Monthly Archive for November, 2007

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NOVEMBER 2007 BAD FAITH CASES BAD FAITH LAW INAPPLICABLE TO REINSURANCE AGREEMENTS (Middle District)

Published on November 24, 2007 in General Bad Faith and Litigation Issues. Closed

    

In Gaffer Ins. Co. v. Discover Reinsurance Co., the court found that the bad faith statute and common law claim for breach of the implied covenant of good faith did not apply to reinsurance agreements between sophisticated parties.

Date of Decision:  October 10, 2007

Gaffer Ins. Co. v. Discover Reinsurance Co., No. 07-580, 2007 U.S. Dist. LEXIS 75259 (M.D. Pa. October 10, 2007) (Caputo, J.)

L.A.
    

NOVEMBER 2007 BAD FAITH CASES
RESERVES NOT DISCOVERABLE WHERE CLAIM DENIED; ATTORNEY-CLIENT PRIVILEGE NOT WAIVED BY AFFIRMATIVE DEFENSE BUT ADVICE OF COUNSEL NOT RAISED (Philadelphia Federal

Published on November 22, 2007 in Discovery and Evidence. Closed

In Oak Lane Printing & Letter Service v. Atlantic Mutual Ins. Co., defendants stated that they were not asserting an advice of counsel defense.  Plaintiffs claimed that by simply answering the complaint by defendants alleging that they acted reasonably and in compliance with the law that attorney-client communications during the claim adjustment period were discoverable.  The court disagreed, finding that in simply pleading that it did nothing unreasonable, absent an advice of counsel defense, attorney client communications were not put in issue by the carrier on the basis that these communications go to the carrier’s state of mind on why it believed it was acting in good faith.

In addition, the court stated that there was no automatic right to discover reserve information, but this had to be relevant to the claim, e.g., where there is a dispute over the value of the claim or a failure to settle.  Since neither was at issue in this case, discovery of reserves was not permitted.Date of Decision June 13, 2007

Oak Lane Printing & Letter Service v. Atlantic Mutual Ins. Co., No. 04-3301, 2007 U.S. Dist. LEXIS 42923 (E.D. Pa. June 13, 2007) (Tucker, J.)

L.A.
    

NOVEMBER 2007 BAD FAITH CASES
CARRIER PERMITTED TO REMOVE CASE WHERE CONTRACT AND BAD FAITH CLAIMS COULD BE AGGREGATED ON DAMAGES; AND PLAINTIFF HAD DEMANDED $200,000 TO SETTLE (Middle District)

Published on November 22, 2007 in Procedural Issues. Closed

In Ketz v. Progressive Northern Ins. Co., the plaintiff filed a motion to remand after the matter was removed from the Court of Common Pleas of Lackawanna County.  The court found that a plaintiff’s separate claims can be aggregated for purposes of determining the jurisdictional minimum if the claims seek distinct, and not duplicative, damages.  In cases where there are insurance breach of contract and insurance bad faith claims, such aggregation is permitted.  Each count, pleaded separately, asked for in excess of $50,000, thus totaling $100,000; an amount in excess of the $75,000 statutory minimum.  In addition, “when a complaint does not limit its request to a precise monetary amount, [the court] may make an independent appraisal of the value of the rights being litigated in order to determine whether the amount in controversy is satisfied.”  This includes considering settlement demands.  In that case there had been a settlement demand by plaintiff of $200,000.  Based on both these grounds, the defendant had met its burden to establish federal jurisdiction and the motion to remand was denied.

Date of Decision:  June 14, 2007

Ketz v. Progressive Northern Ins. Co., No. 07-731, 2007 U.S. Dist. LEXIS 43245 (M.D. Pa. June 14, 2007) (Munley, J.)

L.A.
    

NOVEMBER 2007 BAD FAITH CASES
NO BAD FAITH CLAIM SUSTAINABLE WHEN NO DUTY TO DEFEND OR COVER EXISTS (Western District)

Published on November 19, 2007 in General Bad Faith and Litigation Issues. Closed

  

In Gardner v. State Farm Fire & Cas. Co., the underlying plaintiff brought claims against the carrier, based upon an assignment from the insured.  Plaintiff was injured in front of the home rented to her by the insured.  The court upheld a rental exclusion as unambiguous in denying the breach of contract claim.  Thus, as there was no underlying basis to require defense and coverage, there could be no bad faith. Plaintiff had apparently attempted to argue bad faith during the investigation because the adjuster had no experience with an exception to the exclusion and did not ask for a legal opinion.  The court did not analyze this.

Date of Decision:  June 12, 2007

Gardner v. State Farm Fire & Cas. Co., 05-1055, 2007 U.S. Dist. LEXIS 42471 (W.D. Pa. June 12, 2007) (Lancaster, J.)

L.A.
    

NOVEMBER 2007 BAD FAITH CASES
FILING OF ACTION COULD NOT RELATE BACK TO EARLIER WRIT OF SUMMONS FILED IN INSURED’S NAME PRIOR TO ASSIGNMENT OF CLAIMS BY INSURED (Philadelphia Federal)

Published on November 19, 2007 in Procedural Issues. Closed

    

In Gardner v. State Farm Fire & Cas. Co., the carrier denied coverage on April 4, 2003.  The insured assigned his claims against the insurer to the underlying plaintiff in June 2005.  However, prior to that assignment, the underlying plaintiff filed writ of summons in the insured’s name on April 8, 2005 in the Court of Common Pleas.  A complaint was filed in federal court in September 2005 by the underlying plaintiff against the insurer after an assignment of those claims.  The applicable statute of limitations on a statutory bad faith claim is 2 years, which begins to run at the time the claim is denied.  The court found that the federal claim could not relate back to the April 8th writ because there had been no mistake in naming the plaintiff under Federal Rule 15(c)(3), and that the earliest the federal claim could relate back would be to June 2005, two months after the statute of limitations had passed.

Date of Decision:  June 12, 2007

Gardner v. State Farm Fire & Cas. Co., 05-1055, 2007 U.S. Dist. LEXIS 42471 (E.D. Pa. June 12, 2007) (Lancaster, J.)

This decision was affirmed at

Gardner v. State Farm Fire & Cas. Co., No. 07-3051, 2008 U.S. App. LEXIS 15560 (3d Cir. Pa. July 22,2008)(Padova,  J., sitting by designation), which is summarized in the August 2008 entries in this blog.

 
    

NOVEMBER 2007 BAD FAITH CASES NO BAD FAITH WHERE CARRIER COMPLIED WITH TERMS OF POLICY (Philadelphia Federal)

Published on November 15, 2007 in Coverage Issues. Closed

    

In Scardino v. American International Ins. Co., the insureds claimed that the policy required the carrier to pay for the construction of a replacement home as being in the same location, where the newly constructed home had a different address in the same area.  The District Court rejected this reading of the policy, as well as the argument that the carrier had a duty to value the home for coverage purposes prior to any loss; again on the basis that the policy language did not so provide.  Because the first premise to a bad faith claim is that the insurer lacked a reasonable basis for denying benefits, and it was reasonable to deny the claims in this matter since the claims matter were not covered under the policy, there could be no bad faith.

Date of Decision:  November 2, 2007

Scardino v. American International Insurance Company, No. 07-282, 2007 U.S. Dist. LEXIS 81567 (E.D. Pa. November 2, 2007) (Schiller, J.)

L.A.
    

NOVEMBER 2007 BAD FAITH CASES
FAILURE TO PAY NOT VIOLATION OF UNFAIR TRADE PRACTICES AND CONSUMER PROTECTION LAW; TENANTS NOT COVERED UNDER AN OWNERS’ POLICY UNLESS STATED (Philadelphia Federal)

Published on November 6, 2007 in General Bad Faith and Litigation Issues. Closed

    

In Suggs v. Nationwide, the owners and tenants of a residential building that collapsed filed a breach of contract and bad faith action arising out of the owners’ insurance policy.  Both sets of plaintiffs also filed a claim for violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (“the CPL”).  The tenants sought damages for the loss of personal property in the collapse.  The owners did not reside at the premises.  Nationwide moved to dismiss the tenants’ claims because they were not covered under the policy.  While the owners stated they intended for the policy to cover the personal property of the tenants, the Eastern District of Pennsylvania Court ruled in favor of Nationwide.  The Court reasoned that the policy did not state that the tenants were covered (unlike a “guest” or servant,” who would be covered), and the policy had used the word “tenant” elsewhere.  The Court therefore entered judgment against the tenants

Nationwide also argued that judgment should be entered in their favor on plaintiffs’ claims under the CPL.  They argued that an insurer’s failure to pay on a claim constitutes merely nonfeasance (failure to perform a contractual duty), whereas a violation under the CPL requires malfeasance (improper performance of a contractual obligation).  The plaintiffs had alleged that Nationwide violated the CPL by, “failing to give equal consideration to paying the claim as to not paying the claim, failing to objectively and fairly evaluate plaintiffs’ claim, asserting policy defenses without a reasonable basis in fact, compelling plaintiffs to institute this lawsuit to obtain policy benefits that defendant should have paid promptly and without the necessity of litigation, acting unreasonably and unfairly in response to plaintiffs’ claim, and otherwise unreasonably and unfairly withholding policy benefits justly due and owing…”  The Court did not state what particular section (if any) of the CPL plaintiffs’ relied on.  The Court found that even though some of plaintiffs’ allegations might constitute malfeasance (such as asserting policy defenses without a reasonable basis in fact), plaintiffs did not present any evidence of said malfeasance.  Therefore, the Court dismissed the CPL claims. 

Date of Decision: October 16, 2007

Johnny Suggs, et al. v. Nationwide Insurance Company, United States District Court for the Eastern District of Pennsylvania, 2007 U.S. Dist. LEXIS 76641 (E.D. Pa. Oct. 16, 2007) (Kaufmann, J.).

 

J.H.
    

NOVEMBER 2007 BAD FAITH CASES
INSURER BREACHED CONTRACT BECAUSE DEFINITION OF DISABILITY WAS AMBIGUOUS, BUT DID NOT ACT IN BAD FAITH BECAUSE ITS INTERPRETATION WAS REASONABLE (Western District)

Published on November 5, 2007 in General Bad Faith and Litigation Issues. Closed

    

In Meyer v. CUNA, the insured filed a class action lawsuit on behalf of himself and similarly situated individuals in Pennsylvania, seeking damages for (among other things) breach of contract and bad faith for the insurers refusal to pay claims filed under credit insurance disability policies.  The case hinged on whether the policy language that defined “disability” after the first twelve months was ambiguous.  The policy stated that after twelve months, “the definition [of disability] changes and requires the Member to be unable to perform any of the duties of his occupation, or any occupation for which he is reasonably qualified.”  (emphasis added). 

The insured argued that the inclusion of the word “or” (in bold above) necessitated the presence of two alternatives; that is, a person would be disabled under the policy if he is unable to perform his job, or any other job for which he is reasonably qualified.  The insurer argued that the policy should be interpreted to mean that a person is disabled after twelve months only if he/she is unable to perform “any occupation”; in essence, the insurer argued for the Court to replace the word “or” with “and.”  The insurer also argued that their interpretation is consistent with industry standards, and similar policy language has been construed in the insurer’s favor in other cases.

The Court, finding the policy language susceptible to multiple interpretations, ruled that due to its ambiguity it must be construed against the insurer.  Therefore, upon consideration of plaintiff’s breach of contract claim, the Court entered judgment in favor of the plaintiff and similarly situated Pennsylvanians whose claims were denied under the insurer’s “any occupation” definition.  The Court distinguished the cases cited by the insurer because the policy language was not identical and because most of those cases did not hinge on the interpretation of “disability.”  Furthermore, the Court found the evidence of industry standard irrelevant because it told the Court nothing of the insured’s intentions, and because there was no reason why the insured would know about industry standards.  The Court also noted that the industry standards actually help to show the language was ambiguous, because the insured chose not to use the model (or standard) language in its policy.  Conversely, the Court entered judgment against the plaintiffs on their bad faith claim, reasoning that it was not bad faith to deny coverage because the insurer’s interpretation of the policy language was equally plausible (if not more so) as the insured’s interpretation. 

Date of Decision:  September 28, 2007

James D. Meyer, et al. v. CUNA Mutual Group, Cv-03-602, United States Court for the Western District of Pennsylvania, 2007 U.S. Dist. LEXIS 72833 (W.D. Pa. Sept. 28, 2007) (Conti, J.)

J.H.