Monthly Archive for August, 2006

AUGUST 2006 BAD FAITH CASES
NO BAD FAITH AGAINST INSURER FOR DELAYING SETTLEMENT OF A THIRD PARTY CLAIM EVEN IF THAT DELAY HARMS THE INSURED, SO LONG AS CLAIM IS SETTLED (Philadelphia Federal)

In Fuss Builders-Contractors v. Assurance Company of America, the Federal Court addressed a novel issue of law:  Can an insurance company which settles a third party claim against its insured be liable for bad faith if the carrier unduly delays in reaching that settlement, resulting in harm to the insured?  At least for now, the answer appears to be no.

In addressing a motion to dismiss filed by the insurer, the United States District Court for the Eastern District of Pennsylvania considered the novel issue of whether Pennsylvania law recognizes a bad faith cause of action against an insurer which vigorously litigates a third party claim where liability is clear and its insured wants to settle; delays settlement through negotiations; but ultimately settles within the policy limits before trial.  In early 1999 Mitchell Morgan retained Fuss Builders-Contractors to build an addition to the basement of his residence.  Prior to 1999, Morgan had used Fuss Builders frequently to perform construction work on several of his investment properties.  In August 1999, as result of Fuss Builder’s failure to build a sufficient berm to retain excess water runoff, heavy rains flooded Morgan’s basement and caused $168,000 in property damage.  Fuss Builders notified Defendant insurer that its negligence resulted in a claim by Morgan that was covered under its policy. 

In response to Morgan’s claim, Defendant insurer made a settlement offer of $70,000.  After negotiations failed, Morgan filed suit against Fuss Builders and Defendant insurer retained counsel to represent Fuss Builders.  Allegedly without the Fuss Builders’ knowledge, and despite Fuss Builders’ own admission of negligence and its pleas that the carrier settle the case, counsel answered the complaint, denying all claims of liability.  In addition, during the course of the litigation between Morgan and Fuss Builders, Fuss Builders’ counsel allegedly employed delay tactics, failed to update Fuss Builders and continued to deny Fuss Builders’ liability. The conduct of Fuss Builders’ counsel even led to a court order directing Fuss Builders to: answer discovery requests without objection; appear for depositions in the case; and pay a $750 fine.  Counsel’s purported conduct also led to the exclusion of an expert report which counsel had served untimely; and the denial of a motion for summary judgment which counsel had also filed untimely.  Shortly before trial, Defendant insurer settled the case for $156,240.  

Fuss Builders subsequently filed suit against its own insurer, arguing that due to the protracted litigation before settlement, its business relationship with the original plaintiff, Morgan, was undermined.  Morgan never resumed business with Fuss Builders, which consequently lost substantial revenue.  Fuss Builders argued that its insurer’s conduct was in violation of Pennsylvania’s Bad Faith Statute.  The carrier moved to dismiss Fuss Builders’ claims.  In granting the motion to dismiss, the District Court observed that while the record “paints a disturbing picture of improper conduct” and while the Pennsylvania Superior Court has interpreted the bad faith statute to include delay of payment by an insurer of first party claims, Pennsylvania Courts have not yet recognized a cause of action for an insurer’s delay of payment in the context of a third party claim brought under either the bad faith statute or a contractual bad faith claim.   Nor would he do so in this case.

Date of Decision: August 11, 2006

Fuss Builders-Contractors v. Assurance Company of America, United Stated District Court for the Eastern District of Pennsylvania, No. 06-1182, 2006 U.S. Dist. LEXIS 56742 (E.D.Pa. Aug. 11, 2006) (Schiller, J.),

AUGUST 2006 BAD FAITH CASES
TOO MANY MEN ON THE ICE - COURT BLOCKS ALMOST ALL OF HOCKEY TEAM’S SHOTS ON GOAL IN DISMISSING BAD FAITH CLAIMS (Philadelphia Federal)

In Comcast Spectacor L.P. v. Chubb & Son, Inc., et al., the Philadelphia Flyers sought insurance coverage for performance bonuses paid under contract to hockey player Joni Pitkanen.  Pitkanin had a base salary of nearly $600,000, with potential bonus incentives worth up to $2.6 million.  The bonuses depended on Pitkanen’s achieving certain individual awards or statistical plateaus.  If he achieved two or more bonuses, he would receive the bonuses plus the difference between the total paid under the contract and $2.6 million. 

Comcast Spectacor, the Flyers’ parent company, obtained insurance coverage on the bonuses; which it believed provided broad coverage for any bonus payment.  Apparently unknown to Comcast, the actual policy only triggered coverage if Pitkanen reached two or more of the bonus conditions.  Pitkanen scored on only one of bonuses, and Comcast found it self shorthanded to the tune of the $400,000 bonus; plus a one-time premium payment of $543,750.  Comcast sued its insurance broker, two insurers, an insurance producer and a holding company.  Comcast’s shots on goal failed to find the net, with the Defendants scoring on their Motions to Dismiss.

The United States District Court for the Eastern District of Pennsylvania dismissed nearly all claims against these five companies and one individual, which included among others breach of contract, breach of duty of good faith and fair dealing, bad faith, and negligent misrepresentation.  The Court dismissed all but one Count of negligent misrepresentation against the insurance broker.  There was no breach of contract because there was no documentary evidence that the Flyers wanted coverage for each potential bonus, rather than two or more.  The only potential argument on which Comcast might eventually prevail was based upon alleged oral representations by the broker to Comcast, stating that he would attempt to locate coverage for any possible bonus payment.  The majority of the claims against the non-insurers were dismissed because the defendants, who were not insurers under the policy, could not be liable for breach of contract, bad faith, etc.  The insurers were dismissed from the action because the policy’s express language did not cover the bonus; therefore, no breach or bad faith possible.  Thus, while not shut-out, the contest ended in a route against the home team.

Date of Decision: August 8, 2006

Comcast Spectacor L.P. v. Chubb & Son, Inc., No. 05-1507, 2006 U.S. Dist. LEXIS 55226 (E.D. Pa. Aug. 8, 2006) (Dalzell, J.)

 

AUGUST 2006 BAD FAITH CASES
BAD FAITH CLAIM PROCEEDS: ISSUE OF FACT ON WITHHOLDING THEN PAYING UIM CLAIM; CONTRACT CLAIM WHERE ONLY NOMINAL DAMAGES & NO COMPENSABLE LOSS (Middle District)

In Javorski v. Nationwide Mutual Insurance Company, the United States District Court for the Middle District of Pennsylvania considered two motions filed by the parties:  the insured’s Motion for Remand alleging that the jurisdictional amount in controversy had not been met;  and the insurance carrier’s Motion to Dismiss Plaintiff’s breach of contract and bad faith claims.  After denying the remand, see “Procedural Issues” on this site, the Court denied Nationwide’s Motion to Dismiss the bad faith claim. In terms of the bad faith claim, the Court held that “some discovery is needed regarding Defendant’s handling of Plaintiff’s underinsured motorist claim” and that dismissal was not proper at this stage of the proceedings.” The Court noted the fact that Nationwide denied the underinsured motorist claim initially, but then reversed its position and paid out under the policy; demonstrating potentially questionable claims handling practices.  Finally, the Court rejected Nationwide’s argument that Plaintiff’s breach of contract claim should be dismissed because it paid Plaintiff $285,000 of the $300,000 available under the policy and that the only damages that Plaintiff could assert have already been paid.  The Court stated that “[t]he relaxed federal pleading standard and the fact that at least one Pennsylvania case has held that a cause of action exists even if no compensable loss can be shown because any breach gives rise to at least nominal damages.”

Date of Decision: August 2, 2006

Javorski v. Nationwide Mutual Insurance Company, United States District Court for the Middle District of Pennsylvania, No.: 3:06-CV-1071, 2006 U.S. Dist. LEXIS 53480 (M.D.Pa. Aug. 2, 2006) (Conaboy, J.)

AUGUST 2006 BAD FAITH CASES
COURT DENIES PLAINTIFF’S MOTION FOR REMAND ON BASIS OF JURISDICTIONAL AMOUNT IN LIGHT OF PUNITIVE DAMAGES CLAIM (Middle District)

In Javorski v. Nationwide Mutual Insurance Company, the United States District Court for the Middle District of Pennsylvania considered two motions filed by the parties:  the insured’s Motion for Remand alleging that the jurisdictional amount in controversy had not been met;  and the insurance carrier’s Motion to Dismiss Plaintiff’s breach of contract and bad faith claims.  The Court denied both Motions.  Originally, Plaintiff filed a Complaint in Luzerne County asserting breach of contract and bad faith claims stemming from Nationwide’s handling of her underinsured motorist claims.  Nationwide removed the case and Plaintiff filed a Motion to Remand.  In opposing the Motion to Remand, Nationwide argued that the amount in controversy was satisfied because Plaintiff had requested punitive damages.  The Court agreed and, in denying Plaintiff’s Motion for Remand, opined that “a request for punitive damages will generally satisfy the amount in controversy requirement because it cannot be stated to a legal certainty that the value of plaintiff’s claim is below the statutory minimum.” 

Date of Decision: August 2, 2006

Javorski v. Nationwide Mutual Insurance Company, United States District Court for the Middle District of Pennsylvania, No.: 3:06-CV-1071, 2006 U.S. Dist. LEXIS 53480 (M.D.Pa. Aug. 2, 2006) (Conaboy, J.)

AUGUST 2006 BAD FAITH CASES
DUE TO THE AMBIGUITY IN THE INSURANCE POLICY, AN INNOCENT CO-INSURED COULD RECOVER UNDER THE POLICY OF INSURANCE (Middle District)

In New Jersey Manufacturers Insurance Company v. Carney, the insurance company filed motions to dismiss counterclaims filed by the insured alleging violations of Pennsylvania’s Unfair Trade Practices Act and Consumer Protection Law and breach of contract.  The insurance company issued a joint policy to defendant and his wife, Mrs. Carney.  Mr. Carney’s home, which was titled in his name alone, suffered damage when Mrs. Carney set the home on fire.  The insurance company refused to process the claim based on the fact that the policy was a joint policy and Mrs. Carney caused the fire.  The court held that Mrs. Carney, who is a co-insured, is excluded from coverage by her wrongful intentional act and, therefore, barred from recovering under the policy.  However, Mr. Carney, as a result of the ambiguity in the insurance policy, can be considered an innocent co-insured and, therefore, is entitled to recover one half of the proceeds under the policy.    

Date of decision:  July 26, 2006
New Jersey Mfrs. Ins. Co. v. Carney, United Stated District Court for the Middle District of PA, No. 04-02468, 2006 U.S. Dist. LEXIS 51445 (M.D. Pa. July 26, 2006) (Caputo, J.)

AUGUST 2006 BAD FAITH CASES
NO BREACH OF FIDUCIARY DUTY AND NEGLIGENCE CLAIMS BASED ON GIST OF ACTION DOCTRINE AND MUST PLEAD CONSUMER FRAUD CLAIM WITH SPECIFICITY (Philadelphia Federal)

In Fass v. State Farm Fire and Casualty Company, the federal court granted the insurance company’s motion to dismiss three counts of the insured’s complaint – the Pennsylvania Unfair Trade Practices and Consumer Protection Law claim (“UTPCPL”); the breach of fiduciary duty claim; and the negligence claim.  After the insurance company made payment under the policy as a result of a covered loss, the insured’s public adjuster notified the insurance company that it had either omitted or mis-priced some of the personal property items.  The insurance company responded by advising that a lawsuit, per the policy, must be instituted within one year of the property loss.  The insured instituted the instant action alleging bad faith, violation of the UTPCPL, breach of contract, breach of fiduciary duty (good faith and fair dealing) and negligence.  The court ruled that the insured did not sufficiently plead a UTPCPL claim because the complaint did not allege with particularity the elements of common law fraud and the complaint was unclear as to any allegations relating to the insurance company’s malfeasance.  The court dismissed the insured’s breach of fiduciary duty and negligence claim under the gist of the action doctrine.  

Date of decision:  July 26, 2006

Fass v. State Farm Fire and Cas. Co., United Stated District Court for the Eastern District of Pennsylvania, No. 06-02398, 2006 U.S. Dist. LEXIS 51478 (E.D. Pa. July 26, 2006) (Stengel, J.)