] names.” Thus, there was no bad faith in issuing one check, in the name of both the father and daughter.

Date of Decision:  March 10, 2017

Brown v. Everett Cash Mut. Ins. Co., No. 1549 WDA 2015, 2017 Pa. Super. LEXIS 161 (Pa. Super. Ct. Mar. 10, 2017) (Lazarus, Solano, Strassburger, JJ.)

 

NOVEMBER 2016 BAD FAITH CASES: BAD FAITH STATUTE ONLY APPLIES TO INSURERS, NOT INSURANCE ADJUSTERS (Philadelphia Federal)

Print Friendly, PDF & Email

The court reiterated that Pennsylvania’s Bad Faith Statute only applies to insurance companies. Thus, insurance adjusters are not subject to the statute.

Date of Decision: September 9, 2016

Corley v. National Indemnity Company, No. 2:16-cv-00584-MMB , 2016 U.S. Dist. LEXIS 122911 (E.D. Pa. Sept. 9, 2016) (Baylson, J.)

 

OCTOBER 2014 BAD FAITH CASES: (1) STATUTORY BAD FAITH CLAIM SUFFICIENTLY PLEADED BECAUSE PLAINTIFF ALLEGED BASIS FOR UNREASONABLE CANCELLATION; (2) NO STATUTORY BAD FAITH ACTIONABLE AGAINST A BROKER WHO IS NOT AN INSURER; (3) NO BREACH OF FIDUCIARY DUTY CLAIM PLEADED THAT GOES BEYOND CONTRACT CLAIM FOR DUTY OF GOOD FAITH AND FAIR DEALING (Philadelphia Federal)

Print Friendly, PDF & Email

In Kofsky v. Unum Life Insurance Company of America, the insured purchased a disability insurance policy.  He alleged that the defendants, the insurer and the insured’s broker, unilaterally cancelled his insurance policy without prior notice. Thereafter, the insured claimed that he still forwarded payment under the policy, and that he fulfilled his duties under the policy, but the defendants refused to reinstate the policy. He brought claims for statutory bad faith, among others, against both the insurer and the broker, each of which sought to dismiss those claims.

The insurer’s motion to dismiss was denied. Although the complaint lacked details, it provided enough factual allegations to sufficiently state a bad faith claim. The insured alleged that the carrier unilaterally cancelled the policy even though the insured had fulfilled his obligations under the policy. This was enough to allege the carrier lacked a reasonable basis for cancellation, which can be the basis of a bad faith claim, and that there were issues of fact that remained.

The insurance broker was successful, however, because the bad faith statute only applies to insurers, not entities like brokers which do not issue policies, collect premiums, or assume risks or contractual obligations.

The court dismissed the breach of fiduciary duty claim against the insurer.  There were no allegations that some action was taken or agreement made that would take the insurer beyond its contractual obligations as an insurer, which did not automatically create a fiduciary duty; rather, this appeared to be akin to a claim for breach of the contractual duty of good faith and fair dealing, which is subsumed in the breach of contract claim.

Date of Decision:  September 2, 2014

Kofsky v. Unum Life Ins. Co. of Am., CIVIL ACTION NO. 13-5647, 2014 U.S. Dist. LEXIS 122220 (E.D. Pa. September 2, 2014) (Surrick, J.)

JUNE 2013 BAD FAITH CASES: COURT FINDS BAD FAITH STATUTE ONLY PROVIDES REMEDY TO INSUREDS, NOT AGENTS OR ATTORNEYS OF INSUREDS (Philadelphia Federal)

Print Friendly, PDF & Email

In Feingold v. Liberty Mut. Group, a pro se plaintiff , who was a disbarred attorney, brought suit against an insurance carrier and affiliated companies (the “carrier”), and against the administratrix of the estate of his former client. Among other things, he claimed that the carrier was directly liable to him for bad faith.

The former client had retained plaintiff to bring suit against her insurer for uninsured motorist benefits. He successfully obtained an arbitration award, but failed to have the award confirmed for 7 years, during which time the client passed away.

The executrix filed to confirm the award, and ultimately filed her own bad faith claim against the carrier. Following some litigation, the carrier paid the estate the full judgment plus interest; and her bad faith claim was not an issue in this case.

The former attorney brought suit against the estate for legal fees, and against the carrier asserting a myriad of claims, including bad faith. He claimed that the carrier was liable to him for failing in bad faith to pay the original arbitration award, and thereby preventing the estate from paying his attorney fees.

The court dismissed the claims against the carrier with prejudice, finding them to be frivolous and lacking legal sufficiency. As to any putative bad faith claim under Pennsylvania’s bad faith statute, the Court stated that the statute only allows recovery against an insurer that “has acted in bad faith toward the insured.” As the insured’s attorney and not the insured, the former attorney lacked standing under the statute.

Date of Decision: April 22, 2013

Feingold v. Liberty Mut. Group, Civil Action No. 13-743, 2013 U.S. Dist. LEXIS 57384 (E.D. Pa. April 22, 2013) (Bartle, J.)

MARCH 2013 BAD FAITH CASES: COURT DENIES MOTION TO DISMISS ASSIGNEE’S BAD FAITH CLAIMS, DESPITE CONTENTION THAT CARRIER IS NOT AN INSURER UNDER PENNSYLVANIA LAW (Middle District)

Print Friendly, PDF & Email

In Dolph v. Ill. Nat’l Ins. Co., two insurance companies were sued for bad faith and breach of contract by assignees who were initially plaintiffs in an underlying tort suit stemming from injuries they sustained in a car accident. After liability was established in the underlying case against the estate of the defendant-insured in that action, the estate assigned to plaintiffs all claims related to one of the insurer’s alleged mishandling of the underlying settlement process.

The assignees filed suit against two insurers – the named carrier and another insurer that now claims to be a holding company. In this action, the assignees argue that the insured had a contract of insurance with the second insurer, entitling the assignees to proceed with their bad faith and breach of contract suit. However, the insurer filed a motion to dismiss, arguing that it is not an “insurer” under Pennsylvania’s bad faith statute, but a holding company that does not issue policies or collect premiums.

The court recognized that dismissal may be appropriate if that entity is not found to be an insurer, but denied the party’s motion because the assignees sufficiently alleged that an agent of both insurer-defendants handled the investigation of the assignor’s claims following the underlying personal injury trial. The court did, however, recognize that a record needs to be developed to define corporate status of the moving defendant.

Date of Decision: February 11, 2013

Dolph v. Ill. Nat’l Ins. Co., NO. 3:12-2167, 2013 U.S. Dist. LEXIS 20158, U.S. District Court for the Middle District of Pennsylvania (M.D. Pa. Feb. 11, 2013) (Mannion, J.)

JULY 2012 BAD FAITH CASES: COURT DENIES LEAVE TO AMEND PLEADINGS BECAUSE ATTORNEY THAT ALLEGEDLY ACTED IN BAD FAITH WAS NOT AN “INSURER” (Philadelphia Federal)

Print Friendly, PDF & Email

In Zenith Ins. Co. v. Wells Fargo Ins. Servs. of Pa., Inc., the court heard a motion by the insured party, co-defendant Glasbern, Inc., for leave to file an amended answer and counterclaim against its workers’ compensation policy carrier, the original claimant. This motion arose within a suit filed by the carrier against the named defendant, a bank and insurance broker, for its alleged negligence and indemnification for benefits paid to the moving co-defendant under the insurance policy issued by the carrier.

The insured co-defendant originally filed an answer and bad faith counterclaim against the carrier in September 2011. However, during discovery in March 2012, an attorney that works with the carrier’s attorney allegedly made several derogatory comments directed towards the insured. The insured claimed that this was an effort by the carrier to intimidate and deprive its insured of “zealous representation” and sought to amend its pleadings to include these factual allegations in support of its bad faith counterclaim.

The court disagreed, citing Rule 15(c) for the proposition that leave to amend pleadings will only be granted “when justice so requires” unless “undue prejudice would occur.” In the instant case, discovery was to close two weeks after the insured filed its motion for leave to amend. Because amending the insured’s complaint would cause a delay in discovery and require the depositions of several individuals, the court found that granting the motion would cause the carrier “delay and expense.”

Moreover, the court reasoned that, even if the carrier would not be unduly prejudiced, the insured’s motion was futile. Under Pennsylvania’s bad faith statute, bad faith is only actionable if conducted by an “insurer.” However, the attorney that allegedly made derogatory comments did not represent the carrier, but merely worked for the firm that represented the carrier. Moreover, there was no evidence to suggest that the carrier authorized or directed the attorney to make such comments. The court therefore denied the insureds’ motion for leave to amend.

Date of Decision: June 7, 2012

Zenith Ins. Co. v. Wells Fargo Ins. Servs. of Pa., Inc., No. 10-5433, 2012 U.S. Dist. LEXIS 79183, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. June 7, 2012) (Bartle, J.)

JUNE 2012 BAD FAITH CASES: BAD FAITH CLAIM CAN PROCEED WHERE INFERENCE OF FAILURE TO INVESTIGATE; PARTY CONSIDERED INSURER EVEN THOUGH NOT PRIMARILY NAMED AS INSURER ON POLICY (Philadelphia Federal)

Print Friendly, PDF & Email

In Simmons v. Trumbull Ins. Co., the court addressed an insured’s breach of contract and bad faith claims stemming from the denial of benefits under her automobile policy. The case arose from a car fire that caused substantial damage to the insured’s car. After promptly reporting her loss to the carriers, the insured’s claim was denied. The carriers’ employee sent a letter explaining that the claim was denied because the loss was caused by an electrical or mechanical failure, two occurrences excluded from the insured’s policy.

The insured thereafter filed this suit against the named insurer and a financial services company through whom plaintiff alleged the named insurer issued the policy. The insured’s claim was that the named carrier issued the automobile policy “acting by and through” the financial services company, which should also be amenable to breach of contract and bad faith liability. The defendants moved to dismiss both claims against the financial services company on the grounds that it was not a proper defendant.

With respect to the financial services company, the court held that it was an insurer for the purposes of the Pennsylvania bad faith statute. Using a two-part factor test, the court held that the company was (1) identified as an insurer on various policy documents and (2) acted as an insurer. For instance, the company’s logo appeared on the insured’s insurance card.

The insured’s policy documents also used the company’s name repeatedly. Even the letter denying coverage under the policy contained the company’s logo. As such, the court ruled that both the named carrier and the financial services company were insurers for the purposes of bad faith liability.

The court also denied the carriers’ motion to dismiss the bad faith count because the denial letter stated that the insured’s car “had a short and melted the negative battery cable but there was no other damages [sic] to any other components.” Yet, the insured’s complaint alleged “substantial fire damage,” permitting the inference that the carrier did not reasonably investigate the insured’s claim. The court reasoned that this was enough to survive the carrier’s motion to dismiss.

Date of Decision: April 25, 2012

Simmons v. Trumbull Ins. Co., No. 11-6571, 2012 U.S. Dist. LEXIS 58425, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. Apr. 25, 2012) (Padova, J.)