Monthly Archive for April, 2009

APRIL 2009 BAD FAITH CASES
BAD FAITH CLAIM DISMISSED BECAUSE POLICY IS COVERED UNDER ERISA (Philadelphia Federal)

In Martellacci v. The Guardian Life Insurance Company, in relevant part, the court granted dismissal of the bad faith claim because: 1) it relates to a disability policy that the court previously determined is covered under ERISA; 2) state laws that relate to ERISA-covered employee benefit plans are pre-empted by ERISA; and 3) the Third Circuit has previously ruled that bad faith claims, specifically, are pre-empted.

The court noted, in dicta, that it interpreted the claim of “bad faith/negligence” as a statutory bad faith claim in order to analyze it in a light most favorable to the non-moving party/insured, who was acting pro se.

Date of Decision:  February 19, 2009

Martellacci v. Guardian Life Ins. Co., CIVIL ACTION No. 08-2541, 2009 U.S. Dist. LEXIS 13773 (E.D. Pa. Feb. 20, 2009)(Rufe, J.)

 

APRIL 2009 BAD FAITH CASES
STATUTE OF LIMITATIONS BARS CLAIM; DISCOVERY RULE, PRIOR COMPLAINT AND NEW ACTS OF BAD FAITH ARGUMENTS FAIL TO PRESERVE CLAIM (Philadelphia Federal)

In CRS Auto Parts, Incorporated v. National Grange Mutual Insurance Company, the court granted the insurer partial summary judgment, in relevant part, on the bad faith claim because it was time-barred under the statute of limitations and under all of the alternatives proposed by the insured.

The case stems from the insurer’s refusal to pay benefits under a workers’ compensation policy because it stated there was no policy in effect at the time of the accident.  A federal court found otherwise in a declaratory judgment action and the insured filed in federal court for bad faith, breach of contract, and fraud.  In mediation, the parties stipulated that the insured’s previously filed state court action would be withdrawn and that there would be a tolling of any statute of limitations defenses to claims raised in that state court action.  The insurer then filed the instant motion for partial summary judgment with its argument for the bad faith claim being based on the statute of limitations.

The insured’s federal complaint did not specify which type of bad faith, statutory or breach of contractual duty of good faith, so the court considered both and held that the claim was time-barred under either.  Statutory bad faith has a limit of two years and contractual has a limit of four years.  The action begins accruing when the harm occurs and the insurer’s letter denying coverage in August of 2003 occurred more than four years prior to the federal case being filed in April of 2008.

The insured proposed three alternative bases for considering the bad faith claim to be timely but all three were rejected by the court.

First, the discovery rule did not apply because the insurer specifically denied coverage in its letter of August of 2003 and the insured admitted knowing this at that time, not at some later date.

Second, the bad faith claim was determined to be insufficiently pled in the state court complaint so the stipulation on tolling the statute of limitations for the state court claims did not apply, and there was nothing to provide notice to the insurer of the subsequent federal bad faith claim.

Again, the court considered both statutory and contractual bad faith claims.  It found that the three counts in the state complaint did not explicitly or implicitly raise statutory bad faith because there was no mention of a lack of a reasonable basis or reckless disregard of such a lack.  The court also found that there was no contractual bad faith allegation under the breach of contract count because there was no mention of a contractual covenant of good faith and fair dealing and there was no allegation against the insurer for breach (as there were against other defendants in that action).  There was nothing in the state complaint to give the insurer notice of the fifty-two allegations of bad faith put forth in the federal complaint.

In the alternative, the insured asserted it would have been allowed to amend its state court complaint even if the statute of limitations had expired but the court held that the amendment would have been a new cause of action, not a mere amplification of facts, so it would have been denied.

Third, the argument that the federal complaint contained separate and on-going counts of bad faith with corresponding new statutes of limitation was rejected because all of the counts related to the original denial of coverage for which the statute of limitations had expired.  The first thirty counts were related directly to the denial and the other twenty-two were related to subsequent litigation but that litigation stemmed directly from the original denial.

The court granted the partial summary judgment, dismissing the bad faith claim, since it found the claim to be time barred and could find no basis for a new statute of limitations to begin.

Date of Decision:  February 2, 2009

CRS Auto Parts, Inc. v. Nat’l Grange Mut. Ins. Co., CIVIL ACTION No. 08-2022, 2009 U.S. Dist. LEXIS 7763 (E.D. Pa. Feb. 3, 2009)(Buckwalter, S.J.)

 

APRIL 2009 BAD FAITH CASES
BAD FAITH EVIDENCE DOES NOT MEET CLEAR AND CONVINCING STANDARD SO SUMMARY JUDGMENT IS GRANTED TO INSURER (Philadelphia Federal)

In Bottke v. State Farm Fire and Casualty Company, the court granted partial summary judgment to the insurer because the insured’s bad faith claim was based on evidence that fell short of the clear and convincing standard.

The insured filed for statutory bad faith and breach of contract in a dispute over the amount to be paid for covered homeowner repairs.  He alleged that the insurer manipulated the estimate by telling the hired estimator that only one pipe, instead of several, had burst and that the estimate was therefore too low.  In support, he relied upon arbitration testimony in which the insured’s public adjustor said the estimator told him that the insurer mentioned only one pipe and that his estimate would have been higher had he known otherwise.  There was no transcript of the arbitration and no one was deposed.

The court found the evidence to be insufficient to prove bad faith because the estimate focused on the result (damage throughout the house) so the cause (number of pipes that broke) was irrelevant; the estimate was based on personal inspection, not upon information supplied by the insurer; and the insured was unable to explain how the alleged misrepresentation adversely impacted the estimate. 

Additionally, the court found that the insurer had acted in good faith by asking the estimator to revisit the house and submit a revised estimate, by paying additional funds, and by paying promptly for plumbing repairs subsequent to the original claim filing.

Without clear and convincing evidence of the insurer manipulating the estimate, the insurer can demonstrate a reasonable basis for its actions and is, therefore, entitled to summary judgment. 

Date of Decision:  January 22, 2009

Bottke v. State Farm Fire & Cas. Co., CIVIL ACTION No. 08-1259, 2009 U.S. Dist. LEXIS 4203 (E.D. Pa. Jan. 22, 2009)(Schiller, J.)

 

APRIL 2009 BAD FAITH CASES
BAD FAITH NOT PERMITTED IN INTERPLEADER ACTION WHERE BAD FAITH BASED ON INSURER'S FAILURE TO PAY PARTY MAKING CLAIM INSTEAD OF INTERPLEADING FUNDS (Third Circuit)

In The Prudential Insurance Company of American v. Hovis, an insurance company interpleaded a $100,000 policy sum into court, where multiple claimants were disputing who had a right to that money.  One of the claimants brought counterclaims against the carrier in not paying him the money.  This included a bad faith counterclaim, among others.  The United States Court of Appeal for the Third Circuit, in a precedential opinion, held that in these circumstances, where the counterclaims were related to the disputed sum paid into court, such counterclaims were not permitted.  As the Court said:  “Put another way, where a stakeholder is allowed to bring an interpleader action, rather than choosing between adverse claimants, its failure to choose between the adverse claimants (rather than bringing an interpleader action) cannot itself be a breach of a legal duty.”

Date of Decision:  January 27, 2009

Prudential Ins. Co. of Am. v. Hovis, No. 07-4406, UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT, 2009 U.S. App. LEXIS 1315 (3d Cir. Jan. 27, 2009) (Ambro, C.J.)

 

APRIL 2009 BAD FAITH CASES
STATUTE OF LIMITATIONS DID NOT ACCRUE WHERE CARRIER RESCINDED ORIGINAL DENIAL OF COVERAGE (Philadelphia Federal)

In Butler v. Scottsdale Insurance Company, the carrier asserted that the insured did not bring its claim until two years and seven months after the carrier denied coverage.  Statutory Bad Faith has a two year statute of limitations and that kind of claim accrues when “the insurer first provide[s] definite notice of a refusal to indemnify or defend.” In this case, however, after the original denial, the carrier rescinded that denial to conduct further investigation.  The court treated this as essentially negating the denial of coverage and the original accrual date.  The Court also observed that the claim breach of the contractual duty of good faith was timely under the 4 year contract statute of limitations.

Dated of Decision:  February 5, 2009

Butler v. Scottsdale Ins. Co., UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA, NO. 08-CV-4597, 2009 U.S. Dist. LEXIS 8461 (E.D. Pa. Feb. 5, 2009) (Davis, J.)

APRIL 2009 BAD FAITH CASES
NO BAD FAITH WHERE INSURER RELIED ON ENGINEERING REPORTS AS TO CAUSE OF COLLAPSE AND POLICY LANGUAGE (Philadelphia Federal)

In Teti v. Phoenix Insurance Company, there was a wall collapse at the insured’s home.  The carrier hired an engineer who identified the collapse as the result of long term deterioration and rainfall, two uncovered causes.  Plaintiff had a report done that concluded another cause, which would have been covered.  Further, the carrier interpreted certain policy language to mean that a retaining wall collapse was never covered; an interpretation disputed by the insured.  The court stated that “outside of its factual dispute surrounding the cause of the collapse and the meaning of Section 8 of the Policy, plaintiff has not provided any evidence of an unfounded or frivolous refusal to pay on the part of Phoenix.  In addition, as to Phoenix’s refusal to defend, plaintiff has offered no evidence of bad motive and contends only that she disagrees with Phoenix’s position as to the cause of the occurrence and the nature of the City’s action.”  Moreover, even if the insured were correct, she “failed to support her claim of bad faith with any evidence to suggest that the insurer acted with self interest or ill will as outlined  in Pennsylvania law. Phoenix’s positions were based upon an engineering report and the wording of the Policy itself; it cannot be said that the decisions were unfounded.” The court granted summary judgment on the bad faith claim.

Date of Decision:  February 3, 2009

Teti v. Phoenix Ins. Co., UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA, CIVIL ACTION No. 08-cv-0983, , 2009 U.S. Dist. LEXIS 8027 (E.D. Pa. Feb. 3, 2009) (Joyner, J.)

 

APRIL 2009 BAD FAITH CASES
BAD FAITH ACTION POSSIBLE IN FIRST PARTY CLAIM, THOUGH CONTRACTUALLY BASED BREACH OF FIDUCIARY DUTY CLAIM IS NOT (Western District)

In Millwood v. State Farm Mutual Automobile Insurance Company, a first party claim was at issue (involving a vandalized car).  On the issue of common law breach of fiduciary duty, the court observed that there is such a contractually based duty, but that it only arises in the context of third party claims where an insurer is handling claims on behalf of its insured against another party.  In a first party case, a fiduciary duty claim is simply redundant with the breach of contract claim.
The court then contrasted the redundant fiduciary duty theory with the bad faith statute.  It stated that statutory bad faith is considered completely independent of the underlying contract claim, and so both may proceed simultaneously.
[Note:  In citing this case for anything more than the proposition that a statutory bad faith claim can be brought along with a breach of insurance contract claim, consider the Pennsylvania Supreme Court’s decision in Toy v. Metropolitan Life Ins. Co.  In that case, the Court indicated that the existence of bad faith is predicated on the denial of a benefit under the insurance contract.  Thus, absent a such a breach of contract, it is arguable that there can be no bad faith.  See the discussion on the blog entry of December 6, 2008. On conflicting views over fiduciary duties, see the blog entry of March 13, 2009.]
Date of Decision:  February 5, 2009.
Millwood v. State Farm Mut. Auto. Ins. Co., UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA, Civil Action No. 08-1698, 2009 U.S. Dist. LEXIS 8415 (W.D. Pa. Feb. 5, 2009) (Standish, J.)

APRIL 2009 BAD FAITH CASES
NO TORT CAUSE OF ACTIONS AGAINST SURETY AKIN TO STATUTORY BAD FAITH CLAIM AGAINST INSURERS (Middle District)

In Western Surety Company v. WGG, Inc., the court observed that while bad faith claims can be brought against an insurer in the nature of a tort (statutory bad faith) or contract (breach of duty of good faith and fair dealing), only the later type of claims exists against a surety.

Date of Decision:  January 29, 2009

W. Sur. Co. v. WGG, Inc., UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA, Civil Action No. 1:07-CV-1551, 2009 U.S. Dist. LEXIS 6220 (M.D. Pa. Jan. 29, 2009) (Kane, J.)

APRIL 2009 BAD FAITH CASES
COURT ORDERS MUDDLED CLAIM TO BE SPECIFICALLY PLEADED (Middle District)

In Dileo v. State Auto Property & Casualty Insurance Company, the plaintiff insured alleged a statutory bad faith claim, and included in his pleaded allegations that Pennsylvania’s Unfair Insurance Practices Act (UIPA) and Pennsylvania’s Unfair Claims Settlement Practices Regulations (UCSPR) had been violated.  The defendant carrier pointed out that there are no private civil causes of action under the UIPA or the UCSPR and sought dismissal.  Plaintiff claimed that he wasn’t pleading these as separate causes of action, but as evidence of bad faith under the statutory claim.  Since both sides agreed a bad faith claim had been stated for purposes of surviving a motion to dismiss in any event, the judge directed the plaintiff to file an amended complaint that specifically set out each separate cause of action actually being pleaded.

Date of Decision:  January 26, 2009

Dileo v. State Auto Prop. & Cas. Ins. Co., UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA, No. 3:08cv1218, , 2009 U.S. Dist. LEXIS 5089 (M.D. Pa.  Jan. 26, 2009) (Munley, J.)

APRIL 2009 BAD FAITH CASES
BAD FAITH CLAIM PREEMPTED BY ERISA (Philadelphia Federal)

In Stout v. American Federation of State, County & Municipal Employees, the court found that the statutory bad faith claim was preempted by ERISA.

Date of Decision: January 21, 2009

Stout v. Am. Fed’n of State, County & Mun. Emples. Dist. Council 33, United States District Court, Eastern District of Pennsylvania, No. 08-4621, 2009 U.S. Dist. LEXIS 4198 (E.D.Pa. Jan. 21, 2009) (Schiller, J.)