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

BROKERS AND AGENTS ARE NOT INSURERS SUBJECT TO STATUTORY BAD FAITH CLAIMS (Western District)

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This is Magistrate Judge Eddy’s Report and Recommendation on the issue of whether certain statutory bad faith defendants were insurers subject to the bad faith statute. The case was voluntarily dismissed the same day the R&R was issued, and it was never reviewed by the District Court.

Two sets of the defendants moved to dismiss the bad faith claim on the basis they were not insurers. Magistrate Judge Eddy observed that insurers are entities that issue policies, collect premiums, or agree to accept others’ liability in exchange for consideration. Further, insurers are also defined “as the underwriter or insurance company with whom a contract of insurance is made.”

The plaintiffs alleged that the moving defendants were brokers or insurance agents. They argued, however, that the moving defendants were “insurers of some form,” because these defendants “failed to make reasonable efforts to identify the policies of insurance and account for the premium payments made by Plaintiffs to Defendants….” Specifically, plaintiffs alleged these agents or brokers became insurers by telling the insured the claim could not be submitted to insurance, by denying aid to plaintiffs, by unreasonably failing to identify plaintiffs’ insurance policies, and by failing to account for premiums.

The reality was that the defendants at most sold the plaintiffs insurance as agents or brokers. “An entity that only sells an insurance policy is not an insurer pursuant to the statute.” There are no allegations “that these entities collected their insurance premiums in exchange for assuming the risks associated with the policy.” Further, there were no allegations these defendants were underwriters or insurers, but all allegations and documents indicated they were brokers or agents.

Thus, Magistrate Judge Eddy recommended the motion to dismiss be granted. As stated above, the case was dismissed that same day and thus the issue was never finally resolved by the District Court.

Date of Decision: March 5, 2020

McKinney v. Boser, U.S. District Court Western District of Pennsylvania 2:19-CV-00771, 2020 U.S. Dist. LEXIS 39001 (W.D. Pa. Mar. 5, 2020) (Eddy, M.J.) (Report and Recommendation)

PLAINTIFF CANNOT PLEAD ALTERNATIVELY THAT DEFENDANT IS AN INSURER OR AN HMO WITHOUT FACTUAL SUPPORT; BAD FAITH CLAIM INADEQUATELY PLEADED AS A WHOLE (Middle District)

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The insured failed to plead adequately on two levels in this case.

First, the insured attempted to plead in the alternative that the defendant was either an insurer or an HMO. HMOs are not subject to the bad faith statute, so the difference is significant. Moreover, there were facts over which the court could take judicial notice indicating defendant was an HMO.

The court concluded that alternatively alleging the defendant was an insurer or an HMO amounted to mere legal conclusions. Without any supporting facts, the bare bones legal allegation that defendant might be an HMO was inadequate, resulting in dismissal on that basis.

Next, even assuming defendant was an insurer subject to the bad faith statute, plaintiff again only pleaded conclusory legal statements with no factual support. These inadequate allegations included:

  1. Defendant denied plaintiff’s “appeal of a denial of payment of certain benefits, thereby first communicating the results of its inadequate investigation . . . follow[ing] presentation of new evidence and persuasion that [defendant] should have paid coverage for certain benefits”.

  2. Defendant’s “inadequate investigation included a … determination that an appeal was untimely, when [defendant] [k]new that the appeal had been timely submitted”.

  3. Plaintiff was an insured of defendant.

  4. “[A]ll of the aforementioned acts, omissions, and malfeasance were motivated by [defendant’s] self-interest and ill will toward [plaintiff] and those similarly situated, and constitute bad faith”, and

  5. “[A]ll of the aforementioned acts, omissions, and malfeasance are outrageous.”

The court stated that “[e]ach of these assertions constitute unsupported conclusions that need not be credited on a motion to dismiss.”

In its order dismissing the case, the court did not provide the plaintiff with leave to amend the complaint, and directed that the case be closed.

Date of Decision: December 27, 2019

Brown v. Kaiser Found. Health Plan of the Mid-Atlantic States, Inc., U.S. District Court Middle District of Pennsylvania No. 1:19-CV-1190, 2019 U.S. Dist. LEXIS 221471 (M.D. Pa. Dec. 27, 2019) (Jones, III, J.)

COURT ADDRESSES “WHO IS AN INSURER” FOR BAD FAITH PURPOSES (Philadelphia Federal)

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The plaintiff obtained insurance against its tenants failing to pay rent. It allegedly entered a relationship with two entities licensed to provide that insurance. One of those entities denied being an insurer, and moved to dismiss a bad faith claim against it.

The court observed:

“The Insurance Department Act of 1921, as amended, 40 P.S. § 221.3, defines ‘insurer’ as ‘any person who is doing, has done, purports to do, or is licensed to do an insurance business, and is or has been subject to the authority of . . . any insurance commissioner.'” … A party will be deemed to be “doing [an insurance] business” if it engages in any of the following acts:

(1) the issuance or delivery of contracts or certificates of insurance to persons resident in this Commonwealth;

(2) the solicitation of applications for such contracts, or other negotiations preliminary to the execution of such contracts;

(3) the collection of premiums, membership fees, assessments or other consideration for such contracts; or

(4) the transaction of matters subsequent to execution of such contracts and arising out of them.

The Complaint alleged the moving defendant acted in concert with another entity to provide plaintiff with insurance coverage. Specifically, plaintiff claims that both entities “entered into insurance policies pursuant to which Defendants agreed to ‘insure and protect … against tenants failing to pay rent or failing to vacate properties after defaulting on rent or the expiration of their lease.’” Plaintiff also “alleges that Defendants marketed the policies to [plaintiff], that [plaintiff] made thousands of dollars of premium payments under the policies, and that Defendants subsequently sent termination notices as to the policies.” Drawing all reasonable inferences, the complaint alleged the moving defendant solicited the application for an insurance contract, entered into an insurance contract, collected fees and premiums, and “’transact[ed] [in] matters subsequent to execution of [the] contracts and arising out of [it].’”

The moving defendant argued that its contracts with plaintiff do not use the word insurance, that in a related document the moving defendant itself is described as a “named insured,” and that a search of the Pennsylvania Insurance Department’s web site did not include the moving defendant as an insurer. The court rejected all of these arguments.

First, taking all reasonable inferences in plaintiff’s favor, the court found the language in the parties’ agreement sufficient to be considered an insurance agreement, in referencing payment of fees in return for coverage. Second, that the moving defendant was a “named insured” itself in relation to a reinsurer did not define the relationship between the moving defendant and plaintiff. Third, the moving defendant’s absence from the Pennsylvania Insurance Department’s website “does not preclude a reasonable inference that [it] was doing . . . [or] purport[ing] to do . . ., an insurance business and, in that capacity, was subject to the authority of . . . an[] insurance commissioner, even if the insurance commissioner was not actively exercising that authority.” (internal quotations omitted).

While the court denied the motion to dismiss, however, it did not rule on the ultimate issue of fact as to whether the moving defendant was an insurer for statutory bad faith purposes. It simply allowed the case to proceed.

On a final point, the court recognized, but did not resolve, the issue of whether the insuring agreement could expressly limit recovery of attorney’s fees and punitive damages that are otherwise expressly permitted by the bad faith statute.

Date of Decision: December 17, 2019

ABC Capital Invs., LLC v. Nationwide Rentsure, U.S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-4980, 2019 U.S. Dist. LEXIS 216129 (E.D. Pa. Dec. 17, 2019) (Padova, J.)

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

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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)

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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)

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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)

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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)

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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)

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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)

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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.)