Monthly Archive for July, 2007

JULY 2007 BAD FAITH CASES
COURT FINDS THAT INSURANCE BAD FAITH DOES NOT APPLY IN THE ANNUITY CONTEXT WHERE NO FAILURE TO PAY A CLAIM (Commonwealth Court)

    

In Bercosky v. Township of Cumberland, the defendant purchased an annuity policy for Mr. Carter, now deceased, the defendant’s sole police officer.  At the time, Mr. Carter was designated the beneficiary of the policy.  Years later, a second police officer was hired.  A portion of the value of Mr. Carter’s annuity was rolled into a policy benefiting this second police officer.  Mr. Carter filed this action claiming that defendant had no right to transfer money and that the insurance company that issued the policy acted in bad faith because it offered misleading statements and failed to answer questions regarding the pension. 

Regarding the bad faith claim, the trial court observed that bad faith in the insurance context means failure to pay a claim when there is no reasonable basis for doing so.  The legislature provided an incentive to counter an insurer’s urge to delay payment with § 8371 by providing for interest, fees and punitive damages where bad faith conduct is shown.  The court determined, however, that this bad faith analysis did not apply in this annuity situation, where there were allegations that the insurer failed to answer inquiries and made misleading statements; not that it failed to pay a claim.

Date of Decision: July 9, 2007.

Bercosky v. Township of Cumberland, Commonwealth Court of Pennsylvania, No. 1759 C.D. 2006, 2007 Pa. Commw. LEXIS 371 (Pa. Commw. July 9, 2007) (Smith-Ribner, J.)

 
    

JULY 2007 BAD FAITH CASES
COURT GRANTS INSURER’S MOTION FOR SUMMARY JUDGMENT ON STATUTE OF LIMITATIONS (Middle District)

    

In Davidson v. Brethren Mutual Ins. Co., the insured filed a claim for benefits under her insurance policy after her home was destroyed by a fire.  The insured alleged that the insurer did not provide her with appropriate temporary housing or shelter, as per her insurance agreement, for a period of 309 days.  The insurer ultimately denied the insured’s claims ten months after the loss.  The insurer had continued to accept the insured’s premiums after the fire, until her claim was ultimately denied.  The insured obtained counsel and requested a copy of the policy within twelve months of the fire.  The insurer allegedly withheld the documents, however, until after twelve months of the date of loss.  The insured brought the instant action setting forth a declaratory judgment seeking recovery of policy benefits seventeen months after the fire loss.  The insurer then filed a motion for summary judgment, arguing that the insured’s claims are barred by a one-year suit limitation clause in the insurance policy which requires that any suit be filed within one year of the date of loss.

In response to the motion for summary judgment, the insured argued that the insurer waived its right to assert this defense by its conduct and that the insurer’s actions in denying her claim were in bad faith.  The court, however, sided with the insurer.  Because the insurer was under no duty to affirmatively inform the insured of the one-year limitations provision and because the insured had sufficient time to initiate an action prior to the expiration of the limitations period, the court granted the insurer’s motion for summary judgment.  While the court sympathized with the insured, it determined that even if the insurer acted in bad faith in denying the claim, it would not change the legally required result.

Date of Decision: July 5, 2007.

Davidson v. Brethren Mutual Insurance Company, United States District Court for the Middle District of Pennsylvania, No. 3:05-1929, 2007 U.S. Dist. LEXIS 48525 (M.D. Pa. July 5, 2007) (Mannion, J.).
    

JULY 2007 BAD FAITH CASES
COURT GRANTS INSURER’S MOTION FOR SUMMARY JUDGMENT AS CLAIMS WERE BASED ON POLICY FORMATION AND NOT A DENIAL OF BENEFITS (Middle District)

    

In Novinger Group, Inc. v. Hartford Ins., Inc., the insureds filed suit against the insurer because they alleged that they were “baited and switched” into purchasing the policies by insurer’s salesperson.  The salesperson executed insureds’ insurance applications during which time insureds alleged that they were misled and misinformed regarding the salesperson’s expertise and advising abilities.  The insureds further alleged that the salesperson “created a false sense of urgency.” 

The insureds commenced the instant action raising claims of a violation of Pennsylvania’s Insurance Bad Faith Statute among others.  The insurer then filed a motion to dismiss the complaint.  The court decided that the motion will be granted in part and denied in part.  The court granted the insurer’s motion to dismiss with respect to the claims of insurance bad faith.  Because the insureds’ allegations of bad faith relate to alleged misrepresentations and omissions that occurred prior to formation of the insurance contract and because the insureds did not allege that the salesperson denied them benefits under the policy, the court held that the insureds failed to state a claim for insurance bad faith.  As a result, the insurer’s motion to dismiss was granted with respect to this claim.

Date of Decision: May 16, 2007.

Novinger Group, Inc. v. Hartford Insurance, Inc., United States District Court for the Middle District of Pennsylvania, No. 1:06-CV-0188, 2007 U.S. Dist. LEXIS 35779 (M.D. Pa. May 16, 2007) (Connor, J.).
    

JULY 2007 BAD FAITH CASES
NO BAD FAITH ADJUSTMENT OF INSURED’S LOSS WHEN THE VALUE OF THE LOSS WAS LEGITIMATELY SUBJECT TO DISPUTE (Third Circuit)

    

In Kane v. U-Haul International, Inc., Plaintiff filed a bad faith claim against her insurer alleging that it improperly valued the damage to her property.  Plaintiff had  stored property in a rental storage unit and the roof on the storage facility leaked and subsequently caused damage to her property.  Plaintiff claimed that the property damage was approximately $120,000 but refused to allow inspection of the damaged property for a significant period of time.  Eventually, an inspection was permitted and the adjuster for the insurer valued the loss at approximately $3,600.  Soon after suit was brought, the insurer tendered the remaining amount under the policy paying out a total of $15,000.  The District Court dismissed Plaintiff’s bad faith claim.  On appeal, the United States Court of Appeals for the Third Circuit affirmed holding that the insurer had not acted in bad faith since the value of the loss was debatable and that the insurer could not have settled the claim until Plaintiff had permitted an inspection of the property.

February 7, 2007

Kane v. U-Haul International, United States Court of Appeals for the Third Circuit, No. 05-5002, 2007 U.S. App. LEXIS 2987 (3rd Cir. Feb. 7, 2007) (Fisher, J.)

 
    

JULY 2007 BAD FAITH CASES
COURT DENIES EACH PARTY’S SUMMARY JUDGMENT MOTION REGARDING BAD FAITH CLAIM FOR CLEARLY NEGLIGENT COVERAGE DENIAL (Western District)

    

In McPeek v. Travelers Cas. and Surety Co. of America, the insureds sought a declaration of their right to the advancement of their defense expenses in a related action and alleged that the insurer’s refusal to advance their defense expenses constituted bad faith.  First, the court determined that coverage should have been extended to the insureds based on the unambiguous language of the policy.  Next, the court looked to whether or not the decision to deny coverage constituted bad faith.  Both parties sought summary judgment on the bad faith issue and relied on the deposition testimony of the claims examiner who denied coverage.
The court noted that at the summary judgment stage, the plaintiff must demonstrate bad faith by clear and convincing evidence, and the court is required to view the record in the light most favorable to the non-moving party.  As a result of these standards, the court determined that the insurer’s denial of coverage was negligent by clear and convincing evidence, but when viewed in the light most favorable to the non-moving party, a jury could conclude that the denial of coverage was simply due to error.  Therefore, the summary judgment motions filed by each party were denied.

Date of Decision: June 27, 2007

McPeek v. Travelers Casualty and Surety Company of America, United States District Court for the Western District of Pennsylvania, No. 2:06-cv-114, 2007 U.S. Dist. LEXIS 46628 (W.D. Pa. June 27, 2007) (McVerry, J.).        

JULY 2007 BAD FAITH CASES
BAD FAITH CLAIM PREEMPTED BY ERISA (Third Circuit)

    

In Scheibler v. Highmark Blue Shield, the United States Court of Appeals for the Third Circuit was confronted with the issue of a bad faith claim due to an alleged failure to provide health benefits to an employee’s husband.  In Scheibler, an employee and her husband filed a complaint against an insurer alleging wrongful denial of payment for surgery performed on an employee’s husband.  The complaint alleged, among other things, a claim for bad faith denial of insurance pursuant to 42 Pa. Cons. Stat. §8371.  The District Court, however, dismissed plaintiff’s complaint holding that plaintiff’s claims were preempted by §502 (a) and §514 (a) of ERISA.  On appeal, the Third Circuit affirmed the dismissal of Plaintiff’s complaint in its entirety and held that state law claims are preempted by ERISA if the claim could have been subject to civil enforcement under §502 (a). 

June 5, 2007

Scheibler v. Highmark Blue Shield, U. S. Court of Appeals for the Third Circuit, No. 06-1277, 2007 U.S. App.  LEXIS 12977 (3rd Cir. June 5, 2007) (Hardiman, J.)

 
    

JULY 2007 BAD FAITH CASES
INSURER CONDUCTED THOROUGH INVESTIGATION AND MADE A REASONABLE FINDING (Philadelphia Federal)

    

In Smith v. Westfield Insurance Company, on a motion for summary judgment, the U.S. District Court for the Eastern District of Pennsylvania ruled that the insurer had not acted in bad faith.  The insureds noticed water penetrated to the interior of their house and believed that it was due to faulty construction.  The insureds, three years after the incident, filed a claim under their homeowners’ policy.  The insurer denied the claim and the insured filed the instant action alleging breach of contract and bad faith.  The court found that the insurer had not acted in bad faith for several reasons.  First, the insurer, upon receiving notification of the loss, promptly retained an inspector.  Second, the insured’s statement was taken.  Third, the insurer reviewed the insured’s expert report which detailed damage only to the exterior of the house; damage to the exterior was plainly excluded under the faulty construction provision of the insurance policy.  Based on the insurer conducting a thorough investigation and making a reasonable finding, the court granted the insurer’s motion for summary judgment.   

Date of Decision: June 15, 2007

Smith v. Westfield Ins. Co., United States District Court for the Eastern District of Pennsylvania, No. 06-3077, 2007 U.S. Dist. LEXIS 43996 (E.D. Pa. 2007) (Robreno, J.)

 
        

JULY 2007 BAD FAITH CASES
REVERSING ITSELF, FEDERAL DISTRICT COURT PREDICTS THAT PENNSYLVANIA LAW WOULD PERMIT BAD FAITH BREACH OF CONTRACT CLAIMS FOR FIRST PARTY BENEFITS (Philadelphia Federal)

    

In Kakule v. Progressive Casualty Insurance Company, the plaintiff sustained personal injuries due to an automobile accident and filed a claim with the defendant insurer for uninsured motorist benefits.  The insurer offered $18,000 to settle the claim which was rejected by plaintiff.  Plaintiff then submitted the claim to arbitration which returned a decision in favor of plaintiff for an amount in excess of his policy coverage.  Due to the award, the insurer paid plaintiff $100,000 which was the maximum amount available under the policy.  Plaintiff subsequently filed a complaint against the insurer alleging claims for breach of contract for bad faith and statutory bad faith pursuant to 42 Pa. Cons. Stat.  §8371.  The District Court initially dismissed plaintiff’s claim for breach of contract for alleged bad faith, however, plaintiff filed a motion for reconsideration and upon further review of the dismissal, the District Court reversed its ruling. 
The Court was confronted with the question of whether Pennsylvania law permits a first party breach of contract claim for bad faith.  In its analysis, the District Court relied heavily upon the decision rendered by the Pennsylvania Supreme Court in Birth Center v. St. Paul Co., Inc.,  which held that even though Pennsylvania has a statutory scheme for insurer bad faith, the scheme does not alter the contract remedy also available to the insured under common law.  The question still remained, however, whether the holding in Birth Center extends to all insurance claims including first party claims or whether the holding was limited to third party situations similar to the one in which the Birth Center decision was rendered.  After a review of Pennsylvania law, the District Court predicted that the Birth Center ruling would apply to first party insurance claims as well as third party claims for bad faith breach of contract. 
Having concluded that plaintiff could bring a breach of contract claim for first party benefits for bad faith conduct under Pennsylvania law, the District Court then confronted the issue as to whether plaintiff could recover damages for emotional distress for contractual bad faith.  Although not clear from the Birth Center decision, the District Court also predicted that under certain circumstances (which the Court did not delineate) Pennsylvania law would permit recovery of emotional distress damages in breach of contract claims.
Date of Decision:  June 20, 2007     
Kakule v. Progressive Casualty Insurance Company, U.S. Dist. Court for the Eastern District of Pennsylvania, No. 06-4995, 2007 U.S. Dist. LEXIS 44942 (E.D. Pa. June 20, 2007) (Kelly, J.)

JULY 2007 BAD FAITH CASES
INSURER’S INTERPRETATION OF “REGULAR USE” EXCLUSION WAS REASONABLE (Western District)

    

In Liberty Mutual Ins. Group and Prudential Prop. & Cas. Ins. v. Johnson, the Western District of Pennsylvania interpreting the “regular use” exclusion, found that the exclusion applied and the insurer properly denied coverage.  The insureds filed a declaratory action contending that the insured was not entitled to underinsured motorist benefits.  The insured was involved in an accident while a passenger in a “crash truck” during the course of his employment with PennDot as a member of a cleaning crew.  For four of the five nights of his work week, the insured drove or rode as a passenger in either the “wash truck” or “crash truck” during the nightly cleaning.  Every workday, comprising the majority of his shift, he drove or rode in a PennDot vehicle. 

The insurer denied coverage under the “regular use” exclusion which provides that payment will not be made for bodily injury sustained while using or occupying a non-owned motor vehicle that is furnished or made available for the regular use by you.  The insured filed the instant action seeking a declaratory judgment that the insured is not entitled to underinsured motorist benefits.  The insured counterclaimed asserting bad faith.  The court finding that PennDot provided the “crash trucks” for systematic and repeated use by the cleaning crew and that the insured used a “crash truck” on a repetitive, predictable schedule and they were readily obtained by him.  The court held that the “regular use” exclusion applied because the insured’s use of the “crash truck” was a principal and habitual part of his job and no reasonable jury could find that his use was casual, occasional or incidental.  Based on a reasonable and correct interpretation of “regular use”, the court dismissed the insured’s bad faith counterclaim.

Date of Decision: June 14, 2007

Liberty Mutual Ins. Group. and Prudential Prop. & Cas. Ins. Co., United States District Court for the Western District of Pennsylvania, 2:06-cv-03, 2007 U.S. Dist. LEXIS 43278 (E.D. Pa. 2007) (McVerry, J.).