Monthly Archive for May, 2009

MAY 2009 BAD FAITH CASES
COURT DISMISSES CONTRACT ON BASIS OF CONTRACTUAL LIMITATIONS; BAD FAITH NOT SUFFICIENTLY PLED (Philadelphia)

In Dolley v. Allstate Insurance Company, the Court of Common Pleas of Philadelphia dismissed the insured’s breach of contract claim on the basis that the insured failed to bring the claim within the one year contractual period required to bring any claim.  As to the bad faith count, the Court did not rely on that contractual term, but after stating the standard for showing bad faith, and that it must be proved by clear and convincing evidence, found that the insured failed to plead facts sufficient to establish that the insurer “acted in bad faith, with improper motive, or recklessness by denying Plaintiff’s claim.”  This decision was not in Philadelphia’s Commerce Court.  

Date of Decision:  January 13, 2009

Dolley v. Allstate Ins. Co., April Term 2008, No. 577, COURT OF COMMON PLEAS OF PHILADELPHIA COUNTY, PENNSYLVANIA, 2009 Phila. Ct. Com. Pl. LEXIS 27 (C.C.P. Phila. Jan. 13, 2009) (DiVito, J.)

MAY 2009 BAD FAITH CASES
INSURER CANNOT ACT IN BAD FAITH WHEN RELYING ON INSURANCE DEPARTMENT REGULATION (Philadelphia Federal)

In Harnick v. State Farm Mutual Automobile Insurance Company, the insured argued that the insurer’s proration of deductibles recovered by insurers through subrogation was improper as it did not make the insured whole, and that the insurance department regulation permitting such proration is beyond the department’s powers.  The court rejected that argument.  As the insurer acted in reasonable reliance on a valid statute, it could not be said to have acted in bad faith. 

Date of Decision:  March 6, 2009

Harnick v. State Farm Mut. Auto. Ins. Co., CIVIL ACTION NO. 08-5752, UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA, 2009 U.S. Dist. LEXIS 43126 (E.D.Pa. Mar. 6. 2009) (McLaughlin, J.)

MAY 2009 BAD FAITH CASES
DOCUMENTS SUBPOENA UPHELD ON ABUSE OF PEER REVIEW ORGANIZATION PROCESS IN BAD FAITH CLAIM; HOWEVER, INSURED TO BEAR PART OF COST OF PRODUCTION (Western District)

In Miller v. Allstate Fire & Casualty Insurance Company, the court enforced the subpoena for records related to a bad faith claim, but ordered costs to be shared by or shifted to the insured.

A nonparty moved for a protective order to avoid complying with certain document subpoenaed in connection with a bad faith claim.  The consulting company that provided the medical reviewer who evaluated the insured’s file asserted that:  four requests for documents were irrelevant; three were privileged under HIPAA; that producing any of them could portray the company in a false light; and that production would be overly burdensome.  The company argued on the last two issues that having to comply could put the company out of business.

The court found that all of the requests fell within the scope for discovery (relevant, not privileged, and admissible or reasonably calculated to lead to admissible evidence) under Fed. R. Civ. P. 26(b)(1).  They all were relevant to the insured’s bad faith claim that alleges abuse of the Peer Review Organization (“PRO”) process; and the information requested was not privileged under HIPAA privacy regulations because the consulting company is not a covered entity (health plan, health care clearinghouse, or health care provider). Further, even if HIPAA did apply, the documents could be produced because of the instant court order or because the insured was willing to accept redacted documents to remove the personal identification.

In applying a balancing test, the court noted that the requests were limited in scope (one for records prepared by a specific peer reviewer,  the others for peer review activities — contractual items, Service Forms, and reports for other Pennsylvania claims — with this insurer, all for a specific time period), but ordered that the insured share the cost of production for the first request, and pay the entire cost for the other three requests so that the insured could determine how aggressively to pursue these requests.

Date of Decision:  March 17, 2009

Miller v. Allstate Fire & Cas. Ins. Co., CIVIL ACTION No. 07-260, 2009 U.S. Dist. LEXIS 21225 (W.D. Pa. Mar. 17, 2009)(Gibson, J.)

MAY 2009 BAD FAITH CASES
WHEN BASED ON ABUSE OF THE PRO PROCESS, PAIN & SUFFERING CLAIMS SURVIVE A MOTION TO STRIKE & BAD FAITH STATUTE IS NOT PRE-EMPTED BY THE MVFRL (Western District)

In Miller v. Allstate Fire & Casualty Insurance Company, the court denied the insurer’s motions to strike and to dismiss, primarily because the claims related to abuse of the peer review organization (“PRO”) process.

The insured was injured in a motor vehicle accident but the insurer stopped paying his chiropractic bills after a peer review organization (“PRO”) examined the file.  The insured filed for wrongful denial of first-party medical benefits under the PA Motor Vehicle Financial Responsibility Law (“MVFRL”) and for abuse of the PRO process, alleging intent to avoid paying the claim, under the bad faith statute.

The insurer moved to strike the following sections of the complaint under Fed. R. Civ. P. 12(f) as being immaterial, impertinent, or scandalous (wholly unrelated or the moving party would be prejudiced by their inclusion):

  1. Reference to pain and suffering (arguing these are not recoverable under either the MVFRL or the bad faith statute)
  2. References to underinsured motorist coverage and full tort option in the policy on the truck
  3. Allegation of unreasonable and wanton behavior by using a PRO to limit exposure to a possible underinsured motorist claim
  4. Reference to the insurer’s advertising slogan (being “in good hands”) as engendering a false sense of trust

The first was denied because the pain and suffering were not presented as damages; they were related to abuse of, not use of, the PRO process and refusal to pay medical claims.  The next two were denied because they are based on the insurance policy and the court held that other policy provisions may be related to the claim for benefits or may be needed to properly address the allegation of handling that claim in bad faith to avoid potential payment under the underinsured motorist coverage.  The insurer also failed to show how it would be prejudiced by any of them remaining in the complaint.  The last was denied because it was alleged under the bad faith claim and, under the liberal standard of review applied, the insurer did not prove it was wholly unrelated or that prejudice would ensue.

The insurer also moved to dismiss the bad faith claim under Rule 12(b)(6), arguing that there could be no bad faith claim because the MVFRL is the sole remedy for denial of first-party medical benefits.  The court, however, noted that the PA Supreme Court has not ruled on whether the MVFRL pre-empts the bad faith statute.  It found persuasive other court decisions in which there is no pre-emption when the case involves the combination of an unreasonable denial of benefits based on a PRO review and abuse of the PRO process, as this case does.  It also found the insured’s allegations of PRO process abuse and mishandling of claims to be separate from the first-party medical benefits claim under the MVFRL so it denied the motion to dismiss the bad faith claim.

Date of Decision:  March 5, 2009

Miller v. Allstate Fire & Cas. Ins. Co., CIVIL ACTION No. 07-260, 2009 U.S. Dist. LEXIS 18702 (W.D. Pa. Mar. 5, 2009)(Gibson, J.)

MAY 2009 BAD FAITH CASES
BAD FAITH PROCEDURES AT TRIAL LEVEL OBSERVED BY APPELLATE COURT, INCLUDING BARRING EXPERT TESTIMONY ON BAD FAITH & ORDER OF JURY & BENCH TRIALS (Superior Court)

In Prime Medica Associates v. Valley Forge Insurance Company, the Superior Court did not address any bad faith issues on appeal, but did observe bad faith procedures in the trial court, in setting forth the case background.  The insured sought to put on an attorney as an expert on bad faith.  The trial court granted a motion in limine preventing the lawyer from testifying about bad faith.  The court permitted him the attorney to testify about coverage, but the judge would determine the bad faith issue without the expert at a bench trial, if the jury found there was coverage.  The judge also granted a motion in limine precluding the insured from putting on evidence of bad faith to the jury.  If the jury found no coverage there would be no bad faith determination necessary.  The jury did in fact find coverage, and then at the subsequent bench trial on bad faith, the judge ruled for the insured.  None of these issues were the subject of the appeal, but are useful observations of practice in the trial court.  The trial court’s opinion is out of Philadelphia’s Commerce Court.  In that opinion, in discussing the bench trial on bad faith after the jury verdict, the trial judge stated:  “After much soul searching, this court denied plaintiff’s bad faith claim.”  The appellate court reversed the verdict on the contract claims on the basis that suit was untimely. 

Date of Decision:  March 5, 2009

Prime Medica Assocs. v. Valley Forge Ins. Co., No. 3279 EDA 2006, No. 3331 EDA 2006, SUPERIOR COURT OF PENNSYLVANIA, 2009 PA Super 39; 2009 Pa. Super. LEXIS 48, March 5, 2009 (Gantman, J.)

 

 

MAY 2009 BAD FAITH CASES
FEDERAL COURT APPLIES PENNSYLVANIA BAD FAITH LAW, RATHER THAN DELAWARE COMMON LAW BAD FAITH, IN CHOICE OF LAW ANALYSIS (Philadelphia Federal)

In Godfry v. State Farm Mutual Insurance Company, a case involving an automobile insurance policy, the court was faced with the issue of whether to apply Pennsylvania statutory and common law bad faith, or Delaware’s common law bad faith.  The law’s differed somewhat, but most especially in that Pennsylvania statutory bad faith allows of the insured to recover attorney’s fees, but Delaware’s common law remedy does not (though both allow for punitive damages).  After a careful analysis of whether there was a true conflict of laws, including whether both states had governmental interests in seeing their law applied, and a weighing of contacts and those interests, the court found that Pennsylvania bad faith law applied.  It also refused to transfer the case to Delaware.

Date of Decision:  March 4, 2009

Godfry v. State Farm Mut. Ins. Co., CIVIL ACTION NO. 08-4813, UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA, 2009 U.S. Dist. LEXIS 19123 (E.D.Pa. March 4, 2009) (Yohn, J.)

 

MAY 2009 BAD FAITH CASES
BAD FAITH CLAIM MAY PROCEED WHERE ALLEGED MISHANDLING OCCURRED AFTER POLICY ISSUED (Western District)

In Williams v. Allstate Insurance Company, the insured refinancing their mortgage.  They allege that they called Allstate and entered an binding oral agreement to increase the homeowner’s insurance policy in light of the refinancing, from $60,000 to $100,000.  This involved, among other things, a telephone call between the insured and an associate agent who advised the insured that she would take case of the paperwork and that a bill reflecting the increased premium would be sent in the mail.”  Shortly thereafter the home was destroyed in an electrical fire and Allstate only agreed to pay the $60,000, and not the $100,000.  The insureds claimed that the carrier was aware of the change in house value, that the request to increase the policy limits was reasonable, and that the promise described above had been made.  The insureds claim that Allstate only spoke with its own agent about what occurred, never deposed the insureds to compare credibility over the claim, and delayed in handling the claim.

In moving to dismiss the bad faith portion of plaintiffs’ case, Allstate claimed that the allegedly bad faith representations concerning the amount of coverage occurred prior to the claim for benefits and relates solely to the sale of a policy.  The court found that the complaint alleged matters beyond the conduct preceding the sale of the policy, “but rather involve events that occurred after a claim was made and how the claim was handled.”  The motion to dismiss was denied.

Date of Decision:  March 10, 2009

Williams v. Allstate Ins. Co., No. 8-1160, 2009 U.S. Dist. LEXIS 19337 (W.D. Pa. Mar. 10, 2009) (Ambrose, C.J.)

 

MAY 2009 BAD FAITH CASES
NO BAD FAITH WHEN NO DUTY TO DEFEND; CLAIMS UNDER ASSAULT & BATTERY EXCLUSIONS DO NOT DISTINGUISH BETWEEN DIRECT AND INDIRECT RESPONSIBILITY (Philadelphia Federal)

In Anglo American Investments, LLC d/b/a Pizza Peddler v. Utica First Insurance Company, the court granted the insurer’s motion to dismiss because it found that the charges in the underlying case fell under policy exclusions so the insurer had no duty to defend and, therefore, could not have breached its contract or acted in bad faith.

This case arises from an underlying tort case in which the insured and its employee were being sued based upon the employee’s actions.  The insurer denied a defense and indemnification because the charges fell under the policy’s assault and battery exclusions. 

The insured brought this case for breach of contract and statutory bad faith, asserting that the exclusions applied only to its direct actions, but the court found that the unambiguous language of the exclusion did not make any distinction between direct and indirect (i.e., under respondeat superior) action and that it excluded “any and all claims arising out of any assault, battery,. . .”  The exclusion also applied to negligent supervision, another count in the tort case complaint, and there was no assertion of additional negligent action to take it outside of the exclusion.

The insured argued that the final count in the tort case, for general negligence against the employee, should be considered as pled against it, too, because the complaint could be amended in that manner.  The court, however, could address only the claims that the insured was required to defend against currently.

With all of the claims in the tort suit being excluded under the policy, the insurer had no duty to defend or indemnify and, therefore, did not breach its contract or act in bad faith.

Date of Decision:  February 26, 2009

Anglo Am. Invs., LLC v. Utica First Ins. Co., CIVIL ACTION No. 08-483, 2009 U.S. Dist. LEXIS 15506 (E.D. Pa. Feb. 26, 2009)(Pollak, J.)

 

MAY 2009 BAD FAITH CASES
INSURER OBTAINS JUDGMENT AGAINST INSURER FOR STATUTORY FRAUD BASED ON FRAUDULENT APPLICATION (Philadelphia Federal)

In State Auto Property & Casualty Insurance Company v. Feger, the Court had previously granted judgment in the carrier’s favor on coverage and rejected the insured’s breach of contract and bad faith claim.  In this opinion, the court addressed the carrier’s motion for summary judgment on its statutory insurance fraud claim against the insured.  Based on prior findings and the record before the court, the court found that there was clear and convincing evidence of insurance fraud in the application process.  It entered summary judgment on the claim under 18 Pa. Cons. Stat. Ann. § 4117(b)(4), and then ordered the carrier to submit it proof of damages from the fraud, under 18 Pa. Cons. Stat. Ann. § 4117(g).

Date of Decision:  January 8, 2009

State Auto Prop. & Cas. Ins. Co. v. Feger, CIVIL ACTION NO. 2:07-cv-01048, , 2009 U.S. Dist. LEXIS 46510 (E.D. Pa. Jan. 8, 2009) (Davis, J.)

MAY 2009 BAD FAITH CASES
COURT SUA SPONTE FINDS THAT BAD FAITH CLAIM POTENTIAL INTEREST, COSTS AND PUNITIVE MEET $75,000 MINIMUM (Western District)

In Fleeger v. State Farm Mutual Automobile Insurance Company, a UIM case, the court sua sponte addressed the issue of whether $75,000 was at issue for purposes of establishing subject matter jurisdiction.  It found that the interest and costs awardable under the bad faith statute could be counted towards the $75,000, and further observed that the statute provided for punitive damages, which could likewise be considered toward the $75,000 minimum.  The court kept jurisdiction because dismissal for lack of jurisdiction required that it “must appear to a legal certainty that the claim is really for less than the jurisdictional amount to justify dismissal”, and in this case, that would be improper where there was no legal certainty that the claim was for less than $75,000. 

Date of Decision:  March 16, 2009

Fleeger v. State Farm Mut. Auto. Ins. Co., No. 07-16, 2009 U.S. Dist. LEXIS 20705 (W.D.Pa. March 16, 2009) (Gibson, J.)