Archive for the 'PA – Reverse Bad Faith' Category

BAD FAITH NOT POSSIBLE WHERE THERE IS A REASONABLE BASIS TO DENY THE CLAIM (Philadelphia Federal)

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In this complicated coverage case, involving damages to a condominium unit through the actions of the insured’s own tenant, the court found no coverage due under the policy language in light of the circumstances. Further, the court ruled that the insured’s purchase of additional coverage for renters, even if otherwise applicable, was invalid because of concealment and mischaracterization in applying for that additional coverage.

Having determined no coverage was due, the court granted summary judgment on the bad faith claim. The court emphasized that a reasonable basis for denying coverage is all that is needed to overcome a bad faith claim. In this case, the carrier had a reasonable basis to deny the insured’s claims, and the “pertinent claims [were] not covered by the Policy.”

Date of Decision: June 11, 2019

Beautyman v. General Insurance Company of America, U. S. District Court Eastern District of Pennsylvania CIVIL ACTION No. 17-5804, 2019 U.S. Dist. LEXIS 97526 (E.D. Pa. June 11, 2019) (Kelly, J.)

 

OCTOBER 2018 BAD FAITH CASES: POLICY CAN ONLY BE RESCINDED OR VOIDED ON BASIS OF FRAUDULENT OMISSION BY CLEAR AND CONVINCING EVIDENCE OF (1) INTENT AND (2) PROOF THAT DISCLOSURE WOULD HAVE MADE A MATERIAL DIFFERENCE IN ISSUING POLICY (Western District)

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The insurer sought a declaration that it had no duties under an attorney professional liability policy on the basis of an outside business exclusion, and further sought to rescind and avoid the policy. While successful on the coverage issue, the court would not grant summary judgment to void or rescind the policy, as issues of disputed fact remained.

“There are two distinct but similar grounds for rescission and voidance of an insurance policy under Pennsylvania law. First, an insurance policy is void ab initio for misrepresentation when the insurer can establish that (1) the representation was false, (2) the insured knew it to be false when made or acted in bad faith, and (3) the representation was material to the risk being insured.”

“Second, rescission is also available where an insurer can show clear and convincing evidence that the insured knowingly failed to disclose information which was material to the risk to be insured. … To rescind a policy on this ground, the insurer must prove a fraudulent intent to deliberately deceive.”

The insurer must make its case by clear and convincing evidence, which requires presenting evidence “so clear, direct, weighty, and convincing as to enable the jury to come to a clear conviction, without hesitancy, of the truth of the precise facts in issue.” The court observed these cases are typically fact intensive.

“[T]he failure to furnish all details asked for [on an insurance application], where it appears there is no intention of concealing the truth, does not work a forfeiture, and a forfeiture does not follow where there has been no deliberate intent to deceive, and the known falsity of the answer is not affirmatively shown.” … [F]raud . . is never proclaimed from the housetops nor is it done otherwise than surreptitiously with every effort to conceal the truth of what is being done. So fraud can rarely if ever be shown by direct proof. It must necessarily be largely inferred from the surrounding circumstances.”

This was a case of alleged omission of material facts in the application. On the facts of record, the court found a material dispute over whether the insured knowingly and intentionally misled the carrier in applying for insurance.

The court also found a dispute over whether the nondisclosure was material.

It stated that a “misrepresentation on an insurance application is material if the ‘information would influence the decision of an issuer in the issuance of a policy, assessing the nature of the risk, or setting premium rates.’” For purposes of summary judgment, the record did not clearly establish that the omission would have influenced its decision to issue the policy, its risk assessment, or its premium rates.

The court stated although the insurer provided an affidavit that it “may have assessed the risk differently, it appears [the insurer] would have issued a substantially similar policy” even with the disclosure; and there was no allegation disclosure would have resulted in higher premiums.

Date of Decision: October 1, 2018

Westport Insurance Corp. v. Hippo Fleming & Pertile Law Offices, U.S. District Court Western District of Pennsylvania CIVIL ACTION NO. 3:15-cv-251, 2018 U.S. Dist. LEXIS 168756 (W.D. Pa. Oct. 1, 2018) (Gibson, J.)

In prior opinions, the court had refused to abstain from hearing the insurer’s claims in federal court, and had issued a discovery decision on underwriting materials and personnel files.  

 

OCTOBER 2018 BAD FAITH CASES: INSURERS INVESTIGATING EVIDENCE OF FRAUDULENT CLAIMS PRACTICES HAD REASONABLE BASIS TO DENY MEDICAL PROVIDERS’ CLAIMS (Philadelphia Federal)

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Medical providers brought bad faith claims under Pennsylvania’s Motor Vehicle Financial Responsibility Law (MVFRL), alleging they were among a targeted set of medical providers whose claims for services were pre-ordained for denial. As set forth in yesterday’s post, the same insurers had brought claims against these same providers for insurance fraud.

The providers argued the insurers violated the “MVFRL by unreasonably and in bad faith denying all Defendants’ treatment claims submitted after the start of Plaintiffs’ … fraud action, without ‘any consideration of the actual treatment provided or injuries suffered by the patients.’”

“Under §1797 of the MVFRL, treble damages are available if the claiming party can prove ‘1) they submitted bills for reasonable and necessary treatment, 2) Plaintiffs did not challenge the bills before a Peer Review Organization (“PRO”), and 3) Plaintiffs’ conduct was ‘wanton’. … ‘Wanton and bad faith may be equated, because intentionally doing an unreasonable act (acting wantonly) is the equivalent of knowingly ignoring a lack of a reasonable belief for a denial (acting in bad faith).’”

The court ruled that the providers’ arguments that all of their claims were funneled to one adjuster was insufficient to show wanton or bad faith conduct. The court further found that the insurers had a reasonable basis to deny the claims; and that the conclusory allegation the insurance fraud assertions were a ruse to fend off legitimate claims was insufficient to make out a case for bad faith.

Rather, the court found the insurers “met their burden in showing there is no genuine dispute that they stopped payment to Defendants for post-litigation bills out of a ‘bona fide belief that Defendants’ bills were fraudulent,’ after ‘observing non-credible patterns in Defendants’ records’ indicating to Plaintiffs that the records had been falsified in order to induce payment.” Summary judgment was granted on this issue, as “[t]he record establishes beyond genuine dispute that Plaintiffs had a basis for denying Defendants’ claims submitted after the commencement of this litigation, when Plaintiffs were on alert that Defendants’ claims could be fraudulent.”

Date of Decision: September 28, 2018

State Farm Mutual Automobile Insurance Co. v. Stavropolskiy, U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NOS. 15-05929 and NO. 16-01374, 2018 U.S. Dist. LEXIS 167425, 2018 WL 4680241 (E.D. Pa. Sept. 28, 2018) (Joyner, J.)

OCTOBER 2018 BAD FAITH CASES: INSURANCE FRAUD CLAIMS NOT TIME BARRED SIMPLY BECAUSE INSURER HAD BEGUN INVESTIGATION OVER TWO YEARS BEFORE FILING SUIT, WHERE ALLEGED FRAUD WAS COMPLEX AND CONCEALED (Philadelphia Federal)

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The insurer brought claims under Pennsylvania’s Insurance Fraud Act, 18 Pa.C.S. § 4117, and common law fraud, among others, seeking to recover allegedly fraudulent payments to medical providers.

The medical providers argued on summary judgment that the statutory fraud claims were time barred. They made extensive arguments concerning a variety of fact patterns to support its claim that the insurer was on notice of the fraud prior to the statute of limitations running, and there should be no tolling. The court analyzed each set of facts closely, but concluded that even though the insurer had been investigating a potential fraud, there was an argument that it did not know there was an actual fraud, and thus tolling might be permitted.

Thus, the court found that “whether the two-year statute of limitations period for Plaintiffs’ statutory insurance fraud claim should be tolled is genuinely disputed. Here, a reasonable factfinder could find that despite Plaintiffs’ reasonable diligence in discovering their injury, they did not discover the alleged fraud until … after reviewing hundreds of Defendants’ records with the assistance of an expert medical reviewer and counsel.” Ordinarily, factual issues about notice and the plaintiff’s diligence are jury questions, and such genuine issues of material fact as to when the statute of limitations runs preclude summary judgment.

The court observed that tolling could be proper if the “Plaintiffs were unable to discover the alleged fraud as a result of the scheme’s complexity and Defendants’ efforts to conceal it.”

On the common law fraud claim, the defendants argued for similar reasons that the insurer could not have justifiably relied on the insureds’ misrepresentations because of its alleged knowledge of the insureds’ fraudulent representations. Again, this made for disputed issues of fact that could not be resolved on summary judgment.

Date of Decision: September 28, 2018

State Farm Mutual Automobile Insurance Co. v. Stavropolskiy, U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NOS. 15-05929 and NO. 16-01374, 2018 U.S. Dist. LEXIS 167425, 2018 WL 4680241 (E.D. Pa. Sept. 28, 2018) (Joyner, J.)

 

SEPTEMBER 2018 BAD FAITH CASES: INSURED’S FRAUD ON SMALL FRACTION OF TOTAL CLAIM RESULTS IN FORFEITURE OF ALL SUMS PAID, UNDER BOTH PENNSYLVANIA COMMON LAW AND NEW JERSEY STATUTORY LAW (Philadelphia Federal)

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The insurer sought damages and rescission under Pennsylvania common law and New Jersey’s Insurance Fraud Prevention Act. There was a fire at the insured’s New Jersey shore home, and allegedly subsequent theft of personal property from the home. The insured made a claim for lost personal property and submitted photographs of the lost items.

After investigation, the insurer concluded that the photographs were taken after the fire loss at issue, at a different home owned by the insured in Philadelphia. Thus, contrary to the insured’s sworn statement, these items were not lost or stolen from her shore home.

The policy provided there was no coverage “if, whether before or after a loss, an ‘insured’ has: 1. intentionally concealed or misrepresented any material fact or circumstance; 2. engaged in fraudulent conduct; or 3. made false statements relating to this insurance.”

The insurer denied the claims for the personal property in the photos on the basis that the insured “intentionally concealed and/or misrepresented material facts concerning [her] claim for personal property, and made false statements regarding the items that were allegedly lost due to the fire or theft.”

The insured brought breach of contract and bad faith claims, which were dismissed for lack of prosecution. The insurer’s fraud claims were raised as counterclaims. The insured did not file any opposition, and by the time the insurer moved for summary judgment, the insured was pro se.

On the Pennsylvania common law fraud claims, the court observed: “It follows, as the night follows the day, that [the insured] has suffered no personal property loss for the items photographed since she still had possession of those undamaged items after the fire and alleged theft.”

The court not only granted relief on the personal property damage claims for the allegedly lost items, but as to the entire loss, including the sum paid for the value of the home. The court stated:

“The record is clear that [the insurer] made payments … in reliance on what it believed at the time to be her truthful representations about her losses as a result of the fire and alleged theft. [The insurer paid] $351,767.17 in dwelling coverage and $10,000 in personal property coverage. As it turned out, there is no genuine dispute about the fact that [the insured] made materially false representations … in an effort to mislead it into paying her for personal property which she did not lose. … Under the terms of the insurance policy, no coverage is provided if the insured either before or after the loss intentionally concealed or misrepresented any material fact, engaged in fraudulent conduct, or made a false statement relating to their insurance. Clearly, [the insured] breached these provisions of the policy.”

Accordingly, we will enter summary judgment … against [the insured] on the counterclaim of common law fraud for $361,767.16, the amount …paid to her.”

The court also granted equitable rescission under Pennsylvania common law fraud principles, and granted relief under New Jersey’s Insurance Fraud Prevention Act. The court noted that the New Jersey statute includes recovery of reasonable investigation expenses, costs of suit and attorney’s fees. However, the court did not appear to award damages for investigation, costs or legal fees.

The Act itself provides for relief against an insured who “(1) Presents or causes to be presented any written or oral statement as part of, or in support of or opposition to, a claim for payment or other benefit pursuant to an insurance policy . . . knowing that the statement contains any false or misleading information concerning any fact or thing material to the claim; or . . . (3) Conceals or knowingly fails to disclose the occurrence of an event which affects any person’s initial or continued right or entitlement to (a) any insurance benefit or payment or (b) the amount of any benefit or payment to which the person is entitled[.] N.J.S.A. § 17:33A-4(a).(1, 3).”

The same facts supporting the common law fraud finding supported this statutory relief.

Finally, the court also awarded over $45,000 in prejudgment interest on the Pennsylvania claims.

Date of Decision: August 21, 2018

Pallante v. Certain Underwriters at Lloyd’s, London, U. S. District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-1142, 2018 U.S. Dist. LEXIS 141427 (E.D. Pa. Aug. 21, 2018) (Bartle, J.)

AUGUST 2018 BAD FAITH CASES: POLICY VOIDED BY JURY ON BASIS OF FRAUDULENT APPLICATION, AND DAMAGES AWARDED TO INSURER (Pennsylvania Superior Court) (Non-precendential)

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The insured sued based on a denial of benefits for a vandalism loss. During the course of pre-suit examinations under oath, the insurer concluded that the policy was obtained by fraud. Thus, in addition to denying the claim, the insurer counterclaimed for common law fraud, breach of contract, statutory insurance fraud and reverse bad faith, based on a false insurance application. The jury ruled for the insurer and voided the policy.

The court awarded damages of over $285,000 to the insurer for claims paid and claim expenses incurred under the now voided policy, subject to a reduction for the return of premiums paid. Post-trial motions were denied, and the verdict was affirmed on appeal.

In upholding the verdict, the Superior Court recognized that fraud required the highest standard of proof known in a civil setting. The jury did not err, however, in finding the standard met. The appellate court found “the record is replete with evidence that [the insured], through an agent, knowingly provided … false, misleading and incomplete information in his insurance application statement.”

The court stated the insured had misrepresented his loss history, failed to disclose a foreclosure complaint, failed to disclose tax judgments against him and failed to reveal “he incurred a federal conviction in the Eastern District of Pennsylvania for filing false corporate tax returns.”

The court also rejected arguments concerning the trial court’s evidentiary rulings. There was no error in allowing evidence relating to a prior conviction for underpaying corporate taxes, and previous tax liens. Nor was there error in allowing testimony from an underwriter to describe underwriting practices during the relevant time period.

Date of Decision: August 15, 2018

Smith v. United States Liability Insurance Company, Superior Court of Pennsylvania, No. 1287 EDA 2017, 2018 Pa. Super. Unpub. LEXIS 2968 (Pa. Super. Ct. Aug. 15, 2018) (Lazarus, Panella, Strassburger, JJ.) (Not precendential)

 

MAY 2018 BAD FAITH CASES: POLICY VOID FOR INSURANCE FRAUD, AND DAMAGES FOR VIOLATION OF INSURANCE FRAUD ACT (Philadelphia Federal)

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After a fire destroyed a property, the insured submitted a claim. Alleging fraud, the insurer sought summary judgment voiding the policy ab initio, and to obtain damages under Pennsylvania’s Insurance Fraud Act, 18 Pa.C.S. § 4117.

The insurer alleged that the insured procured a fraudulent lease solely to obtain insurance on the property. The insurer moved for summary judgment seeking: (1) a judgment declaring the policy void ab initio; (2) a judgment declaring that the insured made fraudulent material misrepresentations; and (3) that the insured is liable for insurance fraud. No opposition was filed, but under the federal rules, the court must still weigh the motion’s merits.

The court found the following facts: (1) that the lease was obtained fraudulently as the insured believed the property would never be occupied by the future tenant, who was the insured’s colleague; (2) that the misrepresentation was material to the insurer’s risk of insuring the property; and (3) that the insured made additional misrepresentations in pursuit of his claim against insurer, alleging entitlement to lost rents.

The court granted the insurer’s motion in its entirety, finding the policy void ab initio and holding the insured liable under the Pennsylvania Insurance Fraud Statute.

Date of Decision: May 3, 2018

Brown v. Certain Underwriters at Lloyd’s, United States District Court, Eastern District of Pennsylvania, Civil Action No. 16-2737, 2018 U.S. Dist. LEXIS 74705 (E.D. Pa. May 3, 2018) (Joyner, J.)

APRIL 2018 BAD FAITH CASES: NO BAD FAITH WHERE INSURER HAD REASONABLE BASIS TO RESCIND POLICY AND DENY COVERAGE (Western District)

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The insured submitted a claim after his home was lost in a fire. Allegedly suspicious circumstances—including that this was the insured’s second home to burn down in less than three years—prompted the insurer to assign the claim to its Special Investigations Unit. In his proof of loss, the insured submitted claims for a Louis Vuitton handbag and a pair of diamond earrings. The insured’s investigator learned the insured’s former fiancé had these items. The insurer consulted with legal counsel, who advised that the insured made a fraudulent material misrepresentation.

Subject to the specific facts at issue, Pennsylvania law allows an insurer to void the entire policy. The insurer filed a declaratory judgment action seeking an order that it owed no coverage to the insured, and the insured brought counterclaims. The insurer successfully moved for summary judgment on the bad faith counterclaims.

The Court ruled that no reasonable juror could find the insurer failed to conduct a reasonable investigation into the claim before denying the claim. Furthermore, the Court reasoned that no reasonable juror could find that insurer lacked a reasonable basis for its denial because the information produced in the insurer’s investigation contradicted the insured’s representations.

The Court stated, “[the insured] failed to present a scintilla of evidence to support his unfounded conjecture that [the insurer] knew of or recklessly disregarded its lack of a reasonable basis for its claim decision.”

Date of Decision: April 11, 2018

American National Property & Casualty Co. v. Felix, U. S. District Court for the Western District of Pennsylvania, Case No. 3:16-cv-147, 2018 U.S. Dist. LEXIS 61020 (W.D. Pa. April 11, 2018) (Gibson, J.)

Thanks to Dan Cummins of the Tort Talk Blog for bringing this case to our attention.

JANUARY 2018 BAD FAITH CASES: NO BAD FAITH AFTER INSURER REFUSED TO PAY BENEFITS DUE TO A PROPER RECISSION OF THE POLICY (Middle District)

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The insured procured a life insurance policy with a benefit of $200,000, and listed his wife (the plaintiff in this action) as the beneficiary. Ten months later, the insured passed away from respiratory failure. Plaintiff submitted a claim to the insurer for the life insurance benefits. The insurer denied the claim, arguing that it had rescinded the policy due to material misrepresentations made by the insured during the application process. The plaintiff then sued the insurer for breach of contract, bad faith, and negligent supervision/vicarious liability. The insurer filed a motion for summary judgment on all claims.

The Court reiterated the Rule 56 summary judgment standard, which is appropriate only where the record contains no genuine issue of material fact. Specifically at issue was whether the insured materially misrepresented his medical history on the policy application.

The Court stated that “Pennsylvania law allows for rescission of an insurance contract when, in applying for a policy, an applicant makes a 1) false representation; 2) which the insured knew was false when made or was made in bad faith; and 3) the representation was material to the risk being insured.” The Court found all three of these elements present.

  1. The insured falsely denied being treated for or diagnosed with cancer, and falsely denied being treated for or diagnosed with any lung disorder.

  2. With regard to the second element (knowledge of falsity), the plaintiff argued that, although the insured signed the application, the application was erroneously completed by a third party. The Court rejected this argument and discussed existing case law that holds “a ‘party is bound to know what he signs[,]’” and “the general rule is that one who signs an application for insurance without reading it, when he might have done so will be held to have read it.”

  3. Lastly, the Court found that the false answers provided by the insured were material, because they “influence[d] the judgment of the insurer in selling the policy and accepting the risk.”

Thus, rescission was proper and the Court granted summary judgment.

Date of Decision: December 18, 2017

Kelly v. Lincoln Benefit Life Co., No. 3:16-cv-1335, 2017 U.S. Dist. LEXIS 207546 (M.D. Pa. Dec. 18, 2017) (Munley, J.)

OCTOBER 2017 BAD FAITH CASES: JURY FINDS POLICY VOID AB INITIO, AND COURT DENIES POST-TRIAL MOTIONS, ORDERS INSURED TO REMIT $285,000 IN LOSS PAYMENTS AND FEES/COSTS INCURRED, AND INSURER TO REMIT ALL PREMIUMS TO INSURED (Philadelphia Common Pleas)

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The insured filed a claim with his insurer after his commercial property was vandalized. The insured’s adjuster estimated the total damage to be $444,325.71, while the insurer’s estimate was $102,302.45.

The insurer initiated an investigation, and the insured sat for multiple examinations under oath. During the course of these examinations, the insurer found several inconsistencies between the insured’s testimony and his initial application for insurance coverage. Nevertheless, the insurer payed out over $150,000 in claim payments, but did not pay the insured’s estimate. The insured filed suit for the insurer’s alleged failure to pay the full claim.

The insurer filed its answer with a new matter and counterclaims. These counterclaims included claims for (1) declaratory relief under 42 Pa. C.S. § 7531; (2) a violation of the Pennsylvania Insurance Fraud Statute; (3) common law fraud; (4) breach of contract; and (5) reverse bad faith. At the conclusion of a jury trial, the jury returned a verdict in favor of the insurer on both the insured’s claim and the insurer’s counterclaims. Post-trial motions were denied. The Court entered judgment on the verdict, declaring the policy void ab initio, and ordered the insured to pay the insurer $285,094.40 ($157,725.09 in previous claim payments under the policy and $127,369.31 for claim related expenses incurred by the insurer). The Court further ordered the insurer to remit $48,467.55 in premiums paid back to the insured.

In reiterating the rule of fraud in entering insurance contracts, the Court stated, “where the execution of a contract of insurance has been induced by fraudulent misrepresentations of the insured, the insurer may secure its cancellation.” During the trial, the insured admitted that he filed several insurance claims over a three-year period, though in his initial application for the instant policy, he only listed one. The insured also admitted to having a foreclosure action filed against him, even though he did not disclose this in the policy application. The insured also admitted he did not disclose a 2011 conviction for filing false tax returns, or a 2008 tax lien on the insurance application.

In light of this evidence, the Court stated that, “[t]he jury, as the fact finder, determined by a standard of clear and convincing evidence that the Policy was procured by fraud with the intent to deceive . . . and the Court properly declared the Policy void ab initio.” The Court also stated that, “the jury was presented with sufficient evidence to determine, under the clear and convincing standard, that [the insured] committed fraud with intent to deceive when he submitted his application for insurance.”

The insured further argued that the Court erred in failing to require the insurer to produce previous claim files relating to the insured. The Court disagreed, stating that the insured failed to obtain a court order commanding the production of these claim files, and that his post-trial attempt to do so was untimely.

Date of Decision: September 27, 2017

Smith v. United States Liability Insurance Co., Philadelphia Court of Common Pleas, June Term 2016 No. 2354, 2017 Phila. Ct. Com. Pl. LEXIS 292 (C.C.P. Phila. Sept. 27, 2017) (Butchart, J.)