Monthly Archive for January, 2009

JANUARY 2009 BAD FAITH CASES
BAD FAITH CLAIM DISMISSED BECAUSE THE PLAINTIFF, THE CHILD OF AN INSURED, LACKED STANDING (Philadelphia Federal)

In Aquila v. Nationwide Mutual Insurance Company, the insured husband filed a complaint in United States District Court for the Eastern District of Pennsylvania seeking recovery for the insurer’s libelous, slanderous and bad faith conduct arising out of its investigation of a claim for the replacement cost of a stolen vehicle owned by the insured husband.  The insured alleged that, during the investigation of the claim, the insurer’s investigator harassed and intimidated his former wife and him, in an effort to force them to abandon their claim.  The insured claimed that these actions harmed his reputation, lead to his divorce from his former wife; and deprived his minor son of the comfort and security of his natural parents. 

In response to motions filed by the insurer, the insured amended the complaint twice. In the second amended complaint, the insured asserted a bad faith claim which named only the insureds’ minor son as the plaintiff.  The insurer then filed a motion to dismiss or, alternatively, strike all claims asserted in the second amended complaint. 

The court found that the insured’s minor son, who is the only named plaintiff in the bad faith claim, is not an “insured” under the policy and is not otherwise within the “narrow class of plaintiffs” permitted to bring bad faith claims under the Pennsylvania statute, as he never asserted a  claim against the insurer.  The Court found that mere entitlement to protection under the insurance policy is insufficient to properly confer standing to bring a § 8371 claim.  Therefore the court granted the insurer’s motion to dismiss the bad faith claim. 
Date of Decision: November 13, 2008

Aquila v. Nationwide Mut. Ins. Co., CIVIL ACTION No. 07-2696, 2008 U.S. Dist. LEXIS 93823 (E.D. Pa. Nov. 13, 2008)(Strawbridge, J.)

 

J.M.A.

JANUARY 2009 BAD FAITH CASES
DENIAL OF BENEFITS IS NOT NECESSARY TO TRIGGER BAD FAITH STATUTE (Philadelphia Federal)

In Jeffrey K. Kohn v. Unumprovident Corporation,  a bad faith claim arose based on the handling and investigation of the insured’s disability insurance claim.  The insured was a practicing psychiatrist who was attacked by one of his patients.  Several months after the attack, the insured ended his psychiatry practice. The insured filed for benefits arising out of three disability insurance policies issued to him by the insurer.  The insured submitted the claim to the insurer after closing his practice claiming that he suffered post traumatic stress disorder and other ailments which prohibited him from  effectively providing treatment to his patients. 

The insurer began processing the claim and started an investigation into the insured’s claim. After the insured told the insurer he was also engaged in an antiques business the insurer became suspicious of the insured’s disability claim and engaged in an extensive investigation of the insured’s lifestyle. The insured contacted a separate firm, Insight Investigations, to conduct surveillance of the insured to determine how the disability has affected his daily life.  During the course of Insight’s investigation into the insured’s background, a list of phone numbers that the insured dialed on his cellular phone was obtained by the insurer. 

On March 31, 2000 the insurer denied the insured’s claim for disability benefits.  The insurer alleged that the denial of the claim was based on the failure to provide the psychiatrist’s treatment records.  The insurer and the insured eventually came to an agreement where the insured would accept the psychiatrist’s narrative report.  After the report was received and reviewed by the insurer, the insurer decided to begin the disability payments to the insured eight months after the insured filed his claim. 

By 2002, another individual assumed responsibility for handling the insured’s claim. The insurer began ongoing investigations into the status of the insured’s disability. The insurer notified the insured that it intended to conduct an independent medical examination (IME) , which the insured challenged.  After several communications between the parties, the insurer suspended disability payments to the insured. 

In response to this suspension the insured filed a lawsuit against the insurer in state court.  During the course of discovery in that action, the insured came across the telephone list that the insurer had obtained. After that point, the insurer reinstated the insured’s benefits.  The insured’s payments were suspended for 3 weeks but eventually the insured was paid for all the benefits that were suspended during that period.  Once the parties decided on a psychiatrist to perform the IME, the psychiatrist determined that there were several issues with the insured’s disability status.  Many of these issues were the same as had been identified by the insurer in the months following the filing of the initial claim.  Even though there was concern with the insured’s disability status, the insurer continued to pay for the insured’s disability payments. 

The insured then filed a bad faith and invasion of privacy complaint against the insurer in the United States District Court for the Eastern District of Pennsylvania.  The insured alleged that during the handling of his claim the insurer acted in bad faith.  The insurer filed a motion for summary judgment.  The insurer argued that the bad faith claim must be dismissed because it is undisputed that the insurer paid all benefits to which the insured was entitled under the policy. The insurer claimed that there could be no bad faith under the statute unless benefits have been denied. 

The Superior Court has indicated that the Pennsylvania bad faith statute is not restricted to an insurer’s bad faith in denying a claim. An action for bad faith may also extend to the insurer’s investigative practices.  Even though the insurer has now paid all benefits to which the insured was entitled, the insurer did initially deny and later suspend his payments.  There is significant dispute that still exists as to whether this was done in good faith or bad faith.  Also the investigative tactics used by the insurer may lead a jury to conclude that the insurer’s suspension of benefits and general handling of the insured’s claim was conducted in bad faith, including the acquisition of the phone records.  Therefore the court held that it was improper to grant summary judgment to the insured and that the insurer’s conduct should be considered on the basis of a full factual record developed at a trial.  Therefore the insurer’s motion for summary judgment on the bad faith claim was denied.

Date of Decision: October 31, 2008

Kohn v. Unumprovident, Corp., No. 2:04-cv-4929, 2008 U.S. Dist. LEXIS 101658 (E.D. Pa. Oct. 31, 2008)(Baylson, J.). 

 

J.M.A.

JANUARY 2009 BAD FAITH CASES
MOTION TO DISMISS DENIED WHERE REASONABLE BASIS TO SUPPORT EXISTANCE OF INSURANCE CONTRACT (Middle District)

In Derocher v. Zurich American Insurance Company,  a bad faith claim arose after an employee of the insured  (“plaintiff”) was injured in an automobile accident while driving a vehicle owned by her employer, the insured.  The insured employer had  an auto insurance policy with  Universal.  This policy provided for underinsured or uninsured motorist benefits in the amount of one million dollars. The insurer also provided workers compensation coverage for the insured.  Sometime after the execution of this policy, Zurich (“insurer”) assumed control of Universal and began adjusting claims under Universal’s policies. 

The plaintiff was injured in an automobile accident  while driving a vehicle owned by her employer, the insured. The plaintiff suffered back injuries and had undergone numerous medical procedures in an effort to correct her injuries.  The other vehicle and driver  involved in the accident was uninsured.  The plaintiff pursued uninsured motorist benefits in accordance with the insured’s policy.

Following the accident, the insurer conducted an investigation of the plaintiff’s claims.  On September 2, 2004, the plaintiff proposed settlement of her claim for $375,000.  The insurer made no offer in return until October 30, 2006, when they offered $150,000.  In November 2006, the parties proceeded to arbitration and on November 10, 2006, the arbitrators entered a decision awarding $600,000 to the plaintiff.  The insurer withheld payment of this award when the plaintiff  refused to sign and return a waiver releasing the insurer from any future claims

The plaintiff filed a breach of contract and bad faith complaint and then an amended complaint against the insurer.  The plaintiff alleged that due to the insurer’s conduct, she was deprived the use of funds from the time she presented her claim until December 21, 2006 and that she incurred significant expenses when obtaining counsel, naming an arbitrator, and otherwise pursing her claim against the insurer. The insurer filed a motion to dismiss the plaintiff’s complaint.  The insurer moved to dismiss plaintiff’s bad faith claim on the basis that no insurance contract existed between the plaintiff and the insurer.  The court found that allegations in the Plaintiff’s amended complaint along with Disclosure statements filed by the insurer presented a reasonable expectation that discovery would reveal evidence of an insurance contract between the plaintiff and the insurer.  Therefore the court denied the insurer’s motion to dismiss the plaintiff’s bad faith claim. 

Date of Decision : October 16, 2008

Derocher v. Zurich Am. Ins. Co., No. 3:08-CV-0797, 2008 U.S. Dist. LEXIS 83481 (M.D. Pa. Oct. 16, 2008)( Caputo, J.). 

 

J.M.A.

JANUARY 2009 BAD FAITH CASES
MOTION TO DISMISS BAD FAITH CLAIM GRANTED BECAUSE NO STATUTORY BAD FAITH POSSIBLE IN CONNECTION WITH POLICY PROCUREMENT (Philadelphia Federal)

In Lawrence Padalino v. The Standard Fire Insurance Company,  a bad faith claim arose because of the insurer’s conduct during the policy procurement of the insured’s flood insurance policy for two property lots purchased. The insured purchased two plots of land and decided to purchase a flood insurance coverage policy through the insurer to protect the properties.  Subsequently, a storm flooded the two lots.  The insured submitted a claim to the insurer for the flood damage.  The insurer denied the claim for failure of the insured to submit a documented proof of loss within sixty days of the loss.  The insured then submitted additional information related to their claim.  The insurer responded with a letter giving two reasons for its decision to deny the claim.  First the insurer reasserted the failure to submit documented proof of loss within the allotted time.  Second, the insurer stated that the issuance of payment under the policy was not authorized because the insured’s properties were ineligible for flood insurance under federal law. 

After denial, the insured filed suit in the United States District Court for the Eastern District of Pennsylvania for the insurer’s conduct during policy procurement.  The complaint stated several causes of action, including violations of the Pennsylvania bad faith statute. The insurer filed separate motions to dismiss the complaint.  The insurer stated in its motion to dismiss the bad faith claim that the insured’s claims under the Pennsylvania bad faith statute were barred because the insured failed to allege bad faith in actual claim handling. 

“Bad faith”, as used in the Pennsylvania statute, requires the unreasonable denial of benefits in the insurance context.  Because the insured’s allegations in the complaint only relate to the insurer’s conduct during policy procurement, and in connection with  payment or handling of the insured’s claims, the court found that the insured failed to properly allege bad faith under the statute.  The insured agreed with this and accordingly sought to withdraw the bad faith claim.  Therefore the court granted the insurer’s motion to dismiss the insured’s claim of bad faith. 

Date of Decision: October 15, 2008

Padalino v. Std. Fire Ins. Co., No. 2:08 –cv-0-1553, 2008 U.S. Dist. LEXIS 82068 (E.D. Pa. Oct. 15, 2008) ( Davis, J.).

J.M.A.

JANUARY 2009 BAD FAITH CASES
INSURANCE AGENT FAILS TO OBTAIN DISMISSAL OF INSURER’S 3RD PARTY CLAIM FOR INDEMNIFICATION IN BAD FAITH ACTION (Philadelphia Federal)

In CRS Auto Parts, Inc. v. National Grange Mutual Insurance Company, Turley Insurance Agency, Inc.,  the insured brought suit against the insurer; but, subsequently the  insurer brought a third party claim for indemnification against an insurance agency it used, claiming that it was the agency’s bad faith and fraud that lead to insured’s harm, rather than the insurer’s own acts. 

The insured initially brought an action against the insurer and other defendants for their alleged failure to honor their obligations under the purported policy of workers compensation insurance.  That failure purportedly exposed the insured to workers compensation and general liability claims by employees who were injured and killed, respectively, in a motor vehicle accident that occurred during the course of their employment with the insured.  The insurer filed a declaratory judgment action against the insured in federal court. The court determined in that action that the insured made no misrepresentations to the insurer and the insurance binder was in effect and provided coverage at the time of the accident. The court entered judgment in favor of the insured.  The insurer then filed an appeal which is currently pending.

The insured then filed a breach of contract, bad faith , and fraud claim  in the United States District Court for the Eastern District of Pennsylvania against the insurer. The insurer then filed a third party complaint against an insurance agency, Turley, who was authorized per an agency agreement, to solicit insurance policies on behalf of the insurer. The third party complaint sought indemnification on the grounds that the insurance agency and not the insurer engaged in fraud and/or misrepresentations during the placement of the insured’s insurance policies, asserted that the agency breached their agreement, and also sought contractual indemnity pursuant to the agency agreement between the insurer and the insurance agency. 

The insurance agency filed a motion to dismiss this third party complaint. It argued that Counts I and II are barred by collateral estoppel and res judicata and that Count III is not ripe for judicial decision. 

The Court found that the collateral estoppel did not apply. There were substantial differences in the issues in the declaratory judgment action and the current third party complaint; and that the third element of collateral estoppel, that the previous determination was necessary to the decision, was lacking. Most importantly the Court found that the insurer did not have a full and fair opportunity to litigate its claims against the insurance agency in the Declaratory Judgment action since they were not a party to the prior action.

The Court found that res judicata did not apply.  The mutuality requirement was not met since the insurance agency was not a party to the former action.  Also the agency’s absence from the original litigation did not prevent the court from awarding full and complete relief to the insured in the Declaratory Judgment action. 

Finally the Court found that Count III was ripe for consideration because there were final judgments made in the declaratory action and the pending appeal of those decisions does not deprive them of their finality.  The motion to dismiss the third party complaint brought by the insurer against the insurance agency was denied in its entirety. 

Date of Decision: October 7, 2008

CRS Auto Parts, Inc. v. Nat’l Grange Mut. Ins. Co., Civil Action No. 08-2022, 2008 U.S. Dist. LEXIS 78683 (E.D. Pa. Oct. 7, 2008)(Buckwalter, J.)

J.M.A.

 

JANUARY 2009 BAD FAITH CASES
INSURER GAINS SUMMARY JUDGMENT WHERE IT CONDUCTED ADEQUATE INVESTIGATION AND HAD A REASONABLE BASIS FOR DENYING COVERAGE (Middle District)

In Stacey Smith v. Continental Casualty Company, a bad faith claim arose after the insurer denied coverage for an underlying suit brought against the insured’s agent.

The Smiths brought the underlying complaint against the insured’s agent based on the alleged mishandling of their investments for retirement.  A settlement agreement was reached and the insured’s agent assigned to the Smiths his rights against the insurer. 

The insured’s agent  provided the insurer with notice of the Smith underlying action and requested its coverage position.  The insurer denied coverage to both the insured and the insured’s agent.  The insurer denied coverage to the insured’s agent because it stated that the claim did not fall within the definition of “professional services” in Coverage Part A of the insured’s policy.

The Smiths, as assignees for the insured’s agent, then brought suit for breach of contract and bad faith against the insurer based on the insurer’s denial of coverage for the suit that the Smiths brought against the insured’s agent. The Smiths argue that the insurer’s investigation of the claim was inadequate and amounted to bad faith.  The insured then filed a motion for summary judgment. The insurer argues there was no breach of contract or bad faith in denying coverage because the Smith underlying action brought against the insured’s agent does not fall within the scope of coverage of the insured’s policy and also that it falls under two exclusions in the policy.

The court determined that the insured’s agent’s activities with regard to the Smith claim do not fall within the definition of covered “professional services” under the policy. Therefore, the insurer had a reasonable basis for denying coverage to the insured.   In addition the Smiths did not provide clear and convincing evidence that the investigation of the claim was in bad faith.  Even though the investigation was mainly conducted by outside counsel, the counsel was experienced to evaluate the claim, conducted a sufficient investigation, and the facts do not demonstrate any dishonesty or ill-will in the conduct of the insurer’s investigation of the claims. Also, even though  the insurer failed to contact the insured’s agent prior to denying coverage,  which may be bad judgment, such conduct is not evidence of bad faith.  Therefore, since there was not clear and convincing evidence from which a reasonable jury could find that the insurer denied coverage to the insured’s agent in bad faith, the court granted the insurer’s motion for summary judgment.

Date of Decision: September 30, 2008

Smith v. Cont’l Cas. Co., Civil Action No. 07-CV-1214, 2008 U.S. Dist. LEXIS 76818 (M.D. Pa. Sept. 30, 2008)( Jones, J.)

 

J.M.A

JANUARY 2009 BAD FAITH CASES
NO BAD FAITH FOR FAILURE TO DEFEND AND INDEMNIFY WHERE DECISION WAS IN ACCORD WITH THE INSURANCE POLICY’S SCOPE (Middle District)

In Everett Cash Mutual Insurance Company and David L. Cupp v. Insurance Corporation of Hanover, a bad faith claim arose after the insurer refused to defend or indemnify a member of the insured organization in a civil action pending against him.  The plaintiff is a long time member of the insured Hunting Club.  The Club obtained a Commercial General Liability insurance policy issued by the insurer. The Club was the sole named insured, but coverage was also provided for the club’s executive officers, directors, and stockholders.  Additionally there was an endorsement in the Policy which extended coverage to any of the Club’s members, but only with respect to their liability for the Club’s activities or the activities performed on the Club’s behalf.  On November 6, 2002 the plaintiff club member was hunting turkey and accidentally shot a man in the arm.  The man that the plaintiff club member shot commenced a civil action against him. The plaintiff club member demanded that the insurer defend and indemnify him against the claims under the Club’s policy.  The insurer refused to defend or indemnify him. 

The insured initiated suit and sought a declaratory judgment interpreting the policy to impose upon the insurer the duty to defend and indemnify the plaintiff club member in the civil action brought against him.  Additionally, the insured sought damages for breach of contract and bad faith.  The insurer counterclaimed and sought a declaratory judgment holding that they did not owe a duty to defend, indemnify, or provide coverage to the plaintiff club member for any claims arising out of the civil action brought against him for the hunting accident.  Both parties then filed cross motions for summary judgment. 

The court found that a club member’s personal, recreational hunting trip failed to qualify for inclusion under the policy.  Because the actions for which the plaintiff club member sought defense and indemnification fell outside the scope of the policy’s coverage, the court found that the insurer owed the plaintiff club member no duty to defend or indemnify.  Given the court’s interpretation of the Policy, the insurer did not act in bad faith by virtue of its refusal to defend or indemnify the plaintiff Club member.  Rather the insurer’s interpretation of the Policy was in accord with the contract’s objective scope.  As a result, the insured’s bad faith claim failed and the court granted the insurer’s motion for summary judgment. 

Date of Decision: September 30, 2008

Everett Cash Mut. Ins. Co. v. Ins. Corp., Civil Action No. 1:07-CV-0641, 2008 U.S. Dist. LEXIS 76815 (M.D. Pa. Sept. 30, 2008)(Conner, J.)

 

J.M.A.