Monthly Archive for July, 2008

JULY 2008 BAD FAITH CASES
BAD FAITH CLAIM COUNT DISMISSED WHERE DUPLICATIVE RECOVERY POSSIBLE THROUGH OTHER COUNTS OF THE CLAIM (Western District)

    

In Moss Signs, Inc. v. State Automobile Mutual Insurance Company,  the insured initiated suit against the insurer stemming from alleged accidental damages to the insured’s building including damages arising from vandalism.  The insured was a corporation whose business operations were covered under a commercial insurance policy issued by the insurer. The policy coverage included various accidental damages, including damages arising from vandalism. The insured filed a claim for water damage to its building.  The insurer investigated and based on the report of an expert, denied the claim.  In response the insured provided additional information to suggest that causes other than normal wear and tear, specifically vandalism, contributed to the water damage.  The insurer did not attempt to investigate these allegations of vandalism.  The insured again approached the insurer and asked what evidence the insurer was relying on to dispute the claim.  According to the insured, the insurer admitted that if the damages in question, were caused by and/or contributed to by vandalism, they would be covered under the policy.  However the insurer still refused to cover the damages. 

The insured commenced a multiple count suit in the Court of Common Pleas, Alleghany County. The insurer filed notice for removal to the United States District Court for the Western District of Pennsylvania, which was granted. The insured asserted a bad faith claim in Count II  alleging that the insurer breached its duty to exercise good faith and fair dealing by minimally investigating its claim even after supplemental information was provided about the possibility of vandalism and untimely refused to pay for the loss.   The insurer then filed a motion to dismiss this claim. Count V of the insured’s claim pertains to the Pennsylvania Unfair Insurance Practices Act and Unfair Claims Settlement Practices Regulations.   The insurer argued that the claims should be dismissed because Pennsylvania law does not recognize a separate cause of action for common law bad faith based on a breach of the duty of good faith and fair dealing. The court agreed with the insurer that should the insured eventually establish that it failed to act in good faith, the bad faith statute provides a basis for the insured to recover and therefore the bad faith claims in Count II are duplicative of those stated in Count V. The court found that the insured  successfully stated a breach of contract claim alleging that the insurer failed to comply with the terms of the policy first by initially denying the claim, then by refusing to reconsider its decision.  The court also found that the insured successfully stated a statutorily based claim, alleging that the insurer’s actions have resulted in its liability under the bad faith statute. The insured’s claims go beyond simple refusal of coverage but also allege poor investigation and hiding of information by refusing to explain why it did not accept its evidence of vandalism.   These two claims are independent of each other and the insured could possibly succeed on both.  Therefore the court held that since the insured can achieve its goals without separately alleging a tort claim for breach of an implied covenant of good faith and fair dealing, this claim should be dismissed in its entirety with prejudice.  The court therefore granted the insurer’s motion to dismiss with regard to Count II and IV and denied such in all other respects. 

Date of Decision: April 2, 2008

Moss Signs Inc. v. State Auto Mutual Insurance Co., 2008 U.S. Dist. LEXIS 26770 (W.D. Pa. April 2, 2008) ( Standish, J.)

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JULY 2008 BAD FAITH CASES
INSURER’S MOTION TO DISMISS DENIED WHERE POTENTIAL FOR POLICY COVERAGE EXISTED FOR CLAIMS AGAINST THE INSURED (Philadelphia Federal)

In Silberman & DiFilippo, P.C. v. Westport Insurance Company  the insured initiated suit against the insurer based upon a dispute regarding the applicability of an insurance policy issued by the insurer,  to claims in a lawsuit brought against the insured. The insured law firm had a Lawyers Professional Liability Insurance policy with the insurer.  A civil action was brought against the insured and an employee of the insured. The  civil action involved the alleged certification or acknowledgement by the insured, as a notary public, of a signature on a document that the insured did not witness.  Specifically the claims in the action were against both the insured and an employee of the insured who certified , as a notary, that someone signed something when she did not actually witness him do so.  The insured sent a copy of the complaint to their insurer seeking both defense and indemnity. The insurer informed the insured that it would provide a defense under  reservation of rights and also suggested they consider getting a personal attorney as well.  The insured engaged in settlement discussions of the suit but before final settlement was reached advised the insurer of the settlement negotiations and asked the insurer to contribute to the settlement and/or assume the claim without reservation of rights.  The insurer refused both requests. 

The insured filed suit against the insurer alleging breach of contract, bad faith, and breach of fiduciary duty.  The insurer filed a motion to dismiss the breach of contract claim or in the alternative summary judgment. The insurer argues that this should be dismissed because the Notary Exclusion in the policy precludes coverage for the claims asserted against the insured and the employee of the insured in the civil action. The insured claims that their employee was not an “insured” within the meaning of that term as defined in the policy.  The insured further argues that their employee was not acting within the scope of her employment when she notarized the Guaranty.  The court found that there was a potential for the claims against the insured in the complaint to come within the Policy’s coverage despite the existence of the Notary Exclusion.  The court also found that the insured stated a claim that the insurer breached the duty to indemnify since whether the insured’s employee was actually working within the scope of her employment when she notarized the Guaranty is still in dispute and is critical to the determination of whether the insurer had a duty to indemnify.  Therefore the court denied the insurer’s motion to dismiss in its entirety.

Date of Decision: March 14, 2008

Silberman & Difilippo, P.C. v. Westport Ins. Co., 2008 U.S. Dist. LEXIS 20381 (E.D. Pa. Mar. 13, 2008)( Padova, J.)

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JULY 2008 BAD FAITH CASES
SECOND MOTION TO COMPEL INSURER’S TRAINING DOCUMENTS DENIED BECAUSE COURT FOUND DOCUMENTS WERE SUBJECT TO ATTORNEY-CLIENT PRIVILEGE (Philadelphia Federal)

    

In Santer v. Teachers Insurance And Annuity Association,et al.  the insured filed a second motion to compel the insurer to produce certain training documents. The insured filed a bad faith claim against the insurer and now seeks to obtain materials related to training that the insurer provided to its claims department representatives concerning bad faith insurance practices, insurance litigation in general, and privacy rights.  The insurer objected to the production on the grounds of attorney client privilege.  The court found that the documents are privileged because the insurer’s  in-house attorneys prepared the materials for the purpose of answering their clients questions concerning how statutes and court decisions in the areas of bad faith, insurance litigation and privacy affect the way the insurer handles the claim.  The materials are communications from an attorney to a client that reflect communications from the client to the attorney for the purpose of securing an opinion of law. Therefore the court denied the insured’s second motion to compel production of these documents. 

Date of Decision:  March 25, 2008

Santer v. Teachers Ins. & Annuity Ass’n, 2008 U.S. Dist. LEXIS 23364 (E.D. Pa. Mar. 24,2008) (Golden, J.)

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JULY 2008 BAD FAITH CASES
NO BAD FAITH WHERE INSURER DENIED A CLAIM BASED ON AN UNAMIBIGIOUS EXCLUSION IN THE INSURED’S POLICY RE SURFACE WATER (Third Circuit)

In T.H.E. Insurance Company v. Charles Boyer Childrens Trust, the insured’s bad faith counterclaim was based on the insurer’s denial of coverage for water damage that occurred to its property.  A rainstorm hit the area and caused a sewer pipe to rupture near the bowling alley property.  Water from the broken sewer pipe eventually collapsed the embankment and the water and mud rose to a high level and burst through the bowling alley’s doors.  The damages were alleged to be $2 million.  The insured filed a claim with its insurer for the damages and the insurer rejected the claim based on  a policy exclusion for water damage which includes “surface water” in its list of non-covered causes of damage.

The insurer rejected coverage and filed a complaint seeking a declaratory judgment that the insurance policy it issued to the insured did not cover the damage to the bowling alley.  The insured counterclaimed  and alleged entitlement to coverage, bad faith, and fraud.  Both parties filed motions for summary judgment.  The District Court granted the insurer’s motion for summary judgment.  The insured appealed to the United States Court of Appeals for the Third Circuit and argued that the exclusion within its insurance policy for damage caused by “surface water” should not apply to its claim.

The Third Circuit court found that while the insured had an all risk policy, the policy had a specific provision expressly excluding this “surface water” damage from coverage. Both the water from the broken sewer pipe and any water from the east parking lot constitute “surface water”  within the meaning of the exclusion in the policy.  Since the Third Circuit court found there was no dispute that the surface water caused the loss and the language in the exclusion was not ambiguous, the court found that the damage to the bowling alley resulted from an excluded clause under the policy.  Therefore the Third Circuit affirmed the District Court’s grant of summary judgment to the insurer.

Date of Decision: March 18, 2008

T.H.E. Ins. Co. v. Charles Boyer Childrens Trust, 269 Fed. Appx. 220, 2008 U.S. App. LEXIS 5729 (3d. Cir. Pa. 2008) (Ambro, J.)

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JULY 2008 BAD FAITH CASES
VENUE FOR BAD FAITH CLAIM FOUND TO BE PROPER WHERE INSURER REGULARLY DID BUSINESS (Philadelphia)

    

In Brown v. Allstate Insurance Company Brown brought bad faith and breach of contract claims against the insurer based on the insurer’s failure to cover all the damages that occurred to their property resulting from a storm.  A storm caused damage to Brown’s property located in Chester County , specifically the storm caused several large trees to fall on Brown’s property causing damage to their house, deck, roof and gutters.  Brown had a homeowners policy with the insurer for their property. Brown filed a claim with the insurer and the insurer made payment in the amount of $11,653.05 which covered only a portion of the claims for damages made by Brown. Also Brown alleged that the insurer refused to honor other aspects of the claim, which they believe should be covered by their homeowner’s policy. 

Brown filed a complaint against the insurer for breach of contract, because the insurer failed to reimburse them for the full value of damages sustained to their property because of the storm, and bad faith because of the insurers alleged intentional denial of their claim.  The insurer filed its preliminary objections contending that Philadelphia County was an improper venue for this action.  The trial court granted the insurers’ preliminary objections and transferred the case to Chester County.  Brown then filed a notice of appeal to this decision.

 The court found since this case involved breach of contract and bad faith actions against an insurance company based on an insurance policy, the applicable venue rule would be Pa.R.C.P. 2179(b).  This section 2179(a)(2) specifically states that venue in a personal action against a corporation can lie in a county where the corporation regularly does business.  Since the insurer in this case regularly does business in Philadelphia County , that is a proper venue for this action.  Therefore the court sustained the insured’s appeal and venue should remain in Philadelphia County and not be transferred to Chester County.

Date of Decision: January 9, 2008

Brown v. Allstate Ins. Co., 2008 Phila. Ct. Com. Pl. LEXIS 2 (C.C.P. Philadelphia Jan. 9, 2008)

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JULY 2008 BAD FAITH CASES
INSURER’S MOTION TO DISMISS DENIED BECAUSE COURT FOUND THAT THE INSURED HAD TIMELY FILED THE CLAIM (Middle District)

    

In Bowers v. Nationwide Insurance Company a bad faith claim arose from an automobile accident involving Bowers and another driver.  Bowers was struck by another car and sustained severe and permanent injuries leaving him disabled and unable to work.  Bowers had an automobile policy with the insurer. Bowers suffered damages in excess of $800,000 yet the other driver had liability insurance with a limit of $15,000.  Bowers filed a claim with the insurer for  underinsured motorist benefits.  Bowers sought $500,000 in coverage which was the limit available under his policy.  The insurer offered $35,000.  Bowers agreed to mediate the claim but the mediation was unsuccessful.  Bowers then agreed to settle the claim for $300,000 but again the insurer continued to only offer $35,000.  Bowers then instituted litigation seeking to recover $500,000 in underinsured motorist benefits.  The matter went before an arbitration panel and Bowers was awarded $551,673. 

After obtaining this award, Bowers filed a complaint alleging that the insurer acted in bad faith by failing to conduct a reasonable investigation before engaging in procedures to resolve his claim. Bowers claimed that the insurer’s medical investigation of his condition was insufficient and they relied on an economic expert who was unqualified.  Bowers filed a motion of removal and then filed a motion to dismiss or in the alternative to strike portions of the complaint.  The insurer argued that the claim should be dismissed because the statute of limitations had run on the insurer’s action because it had been more than two years. The insurer claimed that the statute of limitations accrued either in November 2004 or January 2005.  Bowers responded that at the time of the 2004 mediation, he was not aware that the insurer had acted in bad faith. Only at the  hearing in March 2005 did Bowers become aware of the insurer’s potential bad faith.  Therefore Bowers claimed that the statute of limitations accrued when he realized the insurer had made no effort to examine his allegations. 

The court found that the appropriate statute of limitations for a PA statutory bad faith claim is two years.  The court stated that such a claim accrues when the insurer denies liability because this is when the refusal to pay first occurs.  The court found that the insurer’s offer of $35,000 did not amount to a denial of coverage that would cause the statute of limitations to begin to run.  The insurer’s position could not be considered final and therefore the claim did not begin to accrue during the 2004 mediation.  In addition the letter from Bowers counsel in January 2005, which complained of the insurer’s unwillingness to offer more than $35,000 to settle the claim, failed to provide conclusive evidence that the insurer had refused coverage. The court held that the claim had not accrued after either of these incidents but instead accrued at Bowers arbitration hearing in March 2005. The court found that even if the initial claims based on the initial refusal by the insurer were time barred , the insurer’s actions at the arbitration hearing gave rise to a claim for bad faith unrelated to the initial refusal which was not time barred.  Therefore the court found that Bowers claim was timely filed and denied the insurer’s motion to dismiss.  The court also denied the insurer’s motion to strike portions of the complaint because the insurer’s motion to did not provide proper grounds for such a motion and instead alleged incorrect statements of law by Bowers, which the insurer can address when answering the complaint. 

Date of Decision: January 18, 2008

Bowers v. Nationwide Ins. Co.,2008 U.S. Dist. LEXIS 4025 (M.D. Pa. Jan. 18, 2008)(Munley, J.)

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JULY 2008 BAD FAITH CASES
MOTION TO REMAND COMPLAINT TO STATE COURT GRANTED WHERE AT LEAST ONE COLORABLE CLAIM EXISTED AGAINST NON-DIVERSE PARTIES (Middle District)

    

In Kenia v. Nationwide Mutual Insurance Company the insured initiated a complaint against the insurer, for among other things, bad faith relating to the processing of the insured’s claim for underinsured motorist benefits.  Kenia alleged he was injured in a motor vehicle accident and named the insurer, an Ohio corporation with its principal place of business in Ohio, and several alleged claims representatives of the insurer, who were all residents of Pennsylvania. Kenia initiated the action by filing a complaint in the Court of Common Pleas of Luzerne County.  The insurer then filed a notice of removal contending that the United States District Court for the Middle District of Pennsylvania had jurisdiction.  Kenia then filed a motion to remand.  A Magistrate Judge issued a report and recommendation that Kenia’s motion be granted because the complaint states colorable claims against the non diverse parties and therefore complete diversity jurisdiction does not exist. 

If a non diverse party has been joined as a defendant a removing defendant may avoid remand only by demonstrating that the non diverse party was fraudulently joined.  Joinder is fraudulent if there is no reasonable basis in fact or colorable ground supporting the claim against the joined defendant.  However, if there is even a possibility that a state court would find that the complaint states a cause of action against any one of the resident defendants the joinder must be found proper and the federal court must remand back to the state court. 

Kenia argued that there are colorable claims against all the defendants, including the non-diverse claims representatives, and all were properly named in the action.  The Insurer argued that the non-diverse parties were fraudulently joined to defeat federal diversity jurisdiction.  The court found that the insurer did not satisfy its heavy burdent of showing that the non-diverse parties were fraudulently joined. Kenia’s complaint advanced at least one claim, the alleged violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law,  that is not wholly insubstantial or frivolous against the non-diverse parties.  Therefore this court did not have diversity jurisdiction over this action and so the court granted Kenia’s motion to remand.

Date of Decision: January 25, 2008

Kenia v. Nationwide Mut. Ins. Co., 2008 U.S. Dist. LEXIS 5547 (M.D. Pa. Jan. 25, 2008)(Jones, J.)

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JULY 2008 BAD FAITH CASES
INSURER’S MOTION GRANTED TO PRECLUDE INQUIRY INTO POST ARBITRATION CONDUCT OF THE INSURER WITH REGARD TO BAD FAITH CLAIM (Philadelphia Federal)

    

In Kambale Kakule v. Progressive Casualty Insurance Company, the plaintiff initiated suit against the insurer stemming from an automobile accident in which he sustained injuries.  Plaintiff was involved in an automobile accident.  Plaintiff had an insurance policy with the insurer which provided for uninsured motorist coverage. Plaintiff filed a claim with his insurer.  The insurer made an initial offer which plaintiff rejected and then made another offer.  However, plaintiff chose to have his claim evaluated by an arbitration panel. The panel awarded him $500,000 for the claim. The award was molded to fit plaintiff’s policy and the insurer paid plaintiff $100,000, plaintiff’s policy limit.

Plaintiff filed a bad faith and breach of contract action against the insurer. The plaintiff alleged that the insurer acted in bad faith with regard to his claim by frustrating, delaying, and hindering his receipt of benefits and  forcing him to arbitration. Plaintiff claimed that the insurer did not have a reasonable basis to refuse to pay his policy limit before the arbitration panel rendered its decision.   The case is currently in discovery.  The insurer filed a motion for a protective order in the United States District Court for the Eastern District of Pennsylvania with regard to a situation that occurred during the deposition of an employee of the insurer.  The insurer argued that inquiries regarding its post arbitration activity should not be permitted because the questions are irrelevant to the issues in a bad faith claim. The plaintiff claimed that these questions will provide relevant evidence and are reasonably calculated to lead to discovery of admissible impeachment evidence.  The court found that information regarding the insurer’s actions after arbitration is not relevant to the bad faith claim and would not be admissible into evidence.  The court held that there is not a reasonable likelihood that inquiries into post arbitration actions would lead to admissible impeachment evidence against the insurer’s employee.  Therefore the court granted the insurer’s motion for a protective order precluding plaintiff from asking deponents about post arbitration conduct.

Date of Decision: April 30, 2008

Kakule v. Progressive Cas. Ins. Co.,2008 U.S. Dist. LEXIS 35178 (E.D. Pa. Apr. 30, 2008)(Kelly, J.)

 

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JULY 2008 BAD FAITH CASES
INSURER’S MOTION FOR SUMMARY JUDGMENT GRANTED IN PART BASED ON ALLEGATIONS OUTSIDE THE SCOPE OF THE BAD FAITH STATUTE; DENIED AS TO COGNIZABLE CLAIMS (Middle District)

    

In Harrisburg Dairies Inc v. Selective Insurance Company of America,  plaintiff’s claim arose out of the collapse of a milk silo on plaintiff’s property.  Plaintiff purchased a milk silo and obtained an insurance policy for the silo with the insurer.  The plaintiff informed the insurer that the silo had collapsed before.  The insurer conducted a loss risk assessment and did not find any defect in the silo’s design.  Subsequently, the milk silo collapsed and plaintiff filed a claim for the loss.  The insurer hired an engineer who determined the collapse was caused by a design defect in the silo.  The insurer denied the claim because the collapse was caused by a design defect which is specifically excluded from coverage by the terms of the policy. Plaintiff claimed that it did not receive a copy of the additional policy form with this exclusion until after the collapse. 

Plaintiff filed a two count suit against the insurer and alleged that the insurer acted in bad faith. The insurer then filed a motion to dismiss the bad faith claim. The court found that that plaintiff’s complaint was sufficient to state a claim of bad faith.  Plaintiff alleged that the insurer denied the claim on the basis of a policy exclusion not previously disclosed to plaintiff and thus not enforceable.  Also plaintiff alleged that the insurer hired an inspector charged with the duty of classifying plaintiff’s loss under the policy exclusion.  Both of these allegations in the complaint involve unreasonable conduct on the part of the insurer arising out of the insurance policy. Thus to the extent that plaintiff alleges the insurer acted in bad faith by breaching the terms of the policy, this claim is cognizable under the bad faith statute.  However, plaintiff also advanced bad faith allegations outside the scope of the bad faith statute.  Plaintiff claimed that the insurer had an obligation to inform them that the silo was defectively designed or provide coverage for design defects leading to collapse.  This claim is not cognizable under the bad faith statute because it relates to actions prior to issuing the policy, and the bad faith statute only applies to actions arising out of the insurance company’s performance pursuant to the insurance contract.  Therefore the court granted the insurer’s motion for summary judgment in part with regard to the allegations outside the scope of the bad faith statute  and denied the motion in part with regard to the cognizable bad faith claims.

Date of Decision: April 23, 2008

Harrisburg Dairies, Inc. v. Selective Ins. Co. of Am., 2008 U.S. Dist. LEXIS 33381 (M.D. Pa. Apr. 23, 2008)(Rambo, J.)

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JULY 2008 BAD FAITH CASES
INSURED’S ATTORNEY SANCTIONED FOR FAILURE TO COMPLY WITH DISCOVERY REQUESTS WITH REGARD TO BAD FAITH SUIT (Philadelphia Federal)

    

In Wirerope Works, Inc. v. Travelers Excess and Surplus Lines Company, plaintiff insured  filed a bad faith suit against the insurer with regard to the adjusting of plaintiff’s fire insurance claim.  The claim arose from a fire at a manufacturing facility.  The claim was settled in part, yet the insured sought additional damages.  The court permitted an extension in time for discovery in the hope that the parties would be able to discover what damages, if any, were in fact still due under the policy.  The court ordered the insured to provide answers to interrogatories, to produce documents, and to submit to a second deposition.  The insured failed to comply, and the court held that this failure to comply was primarily the fault of the insured’s counsel. Sanctions against the insured’s counsel were given, but the bad faith claim was permitted to proceed. 

Date of Decision: May 14, 2008

Wirerope Works, Inc. v. Travelers Excess & Surplus,2008 U.S. Dist. LEXIS 39469 (E.D. Pa. May 12, 2008)(Curtis Joyner, J.)

 
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