Monthly Archive for June, 2009

JUNE 2009 BAD FAITH CASES
SUPERIOR COURT AFFIRMS DECISION TO DENY BOTH SEVERANCE OF BAD FAITH CLAIM FROM UIM CLAIM AND STAY OF BAD FAITH DISCOVERY (Superior Court)

In Gunn v. Automobile Insurance Company, the insured brought a UIM based claim for breach of contract and bad faith.  The carrier sought to sever and stay the bad faith case while the UIM claim was decided by a jury.  The carrier also sought to preclude discovery from proceeding  in the bad faith case while the underlying UIM claim was at issue. 

The trial court rejected the arguments that the bad faith claim was dependent on the outcome of the UIM claim, and that considerations of judicial economy, prevention of unnecessary expense to the parties, and prejudice to insurer, required the bad faith claim to be stayed pending the outcome of the UIM claim.  Because the bad faith claim can only be heard by a judge in Pennsylvania state courts, Mishoe v. Erie Ins. Co., the trial court found that there was already severance since the jury would rule on the UIM claim and then the judge would rule on the bad faith claim. 

Thus, the only issue was whether discovery on the bad faith claim should be stayed, and the trial court found no reason to do so.  To the contrary, the trial court found “a trial of the bad faith claim held immediately after the trial of the UIM claim is likely to be the most efficient and fairest method of resolving the UIM claim because it avoids duplicate testimony and permits the judge to make his or her decision when the judge best recollects the relevant evidence.”

The Superior Court was thus faced with a practical consequence of the Pennsylvania Supreme Court’s decision in Insurance Federation of Pa., Inc. v. Department of Insurance, colloquially known as the “Koken” case.  In Koken, the Supreme Court had ruled that Pennsylvania’s Insurance Department was not authorized  to require mandatory arbitration for UM and UIM claims.  Because of the Department’s stance, policies had included such clauses, but post-Koken such arbitration provisions are being phased out and replaced by new policies that do not mandate arbitration. “Consequently, the trial courts of Pennsylvania will begin to frequently encounter complaints which raise both UIM and bad faith claims.” 

This was the first appellate opportunity to address whether the two claims in such a soon to be burgeoning set of cases, should be severed and/or stayed. However, the Superior Court found the trial judge’s order to be interlocutory and quashed the appeal. 

Applying the test to determine whether an otherwise non-final order might fall under the “collateral order doctrine”, the court applied a three standard test:  “(1) [is the order at issue] separable from and collateral to the main cause of action where, (2) [is] the right involved is too important to be denied review, and (3) [whether] the question presented is such that if review is postponed until final judgment in the case, the claim will be irreparably lost.”  Even though the Superior Court quashed the appeal, it did give some further address to the bad faith issue in focusing on the test’s second prong, the importance of the right involved; and the third prong on irreparable loss of a right.

The Superior Court found that “the trial court’s decision not to stay the bad faith proceeding neither goes beyond the particular litigation at hand nor implicates a right deeply rooted in public policy sufficient to set aside the general rule that only final orders are appealable as of right.” The insurer had basically argued that permitting bad faith discovery to go ahead could be a waste of time if the insurer won the UIM claim.  The Superior Court found that “an analysis of a motion to stay a bad faith claim depends on the specific circumstances and allegations of the particular litigation at hand.”  Because the trial court rulings on the prejudice associated with the stay were tied to the facts and nature of the particular case, rather than some more general principle apparently, the right involved seemed not to be sufficiently important to require immediate appellate review.

As to the public interest, the carrier argued that because Koken had opened the floodgates to a new form of litigation, stays of bad faith actions were necessary in the public interest to mitigate that flood.  The Superior Court disagreed, and found that such a concern “must be balanced against the protraction and delay in litigation created by permitting appeals from interlocutory orders denying stay of a bad faith claim. We do not find that Appellant’s concerns outweigh the countervailing interests of avoiding piecemeal litigation or delay.”  Further, the court clearly did not want to become a haven for interlocutory appeals of discovery stay decision during the pendency of cases.

Finally, there was no evidence of irreparable loss, as in the limited category of immediately appealable discovery orders involving work product or attorney-client privilege matters.  It found the insurer’s concerns about disclosure of privileged or protected information speculative, noting various efforts the insurer could make to limit or object to such disclosure during the discovery process before the trial court.

Apparently, the argument was not presented to the Superior Court that some trial courts in Pennsylvania have held attorney advice to the insurer virtually discoverable per se in bad faith litigation; though this does not appear to be a majority view.  See, e.g., Jones v. Nationwide Ins. Co.; Gen. Refractories Co. v. Fireman’s Fund Ins. Co., 45 Pa. D.&C. 4th 159 (C.C.P. Phila. 2000).  For a contrary view see, e.g., Saltern v. Nor-Car Fed. Credit Union, No. 02-2175, 2003 U.S. Dist. LEXIS 7679 at *4 (E.D. Pa. Apr. 16, 2003) (citing Jones, but then stating that Third Circuit precedent provides that “advice is not placed in issue merely because it is relevant … A waiver can be found only where a client has made the decision and taken an affirmative step in the litigation to place the advice of attorney in issue … This occurs where the client attempts to prove a claim or defense by disclosing or describing an attorney-client communication.”) (emphasis added).  The lone Gunn dissenter seemed to recognize this issue and that the threat of disclosure of work product or privileged information might be much less speculative than the majority maintained, citing to Wisconsin law of similar effect.  The failure to cite to Pennsylvania court decisions indicates that the real threat under Pennsylvania law many not have been fully considered.

Date of Decision:  April 15, 2009

Gunn v. Auto. Ins. Co., No. 1345 WDA 2008, 971 A.2d 505, 2009 Pa. Super. LEXIS 85, SUPERIOR COURT OF PENNSYLVANIA (Pa. Super. April 15, 2009) (Allen, J.)

 

JUNE 2009 BAD FAITH CASES
SUPERIOR COURT AFFIRMS DECISION TO DENY BOTH SEVERANCE OF BAD FAITH CLAIM FROM UIM CLAIM AND STAY OF BAD FAITH DISCOVERY (Superior Court)

In Gunn v. Automobile Insurance Company, the insured brought a UIM based claim for breach of contract and bad faith.  The carrier sought to sever and stay the bad faith case while the UIM claim was decided by a jury.  The carrier also sought to preclude discovery from proceeding  in the bad faith case while the underlying UIM claim was at issue. 

The trial court rejected the arguments that the bad faith claim was dependent on the outcome of the UIM claim, and that considerations of judicial economy, prevention of unnecessary expense to the parties, and prejudice to insurer, required the bad faith claim to be stayed pending the outcome of the UIM claim.  Because the bad faith claim can only be heard by a judge in Pennsylvania state courts, Mishoe v. Erie Ins. Co., the trial court found that there was already severance since the jury would rule on the UIM claim and then the judge would rule on the bad faith claim. 

Thus, the only issue was whether discovery on the bad faith claim should be stayed, and the trial court found no reason to do so.  To the contrary, the trial court found “a trial of the bad faith claim held immediately after the trial of the UIM claim is likely to be the most efficient and fairest method of resolving the UIM claim because it avoids duplicate testimony and permits the judge to make his or her decision when the judge best recollects the relevant evidence.”

The Superior Court was thus faced with a practical consequence of the Pennsylvania Supreme Court’s decision in Insurance Federation of Pa., Inc. v. Department of Insurance, colloquially known as the “Koken” case.  In Koken, the Supreme Court had ruled that Pennsylvania’s Insurance Department was not authorized  to require mandatory arbitration for UM and UIM claims.  Because of the Department’s stance, policies had included such clauses, but post-Koken such arbitration provisions are being phased out and replaced by new policies that do not mandate arbitration. “Consequently, the trial courts of Pennsylvania will begin to frequently encounter complaints which raise both UIM and bad faith claims.” 

This was the first appellate opportunity to address whether the two claims in such a soon to be burgeoning set of cases, should be severed and/or stayed. However, the Superior Court found the trial judge’s order to be interlocutory and quashed the appeal. 

Applying the test to determine whether an otherwise non-final order might fall under the “collateral order doctrine”, the court applied a three standard test:  “(1) [is the order at issue] separable from and collateral to the main cause of action where, (2) [is] the right involved is too important to be denied review, and (3) [whether] the question presented is such that if review is postponed until final judgment in the case, the claim will be irreparably lost.”  Even though the Superior Court quashed the appeal, it did give some further address to the bad faith issue in focusing on the test’s second prong, the importance of the right involved; and the third prong on irreparable loss of a right.

The Superior Court found that “the trial court’s decision not to stay the bad faith proceeding neither goes beyond the particular litigation at hand nor implicates a right deeply rooted in public policy sufficient to set aside the general rule that only final orders are appealable as of right.” The insurer had basically argued that permitting bad faith discovery to go ahead could be a waste of time if the insurer won the UIM claim.  The Superior Court found that “an analysis of a motion to stay a bad faith claim depends on the specific circumstances and allegations of the particular litigation at hand.”  Because the trial court rulings on the prejudice associated with the stay were tied to the facts and nature of the particular case, rather than some more general principle apparently, the right involved seemed not to be sufficiently important to require immediate appellate review.

As to the public interest, the carrier argued that because Koken had opened the floodgates to a new form of litigation, stays of bad faith actions were necessary in the public interest to mitigate that flood.  The Superior Court disagreed, and found that such a concern “must be balanced against the protraction and delay in litigation created by permitting appeals from interlocutory orders denying stay of a bad faith claim. We do not find that Appellant’s concerns outweigh the countervailing interests of avoiding piecemeal litigation or delay.”  Further, the court clearly did not want to become a haven for interlocutory appeals of discovery stay decision during the pendency of cases.

Finally, there was no evidence of irreparable loss, as in the limited category of immediately appealable discovery orders involving work product or attorney-client privilege matters.  It found the insurer’s concerns about disclosure of privileged or protected information speculative, noting various efforts the insurer could make to limit or object to such disclosure during the discovery process before the trial court.

Apparently, the argument was not presented to the Superior Court that some trial courts in Pennsylvania have held attorney advice to the insurer virtually discoverable per se in bad faith litigation; though this does not appear to be a majority view.  See, e.g., Jones v. Nationwide Ins. Co.; Gen. Refractories Co. v. Fireman’s Fund Ins. Co., 45 Pa. D.&C. 4th 159 (C.C.P. Phila. 2000).  For a contrary view see, e.g., Saltern v. Nor-Car Fed. Credit Union, No. 02-2175, 2003 U.S. Dist. LEXIS 7679 at *4 (E.D. Pa. Apr. 16, 2003) (citing Jones, but then stating that Third Circuit precedent provides that “advice is not placed in issue merely because it is relevant … A waiver can be found only where a client has made the decision and taken an affirmative step in the litigation to place the advice of attorney in issue … This occurs where the client attempts to prove a claim or defense by disclosing or describing an attorney-client communication.”) (emphasis added).  The lone Gunn dissenter seemed to recognize this issue and that the threat of disclosure of work product or privileged information might be much less speculative than the majority maintained, citing to Wisconsin law of similar effect.  The failure to cite to Pennsylvania court decisions indicates that the real threat under Pennsylvania law many not have been fully considered.

Date of Decision:  April 15, 2009

Gunn v. Auto. Ins. Co., No. 1345 WDA 2008, 971 A.2d 505, 2009 Pa. Super. LEXIS 85, SUPERIOR COURT OF PENNSYLVANIA (Pa. Super. April 15, 2009) (Allen, J.)

 

JUNE 2009 BAD FAITH CASE
MVFRL PREEMPTS BAD FAITH STATUTE ON FIRST PARTY MEDICAL BENEFITS CLAIM (Middle District)

In Wright v. Ohio Casualty Group Insurance Company, the court agreed “that § 1797 does not provide the exclusive source of remedy where a plaintiff’s claim falls outside the scope of the PRO process outlined therein.” In fact: “Numerous state and federal district courts in this Circuit have followed this reasoning and held that a statutory bad faith claim under § 8371 is not preempted by § 1797 where plaintiff’s claim of bad faith rests on allegations that the insurer misused the PRO process, for example to obtain a determination of causation rather than medical necessity or reasonableness.”  The pivotal issue is “’whether Plaintiff’s allegations fall within the purview of § 1797, thus invoking the remedies established therein….’”

In this case, the result fell on the side of MVFRL preemption: “[The insured] simply raises a claim for the payment of first party benefits for his alleged reasonable and necessary medical expenses and appeals to this Court for a determination that Defendant is obligated to pay such expenses. He raises no more than a claim for a judicial determination of the reasonableness and necessity of his disputed expenses. This is precisely the type of claim the § 1797 remedial scheme addresses.”

Date of Decision:  April 27, 2009

Wright v. Ohio Cas. Group Ins. Co., NO. 3:09-CV-0076, 2009 U.S. Dist. LEXIS 35463 (M.D. Pa. April 27, 2009) (Caputo J.)

JUNE 2009 BAD FAITH CASES
MVFRL DOES NOT PREEMPT BAD FAITH STATUTE WHERE ISSUE CONCERNING FIRST PARTY MEDICAL BENEFITS ALSO GOES TO BAD FAITH ON UIM CLAIM (Middle District)

In Bukofski v. USAA Casualty Insurance Company, the insured made the following allegations of bad faith concerning a UIM claim.  Failing to pay the first party benefits to plaintiff; failing to objectively and fairly evaluate plaintiff’s first party medical benefit claim; refusing to effectuate a prompt and fair resolution of plaintiff’s first party benefit claim; retaining the Peer Review Organization to challenge the reasonableness and necessity of plaintiff’s medical treatment so as to force her health care provides to stop treatment necessary for the accident-related injuries; and misrepresenting Pennsylvania law to plaintiff’s physicians.  The carrier argued that these were disputes over first party medical benefits and as such, the MVFRL preempted any statutory bad faith claim.  The court rejected this argument, finding that a close reading of the complaint showed the same conduct was intertwined with the UIM claim. The court stated:

“The complaint’s bad faith action attacks defendant’s handling of the UIM claim and certain actions it took with regard to the first-party medical benefits claim are alleged to be evidence of the defendant’s bad faith in defense of the UIM claim. Merely because some of the bad faith evidence alleged by the plaintiff relates to first-party medical benefits claim does not mean that the bad faith claim with regard to the handling of the UIM claim is preempted. Thus, defendant’s motion based upon MVFRL pre-emption will be denied.”

Date of Decision:  June 9, 2009

Bukofski v. USAA Cas. Ins. Co., No. 3:08cv1779, 2009 U.S. Dist. LEXIS 48128 (M.D.Pa. June 9, 2009) (Munley, J.)

JUNE 2009 BAD FAITH CASES
REMOVING ARBITRATION CLAUSE FROM INSURANCE AGREEMENT ON RESOLVING UIM CLAIM COULD BE BAD FAITH (Middle District)

In Bukofski v. USAA Casualty Insurance Company, the insured made allegations of bad faith concerning a UIM claim.  After repeatedly requesting a copy of the policy, and its not being provided, the insured’s counsel initiated an arbitration claim and filed a write of summons in court.  Later, the insured’s counsel learn that the carrier had removed the arbitration provision from the policy, which had been in the policy for the preceding 25 years.  The insurer pointed out that under Pennsylvania Supreme Court precedent it was not required to keep the arbitration clause in the policy.  The insured argued that the removal constituted bad faith because, e.g., the absence of arbitration would increase delays and the insured’s expenses.
Specifically the plaintiff alleged “that defendant took these actions to delay payment of benefits and attempt settlement leverage by necessitating protracted expensive litigation.”
The insurer argued that under the leading Pennsylvania Supreme Court case of Toy v. Metropolitan Life Ins. Co., this was the equivalent of alleging pre-contractual fraudulent inducement to enter the contract, which had been held not to be subject to the bad faith statute.  The court rejected that reading, stating:
“The presence of an arbitration clause deals directly with the defendant’s contractual obligations and clearly arise from the insurance policy. If, as plaintiff asserts, the defendant removed the clause without notification to the plaintiff in order to force favorable settlements of UIM claims, then a statutory bad faith claim might be established. This situation is not analogous to the solicitation of a policy as addressed by Toy.”
In addressing the argument that the change was made prior to the accident, the court noted:  “If the change was done unilaterally without notice to the plaintiff there would be no way for the plaintiff to know about the change until a claim was made. Defendant has cited no authority for the proposition that an insurer cannot be liable for action taken by the insurer in bad faith in anticipation of a future claim under an insurance contract.”
Date of Decision:  June 9, 2009
Bukofski v. USAA Cas. Ins. Co., No. 3:08cv1779, 2009 U.S. Dist. LEXIS 48128 (M.D.Pa. June 9, 2009) (Munley, J.)

JUNE 2009 BAD FAITH CASES
NO SEPARATE CAUSES OF ACTION FOR BREACH OF DUTY OF GOOD FAITH AND FAIR DEALING OR FIDUCIARY DUTY (Middle District)

In Bukofski v. USAA Casualty Insurance Company, the court held that under Pennsylvania law, the claim of violation of the duty of good faith and fair dealing merges with the insured’s breach of contract claim.  As to the insured’s effort to plead a breach of fiduciary duty, the court stated “The same duty of good faith that is grounded in the insurer’s fiduciary duty underlies the plaintiff’s claim of bad faith. To have a separate cause of action for breach of fiduciary duty would be redundant. Moreover, courts have held that Pennsylvania does not recognize separate causes of action for breach of fiduciary duty.”

Date of Decision:  June 9, 2009

Bukofski v. USAA Cas. Ins. Co., No. 3:08cv1779, 2009 U.S. Dist. LEXIS 48128 (M.D.Pa. June 9, 2009) (Munley, J.)

JUNE 2009 BAD FAITH CASES
NO BAD FAITH WHERE A REASONABLE BASIS TO DENY COVERAGE EXISTS, AS DISTINCT FROM REASONABLE CONDUCT INQUIRY (Philadelphia Federal)

In Post v. St. Paul Travelers Insurance Company, the court granted summary judgment to the insured on its breach of contract and declaratory judgment claims, but granted summary judgment to the insurer on the bad faith claim.  The insured filed a motion for reconsideration and the court upheld its original decision dismissing the summary judgment claim.

First, the court addressed its finding that there was no bad faith because there was a reasonable basis for denying the claim.  It observed that bad faith has two elements, whether the denial was unreasonable and whether the insurer knowingly or recklessly disregarded that fact.  The insurer’s alleged ill-will or self-interested motive do not establish a third element, but go to the evidence concerning the second element.  While, such things as failure to investigate and violations of regulations may be relevant to a court’s bad faith determination, in this case the insurer had a reasonable basis to deny coverage, and a reasonable basis by itself defeats a bad faith claim.  The court cited to the U.S. Court of appeals decision in J.C. Penney Life Insurance Co. v. Pilosi.

The court raised an extremely important point in addressing the insured’s argument here:  “[The insured] further claims that whether or not [the insurer’s] conduct was reasonable is a question of fact for the jury. The issue, however, is not if [the insurer’s] conduct was reasonable, but whether or not [the insurer] had a reasonable legal basis for denying coverage.”

Concerning an argument that summary judgment was premature because the insured was still pursuing evidence of the insurer’s written claims policies, the insurer’s submitting affidavits that no such written policies existed put an end to discovery on that issue.

Date of Decision:  May 22, 2009

Post v. St. Paul Travelers Ins. Co., No. 06-CV-4587, 2009 U.S. Dist. LEXIS 43730, 629 F.Supp.2d 477 (E.D.Pa. May 21, 2009) (Brody, J.)

This was the third of a series of three opinions issued in this case. 

 

JUNE 2009 BAD FAITH CASES
WHERE THERE IS NO “OCCURRENCE” AND NO COVERAGE, THERE CAN BE NO BAD FAITH (Philadelphia Federal)

In Specialty Surfaces International, Inc. v. Continental Casualty Company, the court found that the underlying claims were in the nature of a breach of contract, and not negligence; thus there was no occurrence under Pennsylvania law (which law the court applied after a choice-of-law analysis), and no coverage.  “Without any obligation under the policy, the defendant cannot have acted in bad faith or in breach of its duty of good faith and fair dealing.” In reaching its conclusion that faulty workmanship is not an occurrence, the court relied upon an important triad of coverage cases addressing what constitutes an occurrence, Kvaerner Metals Division of Kvaerner U.S. v. Commercial Union Ins. Co., Millers Capital Ins. Co v. Gambone Brothers Development Co., and Nationwide Mutual Ins. Co. v. CPB International, Inc.  These cases are discussed on the website of Fineman, Krekstein & Harris, P.C.

Date of Decision:  May 21, 2009

Specialty Surfaces Int’l v. Cont’l Cas. Co., CIVIL ACTION NO. 08-2089, 2009 U.S. Dist. LEXIS 43702 (E.D.Pa. May 21, 2009 (Fullam, J.)

JUNE 2009 BAD FAITH CASES
INSURER DENIED SUMMARY JUDGMENT BECAUSE REASONABLE JURY COULD FIND BAD FAITH DELAYS IN SETTLING, ESPECIALLY ABSENT “RED FLAGS” & NO EXPLANATION (Philadelphia Federal)

In Cher-D, Incorporated, t/a Pine Knob Inn v. Great American Alliance Insurance Company, the court denied summary judgment to the insurer on the statutory bad faith count against it because there was sufficient evidence for a reasonable jury to find bad faith in how it settled the insured’s claim. 

The insured property suffered an electrical fire in October of 2004, for which the insured immediately filed a claim.  The insurer determined it was a covered loss and sent its own contractor to make safety repairs to facilitate an investigation.  The insured gave notice of its intent to rebuild and thought that the insurer was going to initiate that process, based on comments from the insurer’s contractor.  The insurer, however, did nothing to facilitate rebuilding and did not respond to repeated queries from the insured’s public adjustor regarding the status of the claim and payment.  In the interim, the insurer did not renew the policy, trespassers frequently broke into the building and vandalized it, and a second fire occurred after the policy expired.  The insured, nevertheless, filed a claim for the second fire and it was denied.  The insurer did not provide its damage estimate from the first fire until nine months after the event.  The insured filed this suit for breach of contract and statutory bad faith less than three months afterward.

The court denied summary judgment to the insurer on the bad faith claim because it determined that there was sufficient evidence for a jury to find bad faith.  It cited precedent when explaining that delay in settling a claim can be evidence of bad faith when the insurer’s responsibility is clear and the insured makes repeated demands for payment, especially when there is an absence of “red flags” to cause concern.  The court also noted that a jury had awarded punitive damages for a delay of ten months in a similar case where the insurer did not explain its delay.  Taking all of the facts together, it denied summary judgment in this case.

Date of Decision:  April 7, 2009

Cher-D, Inc. v. Great Am. Alliance Ins. Co., No. 05-5936, 2009 U.S. Dist. LEXIS 30206 (E.D. Pa. April 7, 2009)(Surrick, J.)

 

JUNE 2009 BAD FAITH CASES
INSURED’S CLAIM SUBJECT TO ERISA AS BENEFITS ADMINSTRATION AT ISSUE (Philadelphia Federal)

In Trabucco v. UNUM Life Insurance Company, the insurer removed the case to federal court from the Court of Common Pleas of Philadelphia.  The insured sought a remand of its claims, including a statutory bad faith claim.  The Court found that the action was pre-empted by ERISA as the administration of benefits was at the core of the claims, and retained jurisdiction.  The Court’s decision was controlled by the Third Circuit’s ruling in Pryzbowski v. U.S. Healthcare, Inc., 245 F.3d 266 (3d Cir. 2001).

Date of Decision: April 24, 2009

Trabucco v. UNUM Life Ins. Co., CIVIL ACTION NO. 09-448, 2009 U.S. Dist. LEXIS 35617 (E.D.Pa. April 24, 2009) (O’Neill, J.)