Yearly Archive for 2006

DECEMBER 2006 BAD FAITH CASES
JUDGMENT GRANTED TO INSURER FOR INSURED’S FAILURE TO PRODUCE FAMILY MEMBERS FOR DEPOSITION (Third Circuit)

    

In Murphy v. Federal Insurance Company, Plaintiff insured filed an action against Defendant insurer seeking coverage for damage allegedly caused by a tree falling on his house during Hurricane Floyd.  Plaintiff was the sole owner of the house.  However, Plaintiff’s wife was a named  insured on the homeowner’s policy along with Plaintiff.  After inspection of the property, Defendant questioned whether the damage had been caused in the manner described by Plaintiff.  Defendant refused coverage.  Plaintiff filed suit alleging claims at both common law as well as under the Pennsylvania insurance bad faith statute.  Defendant sought to depose Plaintiff’s wife and sons.  Plaintiff claimed that neither his wife nor his sons had any material knowledge and at the relevant times did not occupy the property.  Plaintiff refused to produce the family members for deposition, even after the Eastern District of Pennsylvania issued an Order compelling the depositions.  The Eastern District of Pennsylvania subsequently granted Defendant summary judgment.  The Third Circuit affirmed.  The Third Circuit found that the failure of Plaintiff to comply with the insurance policy–which allowed examination of insureds and “family members” of an insureds’ household–as well as the failure to comply with discovery orders, prejudiced Defendant.  As to Plaintiff’s claim that his wife and sons had no material knowledge of the matter, the Third Circuit noted that Defendant was not required to take Plaintiff’s word on the matter, but instead was entitled to the depositions under the insurance policy.

Date of Decision:  November 20, 2006

Murphy v. Federal Insurance Company, 2006 U.S. App. LEXIS 28694 (3d Cir. November 20, 2006) (Greenberg, C.J.), http://vls.law.villanova.edu/locator/3d/November2006/051814np.pdf

    

DECEMBER 2006 BAD FAITH CASES
CLAIMS OF BAD FAITH IN ATTEMPTING TO COLLECT OVERPAYMENT FROM INSURED DISMISSED ON SUMMARY JUDGMENT (Philadelphia Federal)

    

In Connolly v. Reliastar Insurance Company, Plaintiff insured went on long term leave from her place of employment due to severe stress and emotional issues.  It was undisputed that the long term disability insurance administrator promptly investigated and paid the insured full benefits.  The policy provided for benefits to be reduced by other income received by the beneficiary, including from Social Security or a retirement fund.  Plaintiff and the insurer entered into a written agreement where the insurer agreed to pay more benefits up front, instead of deducting the anticipated payments from the beginning, with the understanding that once the “other income” sources started to make payments, Plaintiff was to reimburse the insurer for the overpayments.  When Plaintiff began to receive SSDI and retirement benefits, the insurer, through its administrator, wrote three letters informing Plaintiff that she needed to remit the overpaid benefits.  When Plaintiff refused, the administrator placed the claim with a collection agent. 

Plaintiff brought suit against the insurer, its administrator, and the collection agent for breach of contractual and fiduciary obligations, as well as various Pennsylvania statutes including the Pennsylvania bad faith statute.  Plaintiff alleged that Defendants’ conduct in attempting to collect the money was outrageous, harassing, and in bad faith.  Plaintiff claimed that Defendants called before 7:30 a.m. and as late as 10:30 p.m., threatened to come to her residence to collect the money, to have her arrested, to seize her bank account, and to impose liens against her property and assets.  Plaintiff also claimed that Defendants continued to contact Plaintiff directly after she informed Defendants that she was represented by counsel.  The Eastern District of Pennsylvania granted Defendants’ Motion for Summary Judgment. 

As to the claim of Bad Faith under 42 Pa. Cons. Stat. Ann. § 8371, the Court noted that Plaintiff never introduced evidence that Defendants acted in bad faith in investigating, processing and satisfying her disability claim, and without such evidence, the policy could not form the basis of a violation of Section 8371.  The Court rejected Plaintiff’s putative bad faith expert’s opinion as to violations of Section 8371, finding it to add virtually nothing to the matter that was appropriate for the court’s consideration.  Further, as to Plaintiff’s claims of breach of contract and fiduciary obligations, the Court noted that Plaintiff never specified when the alleged threatening calls occurred, but instead averred generally that the threats were made on “several occasions.”  Further, the Court noted that even if the collection agent was overzealous in his efforts to collect the debt, it was undisputed that any contact was limited to one week, and that the isolated and few instances of contact did not rise to a breach of the implied duty of good faith and fair dealing, as a matter of law, in Defendant’s investigation nor the attempts to collect the debt.  Finally, the Court found that violations of the Pennsylvania Fair Credit Extension Uniformity Act, the Unfair Insurance Practices Act, and the Unfair Claims Settlement Practices Regulation do not establish per se bad faith conduct in the investigation or denial of benefits. 

Date of Decision:  November 16, 2006

Connolly v. Reliastar Life Ins. Co., Inc., 2006 U.S. Dist. LEXIS 83440 (E.D. Pa. November 13, 2006) (Joyner, J),

 
        

DECEMBER 2006 BAD FAITH CASES
COURT AWARDS ATTORNEYS’ FEES TO INSURER ON COUNTERCLAIMS IN BAD FAITH CASE (Western District)

In Leach v. Northwestern Mutual Insurance Company, Plaintiff insured filed an action against Defendant insurer seeking payments under a disability insurance policy issued by Defendant.  Plaintiff alleged breach of contract, bad faith and deceptive business practices, while Defendant filed a counterclaim for damages for breach of contract, unjust enrichment, misrepresentation and fraud.  After a jury found in favor of Defendant on all claims and counterclaims, the United States District Court for the Western District of Pennsylvania granted Defendant’s motion for attorneys’ fees, and directed Defendant to submit the amount of fees and costs of suit along with evidence in support thereof.  Defendant’s attorney accordingly filed a petition for fees and costs with supporting affidavits and exhibits, to which Plaintiff filed no objections, nor in any way challenged it before the Court.  In determining the award of attorneys’ fees, the Court used the “lodestar” formula, which requires that it multiply the number of hours reasonably expended on the litigation by a reasonable hourly rate, plus reasonable expenses.  The Court granted Defendant’s petition for an award of attorneys’ fees and costs of suit, and awarded Defendant attorneys’ fees and costs in the total amount of $228,005.38.

Date of Decision:  November 16, 2006

Leach v. Northwestern Mut. Ins. Co., The United States District Court for the Western District of Pennsylvania, No. 01-2364, 2006 U.S. Dist. LEXIS 83624 (W.D. Pa., November 16, 2006) (Cohill, J.)
    

NOVEMBER 2006 BAD FAITH CASES
BAD FAITH CLAIM DISMISSED FOR LACK OF PROSECUTION (Philadelphia)

In Luff v. Allstate Insurance Company, Plaintiff passenger filed an underinsured motorist (UIM) claim against Defendant insurer.  The Philadelphia Court of Common Pleas entered a judgment of non pros.  The Court determined that Plaintiff had no substantive claims to appeal as she failed to file a Pa.R.C.P. 3051 petition for relief from judgment of non pros.  In addition, Plaintiff failed to proceed with due diligence by, among other things, creating delays in the claim and the case by failing to provide medical records and then bringing suit against the parties involved.  Further, Plaintiff appealed a court order directing payment of the first arbitrator’s fee and refused to pay the second arbitrator’s request for advance partial payment.  The Court found that Plaintiff’s reasons for delay were not compelling as she was responsible for moving her case forward, not to mention Defendants were prejudiced as the case was inactive for over four years and the underlying accident had occurred 14 years earlier.

Date of Decision:  October 27, 2006

Luff v. Allstate Ins. Co., Court of Common Pleas of Philadelphia County, May Term 2001, No. 02561, 2006 Phila. Ct. Com. Pl. LEXIS 422 (Phila. Ct. Com. Pl. October 27, 2006) (Moss, J.)

 
    

NOVEMBER 2006 BAD FAITH CASES
MVFRL PREEMPTS BAD FAITH STATUTE (Middle District)

In Cronin v. State Farm Mutual Automobile Insurance Company, Plaintiff alleged that he was injured in a motor vehicle accident and Defendant refused to pay medical and wage loss benefits in bad faith.  Defendant argued that Pennsylvania’s Bad Faith Statute was preempted by the Pennsylvania Motor Vehicle Financial Responsibility Law (“MVFRL”), which provides that an insured seeking first party medical benefits may be entitled to benefits plus interest, as well as costs and attorneys’ fees, if the court finds that treatment was medically necessary.  The United States District Court for the Middle District of Pennsylvania looked to federal case law, which has held that the MVFRL provides the exclusive first party remedy for bad faith denials by insurance companies with respect to claims arising out of automobile accidents.  Thus, the Court held that the MVFRL preempted Pennsylvania’s Bad Faith statute and dismissed Plaintiff’s claim.

Date of Decision:  October 30, 2006

Cronin v. State Farm Mut. Auto. Ins. Co., United States District Court for the Middle District of Pennsylvania, No. 3:06-CV-1081, 2006 U.S. Dist. LEXIS 82139 (M.D. Pa. October 30, 2006) (Caputo, J.)

 
    

NOVEMBER 2006 BAD FAITH CASES
MOTION TO DISQUALIFY CARRIER’S FORMER STAFF LAWYER FROM BRINGING BAD FAITH CLAIM AS PLAINTIFF’S ATTORNEY REJECTED (Middle District)

In Javorski v. Nationwide Mutual Insurance Company, the United States District Court for the Middle District of Pennsylvania considered Defendant’s Motion to Disqualify Attorney Selingo and his law firm based on assertions that continued representation would violate various rules of professional conduct addressing conflict of interest and attorneys as witnesses.  Selingo was Plaintiff’s counsel in Plaintiff’s underlying Under Insured Motorist (UIM) and bad faith claims.  Selingo was also an employee of Nationwide’s Trial Division from 1996 to 2001, when he primarily represented Nationwide’s insureds in UIM claims, but never in bad faith claims.  Following his employment with Nationwide, Selingo went into private practice as a lawyer and handled several claims against Nationwide, pursuing multiple bad faith and UIM actions, none of which led to Nationwide moving for his disqualification. 

First, Defendant argued Selingo should be disqualified based on Pennsylvania Rule of Professional Conduct 1.9, which hinges on whether the matter is “substantially related” to the matter involved in the former legal representation.  Specifically if the lawyer might have acquired confidential information related to the subject matter of his subsequent representation, then Rule 1.9 would prevent the attorney from representing the second client.  Because Selingo never represented Defendant as a lawyer in any bad faith claims, and because Defendant waived disqualification by not previously seeking Selinger’s disqualification as counsel in other similar cases, the Court denied Defendant’s request to disqualify based on Rule 1.9. 

Defendant then argued that Selingo should be disqualified based on Local Rule 43.1 of the Local Rules of the Middle District of Pennsylvania and Rule 3.7 of the Pennsylvania Rules of Professional Conduct, which require withdrawal if an attorney becomes a witness on behalf of a client.  However, the Court narrowly construed the rules to only apply to trials and found that disqualification of the lawyer would be premature at this stage in the litigation.  Finally, Defendant argued that Selingo’s law firm should be disqualified pursuant to Rule 1.10 of the Pennsylvania Rules of Professional Conduct which addresses the imputation of conflicts of interest.  The Court also rejected this argument, as Rule 1.10 relates to conflicts of interest defined in Rule 1.7 and 1.9, and because the Court concluded that Rule 1.9 does not form a basis for disqualification (and Rule 1.7 is not at issue), Rule 1.10 is not applicable.  Accordingly, the Court denied Defendant’s Motion to Disqualify.

Date of Decision:  November 6, 2006.

Javorski v. Nationwide Mut. Ins. Co., United States District Court for the Middle District of Pennsylvania, No. 3:06-CV-1071, 2006 U.S. Dist. LEXIS 81490 (M.D. Pa. November 6, 2006) (Conaboy, J.)

 
    

NOVEMBER 2006 BAD FAITH CASES
BAD FAITH CLAIM DISMISSED FOR FAILURE TO PROSECUTE (Philadelphia Federal)

In Herrman v. Allstate Insurance Company, Plaintiff was a passenger in a car in a 1993 automobile accident, and was insured by Allstate.  Plaintiff sought first-party and uninsured motorist payment from Defendant, which were denied.  After Plaintiff’s 1997 bad faith suit was dismissed by the neutral arbitrator for failure to pay arbitration fees, Plaintiff took no action to move her case forward in federal or state court for seven years.  Defendant filed a Motion to Dismiss as Moot because of Plaintiff’s failure to prosecute the case.  The United States District Court for the Eastern District of Pennsylvania established that courts have inherent, discretional authority to dismiss cases for lack of prosecution to prevent undue delays in the disposition of pending cases and to avoid congestion in the calendars of the District Courts.  The Court considered the possible prejudice to Defendant, namely that even if relevant witnesses could be located, memories of the accident and the insurance investigation had undoubtedly been subject to “inevitable dimming” over the extended period of dormancy in this case.  After determining that no alternative sanctions would be appropriate, the Court granted dismissal pursuant to Federal Rule of Civil Procedure 41(b).

Date of Decision:  August 11, 2006

Herrman v. Allstate Ins. Co., United States District Court for the Eastern District of Pennsylvania, No. 97-CV-4290, 2006 U.S. Dist. LEXIS 57396 (E.D. Pa. August 11, 2006) (Brody, J.)

 

 
    

NOVEMBER 2006 BAD FAITH CASES
BAD FAITH STATUTE SPECIFICALLY NOT SAVED FROM PREEMPTION UNDER ERISA’S SAVINGS CLAUSE (Western District)

In Knochel v. Healthassurance Pennsylvania, Inc., Plaintiffs brought suit alleging breach of contract and bad faith after Defendants denied them insurance coverage for medical treatment.  Defendants removed the case to the United States District Court for the Western District of Pennsylvania, based on federal question jurisdiction, asserting that Plaintiffs were seeking to recover benefits under an employee welfare plan that was controlled exclusively by ERISA.  Defendants then filed a motion to dismiss arguing that Plaintiffs’ claims were preempted by ERISA. The Magistrate Judge determined it was uncontested that the contract under which Plaintiffs were insured was an ERISA plan. 

The Court found the complaint appeared such that the basis of Plaintiffs’ claims for both breach of contract and bad faith were that Defendants improperly denied coverage of medical treatment under the plan by invoking the experimental treatment exclusion.  Accordingly, the Court held that Plaintiffs’ state law claims related to an ERISA plan and were entirely preempted.  However, Plaintiffs argued that their bad faith claim should not be preempted as a whole but only insofar as the punitive damages remedy provided supplants ERISA’s exclusive remedial scheme since a state law is only preempted to the extent that it actually conflicts with federal law.  Plaintiffs also argued that Pennsylvania’s bad faith statute was nevertheless saved from preemption under ERISA’s savings clause.  The Court rejected both arguments after looking to Pennsylvania’s case law, which has held that (1) all state law causes of action are preempted under ERISA when they provide remedies beyond those contained in ERISA itself; and (2) although ERISA contains a “savings clause” whereby a state law will be saved from preemption if it regulates insurance, banking or securities, Courts have specifically found that Pennsylvania’s bad faith statute does not fall within that category.

Date of Decision by Magistrate Judge:  September 25, 2006

Knochel v. Healthassurance Pennsylvania, Inc., United States District Court for the Western District of Pennsylvania, No. 06-426, 2006 U.S. LEXIS 81009 (W.D. Pa. September 25, 2006) (Hay, M. J.)
    

NOVEMBER 2006 BAD FAITH CASES
SPECULATIVE BAD FAITH DAMAGES NOT SUFFICIENT TO PLEAD AMOUNT IN CONTROVERSY MINIMUM AND CASE REMANDED TO STATE COURT (Middle District)

In Hulse v. State Farm Mutual Auto Insurance Company, Plaintiff was involved in a motor vehicle accident as a passenger and subsequently filed a coverage claim.  Defendant refused the claim and Plaintiff brought suit alleging breach of contract and bad faith.  Defendant moved to remove the case to federal court based upon diversity jurisdiction and alleging the amount in controversy would exceed the minimum of $75,000.  The United States District Court for the Middle District of Pennsylvania stated that the burden is on the Defendant to show to a legal certainty that Plaintiff was claiming an amount greater than the statutory diversity minimum.  Due to Plaintiff’s unclear damage pleading, the Court could not make a determination to a legal certainty that the amount would be met by Plaintiff’s claims. 

State Farm attempted to establish that punitive damages would get the case over the minimum.  The District Court looked to case law on awarding punitive damages, and that such damages must be reasonable when compared to the actual harm suffered.  Specifically, the Supreme Court had held that few awards exceeding a single-digit ratio between punitive and compensatory damages will satisfy due process.  In consideration of the reasonableness standard, and without knowledge of the compensatory damages sought, the Court could not determine with any accuracy the potential value of a claim for punitive damages, and therefore could not make a calculation as to the total damages Plaintiff sought to recover.  Thus the Court held that Defendant had not met its burden and granted Plaintiff’s Motion to Remand to the State Court.

Date of Decision:  November 7, 2006

Hulse v. State Farm Mut. Auto. Ins. Co., United States District Court for the Middle District of Pennsylvania, No. 3:06-CV-01080, 2006 U.S. Dist. LEXIS 81495 (M.D. Pa. November 7, 2006) (Caputo, J.)
    

NOVEMBER 2006 BAD FAITH CASES
COURT HOLDS 3RD PARTY HAS NO STANDING TO BRING BAD FAITH ACTION AGAINST AUTOMOBILE INSURER (Philadelphia)

In Haynes v. State Farm Insurance Company, pro se Plaintiff Twila Haynes brought a bad faith suit in Philadelphia’s Municipal Court, alleging that State Farm refused to pay a claim which arose from a car accident.  The case was appealed to Philadelphia’s Court of Common Pleas.  The Court of Common Pleas sustained Defendant’s preliminary objections and dismissed all claims against Defendant with prejudice.   The Court sustained the preliminary objections on the basis that the complaint failed to state upon which relief could be granted.  The Court observed that the Complaint was signed by “Kelly Haynes,” and not Plaintiff Twila Haynes.  The Court remarked that if Twila Haynes was a third-party victim in this case, she had no direct action against the insurer of an alleged tortfeasor unless there was a statutory or policy provision which allowed such an action.  The Court determined that Plaintiff was not a third-party beneficiary of the contract of insurance between the insured and Defendant and she did not have an assignment from the insured which would allow her to pursue a bad faith claim against Defendant.  As the Complaint failed to state a claim upon which relief may be granted, the Court sustained the preliminary objections and dismissed the action with prejudice.

Date of Decision:  October 11, 2006

Haynes v. State Farm Ins. Co., Common Pleas Court of Philadelphia County, April Term 2006, No. 2752, 2006 Phila. Ct. Com. Pl. LEXIS 399 (Phila. Ct. Com. Pl. October 11, 2006) (Glazer, J.)