Monthly Archive for October, 2008

OCTOBER 2008 BAD FAITH CASES
INSURED’S EXPERT OPINIONS FAILED TO CONSIDER ALL CIRCUMSTANCES OF CLAIM (Philadelphia Federal)

In Allstate Property & Casualty Insurance Company v. Vargas, the insured filed a bad faith counterclaim arising from a car accident in which she sustained injuries.  The insured was injured when her vehicle was side swiped by a cab owned by Ali & Amir Cab Company. At that time, the insured was under an Automobile policy which the insurer issued to a third party.  The defendant was identified on the policy as the spouse of the policyholder.

The policy provided for rental reimbursement coverage, collision coverage and UIM coverage with stacking for two vehicles. On the day of the accident, the defendant insured notified the insurer of the collision. In her recorded statement, the defendant stated she was the policyholder’s fiancée.  Subsequently the defendant filed a third party lawsuit against the Cab Company, and defendant’s attorney notified the insurer that defendant intended to seek UIM coverage under the policy. The defendant insured’s attorney also requested that the claim for UIM coverage be sent to arbitration without delay. 

The insurer’s agent handling the claim advised the defendant insured that $200,000 UIM coverage was available.  For approximately the next year, the insurer prepared for the arbitration proceeding. Before the arbitration, the insurer’s agent determined that the defendant insured and the policyholder were not married at the time of the accident  and  therefore advised the defendant insured that she was not entitled to stacked coverage. Accordingly coverage was limited to $100,000.  The insurer made a tender offer to the defendant insured of $100,000 , the unstacked UIM policy limit. 

The insurer filed a declaratory judgment in the United States District Court for the Eastern District of Pennsylvania  seeking a determination of whether the defendant insured was a “resident spouse” under the Policy so as to entitle her to stacking benefits.  The defendant insured’s third amended answer asserted counterclaims for breach of contract, bad faith and fraud/misrepresentation.  The insurer then filed a motion for summary judgment . 

This court found that the defendant insured was not a Class I insured and therefore was not entitled to stacked benefits, and granted the insurer’s motion.  This court also concluded that the insurer’s payment of $100,000 in unstacked UIM benefits fully satisfied its contractual obligations under the policy. Thereafter the insurer moved to dismiss the remaining counterclaims. 

The defendant insured opposed the insurer’s motion to dismiss and asserted new rationales in support of the bad faith claim. All of the defendant’ insured’s counterclaims were dismissed with the exception of the bad faith counterclaim. The defendant insured contends that the insurer acted in bad faith by:  failing to make a reasonable investigation of her UIM claim, delaying in the investigating her claim, delaying in offering the undisputed unstacked limit on the policy, delaying in providing consent to settle with the Cab company, delaying in filing a declaratory judgment and misrepresenting the amount of coverage available under the policy.  

The defendant insured largely relied on expert opinions to support her bad faith claim.  However the court found that both expert opinions failed to create a genuine issue of fact or provide clear and convincing evidence of bad faith.  Both opinions failed to consider any of the unique facts and circumstances relevant to the insurer’s conduct as to defendant’s insured’s UIM claim.

Date of Decision: August 29, 2008

Allstate Prop. & Cas. Ins. Co. v. Vargas, United States District Court For the Eastern District of Pennsylvania No. 2:06-CV- 3368-LDD, 2008 U.S. Dist. LEXIS 67516 (E.D. Pa. August 29, 2008) (Davis, J.)

 

For a more detailed review of the disposition of the bad faith claim, see other entry of this date:  “BAD FAITH CLAIM DISMISSED: NO CLEAR AND CONVINCING EVIDENCE OF BAD FAITH BY INSURER IN INVESTIGATING AND SETTLING UIM CLAIM”

OCTOBER 2008 BAD FAITH CASES
BAD FAITH CLAIM DISMISSED: NO CLEAR AND CONVINCING EVIDENCE OF BAD FAITH BY INSURER IN INVESTIGATING AND SETTLING UIM CLAIM (Philadelphia Federal)

In Allstate Property & Casualty Insurance Company v. Vargas, the insured filed a bad faith counterclaim arising from a car accident in which she sustained injuries.  The insured was injured when her vehicle was side swiped by a cab owned by Ali & Amir Cab Company. At that time, the insured was under an Automobile policy which the insurer issued to a third party.  The defendant was identified on the policy as the spouse of the policyholder.

The policy provided for rental reimbursement coverage, collision coverage and UIM coverage with stacking for two vehicles. On the day of the accident, the defendant insured notified the insurer of the collision. In her recorded statement, the defendant stated she was the policyholder’s fiancée.  Subsequently the defendant filed a third party lawsuit against the Cab Company, and defendant’s attorney notified the insurer that defendant intended to seek UIM coverage under the policy. The defendant insured’s attorney also requested that the claim for UIM coverage be sent to arbitration without delay. 

The insurer’s agent handling the claim advised the defendant insured that $200,000 UIM coverage was available.  For approximately the next year, the insurer prepared for the arbitration proceeding. Before the arbitration, the insurer’s agent determined that the defendant insured and the policyholder were not married at the time of the accident  and  therefore advised the defendant insured that she was not entitled to stacked coverage. Accordingly coverage was limited to $100,000.  The insurer made a tender offer to the defendant insured of $100,000 , the unstacked UIM policy limit. 

The insurer filed a declaratory judgment in the United States District Court for the Eastern District of Pennsylvania  seeking a determination of whether the defendant insured was a “resident spouse” under the Policy so as to entitle her to stacking benefits.  The defendant insured’s third amended answer asserted counterclaims for breach of contract, bad faith and fraud/misrepresentation.  The insurer then filed a motion for summary judgment . 

This court found that the defendant insured was not a Class I insured and therefore was not entitled to stacked benefits, and granted the insurer’s motion.  This court also concluded that the insurer’s payment of $100,000 in unstacked UIM benefits fully satisfied its contractual obligations under the policy. Thereafter the insurer moved to dismiss the remaining counterclaims. 

The defendant insured opposed the insurer’s motion to dismiss and asserted new rationales in support of the bad faith claim. All of the defendant’ insured’s counterclaims were dismissed with the exception of the bad faith counterclaim. The defendant insured contends that the insurer acted in bad faith by:  failing to make a reasonable investigation of her UIM claim, delaying in the investigating her claim, delaying in offering the undisputed unstacked limit on the policy, delaying in providing consent to settle with the Cab company, delaying in filing a declaratory judgment and misrepresenting the amount of coverage available under the policy.  

The defendant insured largely relied on expert opinions to support her bad faith claim.  However the court found that both expert opinions failed to create a genuine issue of fact or provide clear and convincing evidence of bad faith.  Both opinions failed to consider any of the unique facts and circumstances relevant to the insurer’s conduct as to defendant’s insured’s UIM claim.

With regard to the defendant insured’s bad faith claims, the court found that they were without merit and fell short of clear and convincing evidence of bad faith.  The insurer reasonably investigated and the nature of a UIM claim is inherently and unavoidably adversarial.  While delay is a relevant factor in determining bad faith it does not necessarily constitute bad faith and in this case the evidence was not clear and convincing for bad faith.  The record demonstrates that the insurer encountered significant difficulty and delay in developing a complete file and given the scope of the investigation the period of time was neither unreasonable nor evidence of bad faith.  The insurer diligently investigated the UIM claim. 

The insurer’s delay in providing consent to settle with the Cab Company and in filing a declaratory judgment standing alone does not provide clear and convincing evidence of bad faith and at best constitutes evidence of negligence which does not provide a sufficient legal basis for a bad faith claim.  Also  even though the insurer’s agent initially stated to the defendant insured that she was entitled to $200,000 in stacked UIM and then stated she was only entitled to $100,000, the insurer did not act in bad faith.  The original belief that the defendant insured was entitled to $200,000 in stacked UIM was based upon the agent’s mistaken belief that the defendant insured was married to the policyholder at the time of the accident.  This mistaken belief and failure to discover conflicting statements concerning the defendant insured’s marital status are classic examples of negligence and poor judgment and there is a lack of evidence of  ill will or self interest to have this rise to bad faith. Therefore, the court granted the insurer’s motion for summary judgment dismissing this bad faith counterclaim. 

Date of Decision: August 29, 2008

Allstate Prop. & Cas. Ins. Co. v. Vargas, United States District Court For the Eastern District of Pennsylvania No. 2:06-CV- 3368-LDD, 2008 U.S. Dist. LEXIS 67516 (E.D. Pa. August 29, 2008) (Davis, J.)

OCTOBER 2008 BAD FAITH CASES
SUMMARY JUDGMENT GRANTED WHERE REASONABLE BASIS TO DENY CLAIM BASED ON THE POLICY’S CONCEALMENT PROVISION & INCONSISTENT STATEMENT UNDER OATH (Philadelphia Federal)

In Barrie v. Great Northern Insurance Company, the insured brought a breach of contract and bad faith claim against a moving company and her insurer arising out of the insured’s alleged loss of her jewelry collection. The insured hired a moving company to move her belongings from a one bedroom apartment she shared with three other women to a new home. The insured had a valuable jewelry collection, which she packed inside a wooden box and in a case kept in her dresser in the bedroom of her apartment.  The insured held an insurance policy with the insurer providing itemized coverage in the total amount of $82,425 for 64 listed items of jewelry.  Four days after the move and before she reported the jewelry missing to the police, the insured reported a claim for loss of scheduled jewelry under the policy.  The insured indicated the jewelry was stolen by the moving company and claims the policy limit. 

Under the policy the insurer reserved the right to take an examination under oath of the policyholder, along with family members and any other members of the policyholder’s household.  The policy also stated that in the event of concealment or fraud, coverage will not be provided if the policyholder or any covered person has “intentionally concealed or misrepresented any material fact relating to this policy before or after a loss.”

The insured made various recorded statements and gave testimony that was inconsistent with regard to various material issues. As a result, the insurer disclaimed coverage under the concealment or fraud provision of the policy.

The insured then filed a complaint for breach of contract against the moving company and a breach of contract and bad faith claim against the insurer.  The insurer moved for summary judgment.  With regard to the bad faith claim, the court found that the insurer had a reasonable basis for denying benefits under the concealment provision of the insurance policy.  The insured’s version of the loss was implausible and lacked support.  The insured’s testimony failed to tell a consistent story as to several material issues leading up to the disappearance of her jewelry.  For example, the insured gave several conflicting reports concerning when she asked the movers about the jewelry and whether or not she went back to the apartment to search for it.  At one point, the insured even admitted that her earlier testimony was not true.  The insured did not show bad faith by a clear and convincing standard and therefore the court granted the insurer’s summary judgment motion on the bad faith claim.

Date of Decision: August 28, 2008

Barrie v. Great Northern Ins. Co., United States District Court for the Eastern District of Pennsylvania , No. 06-5320, 2008 U.S. Dist. LEXIS 66029 (E.D. Pa. August 28, 2008) (Stengel, J.),

J.M.A.

OCTOBER 2008 BAD FAITH CASES
DISMISSAL GRANTED DUE TO LACK OF SUBJECT MATTER JURISDICTION AND LACK OF PRIVITY BETWEEN THE PLAINTIFFS AND INSURER (Philadelphia Federal)

    

In Rose v. Allstate Insurance Company, third party plaintiffs brought a bad faith claim against the defendant insurer.  The insurer issued an insurance policy to a woman.  Subsequently, the insured’s automobile, driven by another individual, struck the plaintiff’s daughter’s vehicle causing her death. The insurer did not accept any claim brought by the third party plaintiffs against the insured’s insurance policy. 

The third parties then filed suit against the insurer and alleged that the insurer’s failure to accept their claim contravenes the language of the policy and is in bad faith.  The insurer filed a motion to dismiss this claim arguing that the court does not have subject matter jurisdiction over this case because the amount in controversy is less than $75,000.  The insurer argues that the maximum amount that the plaintiffs can recover from them is $50,000 because the Auto Policy at issue, which the third party plaintiffs attached to their complaint, has a liability limit of $50,000 for each person.  The insurer acknowledges that the complaint alleges bad faith but they argue that the third party plaintiffs do not have standing to assert a bad faith claim against the insurer under state law because there is no privity between the third parties and the insurer.  The bad faith issues were governed by North Carolina law.

The court found that nothing in Plaintiff’s complaint asserts that there is any privity between plaintiffs and the insurer and plaintiffs do not have a judgment against the insured which is required by law in order for a third party to assert a bad faith claim.  Therefore the court found that the plaintiffs’ complaint does not state a claim of bad faith and there is no federal jurisdiction because the amount in controversy is not met.  Therefore the court must grant the insurer’s motion to dismiss.

Date of Decision: August 21, 2008

Rose v. Allstate Ins. Co., United States District Court for the Eastern District of Pennsylvania, No. 08-2620, 2008 U.S. Dist. LEXIS 63953 (E.D. Pa. August, 21, 2008) (Giles, J.)

J.M.A.
    

PHILADELPHIA’S COMMERCE CASE MANAGEMENT PROGRAM -- BAD FAITH CASE SNAPSHOT, OCTOBER 2008

In 2000, the Philadelphia Court of Common Pleas established the Commerce Case Management Program, as a specialized track within its civil division.  Known as the “Commerce Court,” it was created to hear business to business disputes, at a time when litigants and lawyers had lost faith in the ability of Philadelphia’s existing judicial procedures to efficiently and knowledgeably address these kinds of disputes.  The key component was the assignment of specific judges (first two, and later three) to handle all Commerce Court cases, with each individual case being assigned to one of those specialist judges from beginning to end.

The Philadelphia Commerce Court’s jurisdiction is set out in a detailed list of specifically defined categories of cases.  Bad faith insurance disputes between insured businesses and their carriers, or between insurers, fall within that jurisdiction.

Since its inception, insurance related disputes have constituted one of the largest segments of cases heard in the Commerce Court.  The following is a list, with links to opinions and the date of decision, of some Commerce Court opinions issued on insurance bad faith issues:

Chau v. RCA Insurance Group  (March 23, 2004)

Egger v. Gulf Ins. Co.  (March 10, 2004)

M&M High, Inc. v. Essex Ins. Co.  (November 18, 2002)

Foultz v. Erie Ins. Co.  (March 13, 2002)

L.A.

OCTOBER 2008 BAD FAITH CASES
INSURANCE CARRIER PERFORMED REASONABLE INVESTIGATION INTO ALLEGED FORGERY IN DENYING CLAIM (Philadelphia Federal)

    

In Levin v. Transamerica Occidental Life Insurance Company, the insured made claims that the carrier wrongfully paid his sister the full proceeds of their parents life insurance policy, instead of paying him 50%.  There was a fairly incredible history of purported changes to the beneficiaries of the policy.  Two of the change forms, which would benefit plaintiff, were allegedly forged.  There were cross motions for summary judgment, and the court found that the evidence permitted a conclusion that the forms were not authentic.  Thus, there was no breach of contract in failing to pay him.  The court further found that even if there were somehow a contract, there was no fiduciary duty owed to him, and even if there were such a duty, there was no breach as the carrier undertook a proper investigation of the claims.  He could not bring a consumer protection law claim because he had no standing as a non-party to the contract.

On the statutory bad faith claim, the plaintiff asserted that the carrier’s investigation into the proper owner and beneficiary of the insurance Policy was reckless and its decision to allocate the life insurance benefit to the sister lacked a reasonable basis.  It is worth quoting the court on how to handle a claim of bad faith investigation:

“In order to determine whether an insurer acted in bad faith in conducting an investigation into whether an insured was entitled to benefits, courts have looked to the following: Judges of this court have held that an insurance company’s substantial and thorough investigation of an insurance claim, forming the basis of a company’s refusal to make or continue making benefit payments, establishes a reasonable basis that defeats a bad faith claim…To defeat a bad faith claim, the insurance company need not show that the process used to reach its conclusion was flawless or that its investigatory methods eliminated possibilities at odds with its conclusion. Rather, an insurance company simply must show that it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action.”

Here the carrier took reasonable steps to investigate the claim, including hiring a handwriting expert to determine whether there was a forgery or not.  The court also recognized the significance of the fact that the insurer did not refuse to pay on that claim, or attempt to show any self-interest; rather it paid the sister the full $1,000,000.  Thus, the carrier and the sister were granted summary judgment.

Date of Decision:  August 20, 2008

Levin v. Transamerica Occidental Life Ins. Co., United States District Court for the Eastern District of Pennsylvania, No. 05-5172, 2008 U.S. Dist. LEXIS 66243 (E.D. Pa. August 20, 2008) (Joyner, J.)

L.A.
        

OCTOBER 2008 BAD FAITH CASE
POTENTIAL INTEREST, ATTORNEYS’ FEES AND PUNITIVE DAMAGES PREVENTED REMAND OF CASE (Middle District)

    

In Hook v. Progressive Casualty Insurance Company, the court was faced with a motion to remand an action to state court, the issue being whether the claim could exceed $75,000.  In making that determination, the court had to evaluate the potential damage claims under plaintiff’s bad faith count.  The court first focused on the statutory interest, i.e. prime rate plus 3%.  It observed that the statute does not provide a date from which the interest begins to accrue or how to calculate it.  The court projected that it might begin to accrue prior to suit, when the plaintiff’s UIM claim was made to the carrier, and that simple interest applied, although Pennsylvania courts have used compound interest on statutory bad faith claims, citing  Colyer v. Nat’l Grange Mut. Ins. Co., 62 Pa. D.&C. 4th 565, 575 (C.C.P. Centre County 2001).  The court then projected that the statutory punitive damages could be at least double the breach of contract claim, and that the statutory attorneys’ fees permitted could be in the thousands or tens of thousands.  Thus, the claim exceeded $75,000 and the motion was denied.  In applying some of its analyses, it was clear the court was attempting to err on the low side, and if the issue were what interest calculation actually applied and when it started to run to a judgment amount, the analysis could have differed.

Date of Decision:  August 18, 2008

Hook v. Progressive Cas. Ins. Co., United States District Court for the Middle District of Pennsylvania, No. 08-738, 2008 U.S. Dist. LEXIS 68985 (M.D.Pa. Aug. 18, 2008)

L.A.
    

OCTOBER 2008 BAD FAITH CASES
MOTION DENIED BECAUSE OF 6 MONTH DELAY IN QUESTIONING POLICY APPLICATION WHICH WAS USED AS BASIS TO DENY CLAIM ONLY AFTER CLAIM WAS MADE (Philadelphia Commerce)

    

In Erie Insurance Exchange v. Steven Sze and K.S. Autotek, Inc., the corporate insured brought a bad faith counterclaim against its insurer.  The corporate insured’s agent, who was authorized to acquire insurance policies on behalf of the insured, went to the insurer and applied for two commercial policies.  In two different places, the insurance applications asked whether the applicant was ever arrested for any reason and the agent answered no to this question. The insurer relied upon the agent’s representations and issued two commercial policies to the insured. Subsequently the insured placed the insurer on notice of a claim arising out of an alleged break in and theft that occurred.  As a result, the insurer completed a Proof of Loss alleging damages.  The insurer conducted an investigation, part of which was an examination of the insured’s agent under oath.  During his examination, the agent testified that he had been arrested on at least three or four prior occasions.

The insurer then filed suit against the insured and its agent and sought a declaration of the rights and obligations of the parties under the two commercial policies.  The insured and its agent responded by filing three counterclaims one of which was a bad faith claim against the insurer.  The insurer then filed preliminary objections to the counterclaims.  The insured and its agent alleged that the insurer acted in bad faith by permitting six months to elapse without exercising due diligence and investigation relative to the accuracy of their applications for commercial insurance.  Specifically the insured alleged that in denying their claim, the insurer acted with reckless disregard and without a reasonable basis because it accepted insurance premiums under both policies and denied coverage immediately upon learning that a claim was made by the insured. The Philadelphia Commerce Court found that based on these facts, the insured and its agent may be able to prove by clear and convincing evidence that the insurer denied their claim knowing that it lacked a reasonable basis.  The court had previously ruled that the insured had pleaded a claim that the insurer failed to actually cancel the policies because it failed to send a letter of cancellation.

Date of Decision: August 4, 2008

Erie Ins. Exch. v. Sze, Court of Common Pleas of Philadelphia, January Term 2008, No. 4100, 2008 Phila. Ct. Com. Pl. LEXIS 197 (2008) (Abramson, J.)

 
J.M.A.            

OCTOBER 2008 BAD FAITH CASES
FEDERAL COURT WOULD NOT ABSTAIN FROM HEARING BAD FAITH CASE (Western District)

    

In Marchky v. Motorists Mutual Insurance Company, the plaintiffs brought a UIM claim and a bad faith claim for defendant’s unreasonable evaluation of plaintiffs claim and defendant’s unreasonable offer of settlement.  The insurer removed the case to federal court and the plaintiffs sought remand based on Colorado River abstention and/or that the amount in controversy did not exceed $75,000.  The court easily rejected the later argument in a footnote, and rejected the former, fundamentally because there was no parallel state proceeding.

Date of Decision:  August 18, 2008

Marchky v. Motorists Mutual Insurance Company, United States District Court for the Western District of Pennsylvania, No. 08-1058, 2008 U.S. Dist. LEXIS 63364 (W.D.Pa. August 18, 2008)(Schwab, J.)

L.A.
        

OCTOBER 2008 CASES BAD FAITH CASES
INSURANCE POLICY RESCINDED WHERE INSURED MADE FALSE MATERIAL REPRESENTATIONS ON INSURANCE APPLICATION; COURT FINDS REVERSE BAD FAITH (Western District)

    

In  MDL Capital Management Inc. v. Federal Insurance Company, the insured sought damages and a declaration that the insurer should defend and indemnify for alleged wrongdoing regarding investments made on behalf of a client.  The insured had Errors and Omissions and Director and Officer coverage from a carrier, whom the insured’s agent thought was charging too much.  He used the application for renewal with this carrier to seek coverage from other insurance carries. The insurer here agreed to use this application among other information to issue a quote.  The insurer received the application from insured which was signed by the insured’s CEO and Chairman.  The application had a warranty question which asked if the applicant or any of its partners, directors, officers, employees, or trustees had knowledge of any fact or circumstance which might give rise to a claim under the proposed policy.  The insured marked No.  Based on and in reliance on this application, attachments, and other representations, the insurer issued a quote for D&O and E&O insurance coverage.  The insured then sent the insurer an order to bind coverage in accordance with the terms and conditions of their quote. 

Subsequently a suit was brought against the insured and the insured’s directors for mismanagement, negligent misrepresentation, breach of fiduciary duty and breach of contract by their client.  The insured provided the insurer with notice of this suit a few days later.  The insurer sent the insured a letter reserving its right to deny coverage based on the Application Warranty Exclusion and to rescind the Binder and Contemplated Policies because of the insured’s possible misrepresentations.

After one round of motions, an appeal and remand, both parties renewed summary judgment motions. The court found that the Warranty exclusion in the policy application unambiguously bars coverage to the insured. The insured subjectively as well as objectively knew of the problems which might give rise to a claim well before they completed the insurance application. Many facts and circumstances in the record showed the insured’s subjective knowledge of a potential claim.  The most compelling evidence the court found of the insured’s subjective knowledge was a board meeting in which all the insured’s parties were present where a discussion ensued regarding the potential liability of the client’s investment fund. Any reasonable person in the insured’s position would have recognized that the facts and circumstances might give rise to liability. however they answered the Warranty question in the negative. In addition the insured’s CEO was convicted of fraudulent conduct prior to the time of the submission of the application therefore the court found this to be another basis for the Application Warranty Exclusion to apply. 

The court also allowed rescission of the Investment Adviser coverage part of the policy because they found reverse bad faith by the insured..  The insurer proved by clear and convincing evidence that the prospective insured knowingly and in bad faith made a false material representation during the application process. If the insurer had known the true facts and circumstances of the insured’s situation they would not have issued the quote or conditional binder policy.   The court allowed the insurance policy to be rescinded based upon these material false representations that were made in bad faith and with knowledge of their falsities.  Therefore the court granted the insurer’s motion for summary judgment and denied the insured’s motion for summary judgment. 

Date of Decision: July 25, 2008

MDL Capital Mgmt v. Fed Ins. Co., United States District Court for the Western District of Pennsylvania, No. 06-389, 2008 U.S. Dist. LEXIS 57089 (W.D. Pa. July 25, 2008)(Schwab, J.)

J.M.A