Archive for the 'PA – Procedural Issues' Category

POTPOURRI OF ISSUES ADDRESSED IN RESPONSE TO 11 COUNT COMPLAINT: (1) REMAND (2) GIST OF THE ACTION/ECONOMIC LOSS (3) UIPA; (4) DUTY OF GOOD FAITH AND FAIR DEALING; (5) UNFAIR TRADE PRACTICES AND CONSUMER PROTECTION LAW (6) DECLARATORY JUDGMENT ACTIONS BY BREACH OF CONTRACT PLAINTIFFS AND (7) ADEQUATELY PLEADING BAD FAITH (Philadelphia Federal)

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In this Opinion, Eastern District Judge Tucker addresses a wide range of fundamental legal issues in the context of ruling on a motion to dismiss the insured’s 11 count complaint. The complaint includes not only breach of contract and bad faith claims, but tort claims, UIPA claims, declaratory judgment claims, and injunctive relief claims, all arising out of the alleged failure to pay on an insurance claim. The court also addresses a motion to remand after removal.

We do not address all of the issues Judge Tucker discusses, but highlight a few of the key principles adduced in her opinion. Her full opinion can be found here.

  1. Motion to remand denied.  (i) In determining the jurisdictional minimum amount-in-controversy, the court may consider the possibility of punitive damages under the bad faith statute. (ii) Diversity of citizenship can be established by showing the defendant is not a citizen of plaintiff’s state, just as well as by affirmatively showing the state(s) in which defendant is a citizen.

  2. The gist of the action doctrine and/or the economic loss doctrine will typically bar tort claims based on violations of an insurance contract.

  3. Violating the Unfair Insurance Practices Act (UIPA) (i) does not create a private right of action, and (ii) some courts hold it may not be used to establish violation of statutory bad faith.

As the court states: “Plaintiff’s claim is also barred to the extent that it relies on an alleged violation of the Pennsylvania Unfair Insurance Practices Act (‘UIPA’) because the UIPA does not permit private recovery for a violation of its provisions. Plaintiff advances a claim for damages based, in part, on a theory that [the insurer] was negligent having breached duties imposed upon it by the UIPA, 40 Pa Const. Stat. Ann. § 1171.1, et seq. ‘Courts within the Third Circuit and the Commonwealth of Pennsylvania continue to recognize [, however,] that the UIPA does not provide plaintiffs with a private cause of action.’ Tippett, 2015 U.S. Dist. LEXIS 37513, 2015 WL 1345442 at *2 (quoting Weinberg v. Nationwide Cas. and Ins. Co., 949 F. Supp. 2d 588, 598 (E.D. Pa. 2013)) (internal quotation marks omitted). Indeed, in Tippett, the district court not only rejected a plaintiff’s attempt to state a separate claim under the UIPA, but also rejected the plaintiff’s arguments that proof of a UIPA violation might otherwise provide support for the plaintiff’s independent bad faith claim. Id. Plaintiff’s claim under the UIPA in this case is similarly barred.”

  1. Breach of the common law duty of good faith and fair dealing is subsumed in the breach of contract claim.

  2. The Unfair Trade Practices and Consumer Protection Law applies to the sale of insurance policies, not claims handling.

As the court states: “While Plaintiff rightly notes that the ‘UTPCPL creates a private right of action in persons upon whom unfair methods of competition and/or unfair or deceptive acts or practices are employed and who, as a result, sustain an ascertainable loss,’ … Plaintiff fails to note that ‘the UTPCPL applies to the sale of an insurance policy [but] does not apply to the handling of insurance claims.’” Thus, as the alleged “wrongful conduct under the UTPCPL relate[s] solely to [the insurer’s] actions after the execution of the homeowner’s insurance policy,” the UTPCPL claim was dismissed.

  1. Declaratory judgment count not permitted in light of breach of contract claim.

The court states: “Federal courts routinely dismiss actions seeking declaratory judgment that, if entered, would be duplicative of a judgment on an underlying breach of contract claim.” Judge Tucker cites case law for the propositions that “granting a defendant’s motion to dismiss a plaintiff’s independent cause of action for declaratory judgment because the claim for declaratory judgment was duplicative of an underlying breach of contract claim,” and “dismissing a plaintiff’s duplicative claim for declaratory judgment in the face of an underlying breach of insurance contract claim and observing that ‘pursuant to discretionary declaratory judgment authority, district courts have dismissed declaratory judgment claims at the motion to dismiss stage when they duplicate breach of contract claims within the same action.’”

  1. The insured pleads a plausible bad faith claim.

Judge Tucker highlighted the following allegations in ruling that the bad faith claim could proceed:

i the insurer “attempted to close her insurance claim despite never having sent an adjuster or inspector to evaluate the damage to the Property.”;

ii the insurer “engaged in intentional ‘telephone tag’ to delay and deny Plaintiff coverage under the homeowner’s insurance policy.”;

iii. the insurer never “scheduled an inspection of the Property or otherwise [took] any action to deny or grant coverage under the homeowner’s insurance policy.”

Thus, at the end of the day, after reviewing all of the claims and motion to remand, the insured was allowed to proceed on the breach of contract and bad faith claims.

Date of Decision: August 13, 2019

Neri v. State Farm Fire & Cas. Co., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 19-0355, 2019 U.S. Dist. LEXIS 136820 (E.D. Pa. Aug. 13, 2019) (Tucker, J.)

DISCOVERY IN BAD FAITH CASE: (1) RESERVES DISCOVERABLE; (2) MENTAL IMPRESSIONS NOT DISCOVERABLE; (3) TRADE SECRET OBJECTIONS CANNOT STAND ABSENT APPROPRIATE MOTION FOR PROTECTIVE ORDER (Philadelphia Federal)

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In this bad faith action, Eastern District Judge Slomsky addressed three disputed discovery issues: (1) reserves; (2) claim adjuster work product; and (3) trade secrets.

Reserves are Discoverable

District courts within the Third Circuit are split on whether reserves are discoverable in bad faith cases. In this action, Judge Slomsky stood with those judges who find reserves relevant and discoverable.

Work Product Privilege not Eviscerated Simply by Bringing a Bad Faith Action

On the other hand, he refused to require production of a claim adjuster’s mental impressions simply because it was a bad faith case. As the court states: “In essence, Plaintiff’s sole argument to compel production of [the adjuster’s] mental impressions is that [the mental impressions] are relevant merely because this case contains a bad faith claim. It is well-settled that this argument is insufficient to disregard the work-product privilege set forth in Rule 26.”

Trade Secret Objections Fail When (1) Insurer Does not Move for Protective Order, and (2) Does not Lay Out Nature of Trade Secrets in Opposing Motion to Compel

The insurer made redactions to document production based on trade secret objections. The court first observed that Pennsylvania Civil Rule 4012 governed this trade secrets issue, rather than the Federal Rules. The interpreted Pa.R.C.P. 4012 to require a party objecting on this basis to bring a motion for a protective order in the first instance, which the insurer did not do in this case. The court then observed that the insurer failed to address the insured’s arguments against the presence of trade secret protections, which could have been done without revealing any trade secrets. Still, after granting the motion to compel on this issue, the court gave leave for the insurer to file an “appropriate” motion for a protective order.

Date of Decision: July 16, 2019

Penn-Dion Corp. v. Great American Insurance Co. of N.Y., U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-4634, 2019 U.S. Dist. LEXIS 117635, 2019 WL 3202503 (E.D. Pa. July 16, 2019) (Slomsky, J.)

TWO NON-PRECEDENTIAL BAD FAITH OPINIONS FROM PENNSYLVANIA’S SUPERIOR COURT: (1) INSUREDS’ CONDUCT AND STATE OF MIND ARE NOT WHAT DETERMINES AN INSURER’S BAD FAITH, RATHER IT IS THE INSURER’S OWN CONDUCT; (2) BAD FAITH PLEADING INADEQUATE

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In Wilson v. Erie Insurance Group, the Superior Court reversed the entry of a judgment for non pros on a bad faith claim which had been in suit for 16 years.

Among other points, the appellate court observed that the focus in bad faith cases is the insurer’s conduct and state of mind, not the insured’s. Thus, the Court observed:

[B]ad faith applies to “those actions an insurer took when 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.” In order to prove bad faith, a plaintiff must show by clear and convincing evidence that the insurer did not have a reasonable basis for denying benefits under the policy, and knew or recklessly disregarded its lack of reasonable basis in denying the claim. … Thus, the insured’s argue, a bad faith action turns on the reasonableness of the conduct of the insurer, not the insured. …

Similarly, although the [insureds] could not remember the timing of … settlement offers, and the amount of those offers, it did not impair [the insurer’s] ability to defend the case. All of that information is documented in [the insurer’s] files or, in some cases, admitted in the pleadings. The fact that the [the insureds] could not remember if they had any expectations in terms of settlement was of no consequence as their expectations are irrelevant in this bad faith case. See Rhodes v. USAA Casualty Ins. Co., 2011 PA Super 105, 21 A.3d 1253 (Pa.Super. 2011) (holding expectations of the insureds are not material to bad faith liability). It is difficult to imagine how [the insurer] was substantially impaired in its ability to present a defense by the [the insureds’] inability to recall these details. Moreover, if [the insurer] genuinely required that information, it would not have waited until 2018 to take the depositions.

Date of Decision: May 13, 2019

Wilson v. Erie Insurance Group & Erie Insurance Exchange, Superior Court of Pennsylvania No. 717 WDA 2018, 2019 Pa. Super. Unpub. LEXIS 1867 (Pa. Super. Ct. May 13, 2019) (Bowes, Shogan, Strassburger, JJ.)

In Feingold v. State Farm, the Superior Court dealt with an unusual set of procedural circumstances, but we only focus on its discussion of bad faith pleading standards. The court states:

An insured has a cause of action “if the court finds that the insurer has acted in bad faith toward the insured[.]” 42 Pa.C.S. § 8371. To prove a bad faith claim, the insured must present clear and convincing evidence that (1) the insurer did not have a reasonable basis for denying benefits under the policy, and (2) the insurer knew or recklessly disregarded its lack of reasonable basis in denying the claim. …

Based on our review of his complaint, [plaintiff-assignee] failed to allege either requisite element. First, [plaintiff-assignee] averred that after the UIM arbitration award, [the insurer] informed him that it did not believe the [the insureds] were entitled to UIM damages under their policy. [The] complaint did not allege that [the insurer] was without a reasonable basis for denying benefits. Second, [plaintiff-assignee] averred only that [the insurer] did not advise him of a specific reason for denying the … UIM claims. This is not sufficient to demonstrate that [the insurer] knew or recklessly disregarded its lack of a reasonable basis for denying the claim. Accordingly, we find no abuse of discretion or error in the trial court’s determination that the bad faith claim was frivolous.

Date of Decision: May 17, 2018

Feingold v. State Farm Insurance Co., Superior Court of Pennsylvania No. 2340 EDA 2018, No. 2833 EDA 2018, 2019 Pa. Super. Unpub. LEXIS 1931 (Pa. Super. Ct. May 17, 2019) (Kunselman, Murray, Pelligrinia, JJ.)

BAD FAITH CLAIM TIME BARRED WHEN WRIT OF SUMMONS WAS NOT PROPERLY SERVED (Philadelphia Federal)

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The issue in this case involved a federal court determining the validity of service under Pennsylvania state law governing writs of summons. The court had to rule on whether service was effected before the two year bad faith statute of limitations expired. The court found that proper service was not made, but permitted the pro se plaintiff to file an amended complaint in which “she will need to show either that she properly served, or made good faith efforts to serve” the insurer.

Date of Decision: March 22, 2019

Shearer v. Allstate Insurance Co., U.S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 18-3277, 2019 U.S. Dist. LEXIS 47770, 2019 WL 1317635 (E.D. Pa. Mar. 22, 2019) (Pratter, J.)

1. SUPREME COURT GRANTS APPEAL IN BERG V. NATIONWIDE, ASSURING THIS EXTRAORDINARY BAD FAITH CASE WILL GO INTO ITS THIRD DECADE. 2. UPDATE ON UIM BAD FAITH SEVERANCE AND STAY CASE LAW.

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After 20 Years, Berg v. Nationwide is Headed to the Supreme Court.

We once again note that the Supreme Court has granted an appeal in the long running Berg v. Nationwide bad faith litigation.  Our original post can be found here.

The Court’s Order focuses the appellate issues on the Superior Court’s review of the trial judge’s evidentiary findings and mindset, as well the issue of whether the insurer assumed a specific additional responsibility under its duty of good faith and fair dealing.

There is always the possibility, however, that the Court could go beyond the proper scope of appellate review or the potential specific duty assumed, and into more fundamental issues of what constitutes bad faith.

UIM/Bad Faith Severance and Stay Granted.

The excellent Tort Talk Blog, authored by Attorney Daniel Cummins, continues to be the leading resource on severance/bifurcation and stay issues in post-Koken UIM/UM litigation. The most recent post summarizes a Pike County opinion granting a motion to sever and stay, and can be found here.

SUPREME COURT ACCEPTS APPEAL IN BERG V. NATIONWIDE ON WHETHER SUPERIOR COURT ABUSED ITS DISCRETION IN REWEIGHING EVIDENCE (Pennsylvania Supreme Court)

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Of the thousands of statutory bad faith cases since section 8371’s creation, Berg v. Nationwide stands at the top of the list. The case started in 1998. One of the plaintiffs has since passed away. In 2014, Common Pleas Judge Jeffrey K. Sprecher awarded plaintiffs bad faith damages of $21,000,000. In 2018, the Superior Court reversed that $21,000,000 judgment.

This past Friday (March 29, 2019), the Supreme Court made known that the litigation will go into its third decade when it granted an appeal from that Superior Court decision, on the following three issues:

  1. [D]oes an appellate court abuse its discretion by reweighing and disregarding clear and convincing evidence introduced in the trial court upon which the trial court relied to enter a finding of insurance bad faith?

  2. [D]id the Superior Court abuse its discretion by reweighing and disregarding clear and competent evidence upon which the trial court relied to support its finding of insurance bad faith [pursuant to the standard set forth in Rancosky v. Washington Nat’l Ins Co., 170 A.3d 364 (Pa. 2017)]?

  3. Does an insurer that elects under an insurance contract to repair collision damage to a motor vehicle, rather than pay the insured the fair value of the loss directly, have a duty to return the motor vehicle to its insured in a safe and serviceable condition pursuant to national insurance standards, and pursuant to its duty of good faith and fair dealing?

The Order granting the petition on these three issues can be found here, in Berg v. Nationwide Mutual Insurance Co., No. 569 MAL 2018 (Pa. Mar. 29, 2019).

A summary of the Superior Court’s 2018 decision is posted here, and amendment thereto is posted here.

A summary of Judge Sprecher’s 2014 trial court decision awarding $21,000,000 can be found here.

Judge Sprecher’s ruling followed an earlier 2012 Superior Court decision in Berg, summarized here. This 2012 opinion has proven influential. A quick Lexis search shows it being cited 70 times.

COURT REFUSES TO RECONSIDER RULING THAT DISPUTE OVER VALUATION ALONE CANNOT SERVE AS THE FOUNDATION OF A BAD FAITH CLAIM (Middle District)

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On February 11, 2019, Middle District Judge Richard Caputo dismissed the insured’s bad faith claim for solely pleading conclusory allegations without sufficient factual allegations to support a plausible claim, and for pleading facts that could not support a bad faith claim. That case is summarized here. At most, the complaint alleged a discrepancy in the insured’s and insurer’s damage valuations, which alone is not enough to make out a bad faith case.

The insured later requested reconsideration and additionally asked the court to certify a discretionary interlocutory appeal, on the basis that Judge Caputo made a clear error of law. Both efforts were rejected.

The insured’s clear error of law argument is based on the court not finding the following pleadings constituted factual allegations supporting a bad faith claim: The insurer had a detailed summary of plaintiff’s medical expenses in its possession. The medical expenses in those documents exceeded the third party tortfeasor’s policy limits. The insurer concluded the claim was worth less than those policy limits. The insured argued this reasonably and objectively placed the damage value above those limits, despite the insurer’s valuing the claim within those damage limits.

The plaintiff further argued that there was other case law in the Third Circuit that would have found such allegations sufficient to make out a plausible claim, that this case law was controlling, and that the court failed to follow that case law.

Judge Caputo denied the motion for reconsideration. First, the insured was simply trying to re-litigate the same arguments originally made. This is not permissible on a motion for reconsideration. Second, there was no controlling case law. Rather, the insured referenced decisions of other District Court Judges whose opinions are not binding precedent on their peers. Third, even considering those other opinions, Judge Caputo found that they did not demonstrate any clear error of law. To the contrary, he cited seven cases that supported his original position that a discrepancy in valuation alone cannot form the basis of a bad faith claim.

Judge Caputo also refused to certify the case for interlocutory appeal. First, there was no controlling question of law at issue, over which there was a substantial ground for difference of opinion. As Judge Caputo stated, courts routinely find that disputes over valuation alone cannot constitute bad faith. Moreover, this was not the kind of exceptional case that merited immediate appeal.

March 19, 2019

Clarke v. Liberty Mutual Insurance Co., U. S. District Court Middle District Pennsylvania NO. 3:18-CV-1925, 2019 U.S. Dist. LEXIS 44549 (M.D. Pa. Mar. 19, 2019) (Caputo, J.)

SUMMARY JUDGMENT MOTION PREMATURE WHERE FACTS ON WHO CAUSED UNDERLYING ACCIDENT, AND CARRIER’S DECISION ON CAUSATION, WERE STILL SUBJECT TO INCOMPLETE DISCOVERY

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In this UIM bad faith case, the insured’s complaint alleged that the claim history showed the other driver was at fault, and the other driver’s carrier had paid policy limits. Yet, when the insured sought further damages under his UIM policy, the carrier refused to pay over a period of three years.

In its answer, the carrier asserted the facts showed the insured was at fault, not the other driver. The carrier attached the police report and a deposition from the underlying case in support of that position. It moved to dismiss the bad faith claim, or alternatively for summary judgment based on its factual position that the insured caused the accident.

Magistrate Judge Carlson recommended denying the motion to dismiss, and denying the summary judgment motion without prejudice. The insurer could renew the summary judgment motion after a full factual record was developed in discovery. District Judge Mariani adopted the Report and Recommendation based on Magistrate Judge Carlson’s reasoning.

First, the court denied the motion to dismiss. The complaint provided a detailed chronology of persistent refusals to pay UIM benefits spanning several years. The insured further alleged that the insurer’s position in denying the claim was incorrect, unreasonable, and taken in bad faith. The insurer argued the facts showed it was prudent in its decision making, but the court found these arguments required looking beyond the pleadings, something the court could not do on a motion to dismiss.

On the alternative summary judgment motion, the court observed summary judgment is rarely granted when discovery is incomplete. When this does happen, it is typically only when the missing discovery does not implicate material facts on the issue at hand.

The court found that factual issues around which driver caused the accident, and the carrier’s reasonableness in concluding the insured caused the accident, were open issues of material fact on the bad faith claim. Thus, the summary judgment motion was premature until discovery was complete on these issues.

Dates of Decision: December 11, 2018 (Report and Recommendation), January 7, 2019 (Order adopting Report and Recommendation)

Baltzley v. State Farm Mut. Auto. Ins. Co., U.S. District Court Middle District of Pennsylvania Civil No. 3:18-CV-00959, 2018 U.S. Dist. LEXIS 209672 (M.D. Pa. Dec. 11, 2018) (Carlson, M.J.) (Report and Recommendation), adopted by District Court on January 7, 2019 (Mariani, J.)

 

DECEMBER 2018 BAD FAITH CASES: COURT REFUSES TO JOIN UNDERLYING STATE COURT NEGLIGENCE WITH FEDERAL ACTION FOR BREACH OF POLICY AND BAD FAITH (Western District)

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The insured-plaintiff attempted to join her underlying state court negligence action with her UIM bad faith and breach of contract federal action against her insurer. Both the tort defendant in the state case and the plaintiff were insured by the same carrier.

The court rejected this effort, observing that the two actions were distinct. There was no basis to join the underlying state action with the federal bad faith action simply because of the fortuity that that the same insurer was also defending another insured from a tort claim.

Date of Decision: November 30, 2018

Pastin v. Allstate Ins. Co., U.S. District Court Western District of Pennsylvania Civil No. 17-1503, 2018 U.S. Dist. LEXIS 203076 (W.D. Pa. Nov. 30, 2018) (Horan, J.)

JULY 2018 BAD FAITH CASES: AN INSURED CANNOT SUSTAIN A BAD FAITH CLAIM WITH MERELY IPSE DIXIT (Middle District)

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In this first party medical benefits claim, accidental injury was covered but not loss resulting from disease. Prior to the insurer’s summary judgment motion, the record appeared to show the loss resulted from diabetes, which would not be covered. However, an affidavit submitted in opposition to summary judgment created a dispute of fact as to whether the loss arose from an accidental injury which may have been exacerbated by the diabetes, but was not caused by the diabetes. Thus, summary judgment was denied on the breach of contract claim.

Summary judgment was granted on the insured’s bad faith claim. The court observed that an insured “must show, by clear and convincing evidence, that [the insurer] ‘did not have a reasonable basis for denying benefits under the policy,] and that [it] ‘knew of or recklessly disregarded its lack of a reasonable basis in denying the claim.’”

In this case, none of the medical records mentioned injury, and most referred to diabetes as causing the loss. The only evidence the insurer had in evaluating the claim that supported an injury separate from the disease was the insured’s own language in his statement of claim. “But an insured cannot sustain a bad faith claim with merely ipse dixit.” Thus, the insured won summary judgment on the bad faith claim.

Date of Decision: June 28, 2018

Long v. Hartford Life & Accident Insurance Co., U. S. District Court, Middle District of Pennsylvania No. 4:16-CV-00138, 2018 U.S. Dist. LEXIS 108014 (M.D. Pa. June 28, 2018) (Brann, J.)