Monthly Archive for January, 2010

JANUARY 2010 BAD FAITH CASES
POLICY HELD TO BE VOID AB INITIO DUE TO APPLICANT’S MISREPRESENTATIONS (Middle District)

In Bonsu v. Jackson National Life Insurance Company, the district court held that the plaintiff’s claims for bad faith and breach of contract failed because the life insurance policy was void ab initio due to the applicant’s misrepresentations in the life insurance application.

The facts underlying this case date back to 2002, when an individual purporting to be Kwaku Asamoah submitted an life insurance application naming his brother, Augustine Bonsu, as the sole beneficiary.  According to the application, Asamoah was thirty-five years of age; had never been diagnosed with a serious medical condition; his driver’s license had never been suspended or revoked; and he had never been convicted of a misdemeanor or felony offense.  Based on the answers he provided, Asamoah was given a “preference plus” policy rating and his semi-annual premium was fixed at $96.90.  On December 27, 2002, the insurer approved the application and issued a $250,000 policy to Asamoah.  

In May 2003, Asamoah allegedly traveled to his native country of Ghana.  On May 13, 2003, however, Bonsu claims that Asamoah died in his sleep of unknown causes. After his allegedly death, Asamoah’s body was never examined by a physician and an autopsy was never performed prior to his burial.  On May 30, 2003, the insurer received a $98 policy premium payment allegedly sent from Asamoah.  Approximately two months later, on July 11, 2003, Bonsu contacted the insurer to report Asamoah’s death.

The insurer’s claims investigator noted several red flags in the case, including Asamoah’s recent application for life insurance, his relative youth and purported good health, and his assertion that he had no preexisting medical conditions.  The insurer started a comprehensive investigation into Asamoah’s death.  The investigator was unable to find any evidence that Asamoah had ever traveled to Ghana, and the alleged death certificate provided by Bonsu was missing important information.  Additionally, the insurer was notified that “Kwaku Asamoah” was a fictitious name used by Bonsu as an alias to commit fraudulent acts, and that Bonsu had been arrested for business fraud, identity fraud, and insurance fraud.

During its investigation, the insurer obtained a copy of Asamoah’s Virginia driving record, which indicated that Asamoah’s license was suspended from September 2001 until March 2002 because of a reckless driving conviction.  In the state of Virginia, reckless driving is a misdemeanor.  Asamoah was convicted of a misdemeanor offense and his driver’s license was suspended approximately one year before he filed the life insurance application, which stated that his driver’s license had never been suspended or revoked and that he had never been convicted of a misdemeanor offense.

On June 14, 2004, the insurer denied Bonsu’s claim for life insurance benefits because of its inability “to independently verify Mr. Asamoah’s death after an extensive investigation of the matter.”  Bonsu, the beneficiary of the life insurance policy, sued the insurer seeking benefits and bad faith damages.  The insurer filed a motion for summary judgment arguing that the life insurance contract was void ab initio due to false statements knowingly proffered by Asamoah during the application process, and asserting that its denial of benefits under the policy was reasonable given the information discovered during the investigation.

Under Pennsylvania law, a life insurance policy is void ab initio when (1) the insured made a false representation; (2) the insured knew the representation was false when it was made or made the representation in bad faith; and (3) the representation was material to the risk being insured.  The court found that the first element was satisfied because an individual purporting to be Asamoah made a false representation on the insurance application when he stated that his driver’s license was never suspended and that he had never been convicted of a misdemeanor offense.  In determining the second element, the court stated that it could presume that Asamoah knew the answers he provided were untruthful due to the short period of time between his license suspension and his false responses, as well as the unequivocal nature of the questions posed and response requested.  The court found that the third element was satisfied because Asamoah’s misrepresentation resulted in a significantly lower premium, and that it was material to the risk assumed by the insurer.  The policy underwriter testified that had Asamoah provided truthful responses to the questions concerning his prior conviction and license suspension, he would have been given a “Standard” policy rating with a higher premium, and not a “Preferred Plus’ policy rating.”

In granting the insurer’s motion for summary judgment, the court concluded as follows: “In sum, a rational juror viewing the record evidence could reach only one conclusion: Asamoah knowingly provided false responses to [the insurer]’s policy questionnaire, and these responses caused [the insurer] to fix Asamoah’s premium at rate below that which he would have received by answering truthfully.  Because his life insurance policy was procured by means of knowing falsehood, Asamoah’s policy was void ab initio.  Without a valid policy, Bonsu’s claims for breach of contract and insurance bad faith necessarily fail, and [the insurer] is entitled  to summary judgment.”

Date of Decision:  January 4, 2010

Bonsu v. Jackson Nat’l Life Ins. Co., Civil Action No. 1:05-CV-2444, United States District Court for the Middle District of Pennsylvania, 2010 U.S. Dist. LEXIS 89 (M.D. Pa January 4, 2010) (Conner, J.)

JANUARY 2010 BAD FAITH CASES
COURT SUSTAINS INSURER’S MOTION TO DISMISS INSURED’S BAD FAITH CLAIM FOR OBVIOUS POLICY EXCLUSION (C.C.P. Somerset County)

In Kister v. W.N. Tuscano Agency, Inc., the insured, a business that provides home heating fuel to residential customers, purchased an insurance policy from the insurer to cover its business operations.  The policy included a standard exclusion for any pollution, however, the insured purchased an endorsement titled “Pollution Liability-Limited Coverage for Covered Autos Subject to Aggregate Limit,” which provided coverage in the event a covered vehicle was “upset or overturned in the course of transit or was involved in a collision with another object while in the course of transit.”  The insured was sued by a customer, after the customer discovered fuel on the ground and around the tank where the fuel had been transferred.  The insured filed a claim, and the insurer denied the claim on the basis that the incident was excluded under the policy’s pollution exclusion. 

The insured sued for bad faith, among other causes of action.  The insurer filed preliminary objections in the nature of a demurer (i.e. a motion to dismiss) to the insured’s bad faith claim.  The court noted that the test for granting preliminary objections in the nature of a demurrer is “whether it is clear from all of the facts pleaded that the pleader will be unable to prove facts legally sufficient to establish his or her right to relief.”  The court found that the policy did not provide coverage for the incident for which the insured sought coverage. The court noted that the insured failed to show or bring forth any evidence to prove that the insurer did not have a reasonable basis for denying the claim.  Accordingly, the court sustained the insurer’s preliminary objections and dismissed the bad faith claim.

Date of Decision: August 26, 2009

Kister v. W.N. Tuscano Agency, Inc., No. 791 CIVIL 2008, Common Pleas Court of Somerset County, Pennsylvania, 2009 Pa. Dist. & Cnty. Dec. LEXIS 96, (C.C.P. Somerset August 26, 2009) (Klementik, J.).

JANUARY 2010 BAD FAITH CASES
TESTIMONY OF INSURED’S PUBLIC INSURANCE ADJUSTER EXCLUDED ON BAD FAITH CLAIM BUT ALLOWED ON INSURER’S ALLEGED VIOLATION OF THE UIPA (Middle District)

In Hered, LLC v. Seneca Insurance Company, the insurer denied the insured’s claim for a fire loss and damage to its business premises on the basis that the insured fraudulently misrepresented the functioning of the sprinklers in the insured building.  The insured sued the insurer for breach of contract and bad faith. The insurer filed a motion to exclude expert testimony of the public insurance adjuster who had been hired by the insured to adjust its fire loss. The insurer argued that a public adjuster should not be allowed to testify that the insurer acted in bad faith in handling the insured’s claim and failing to pay the claim. 

At oral argument, the insured’s counsel conceded that the expert was not qualified and competent to testify that the insurer acted in bad faith. The court held that while expert testimony may be appropriate to establish that an insurer lacked a reasonable basis for denying an insured’s claim, in the present case, the insured could not present expert testimony regarding the bad faith claim.  Accordingly, the court granted the insurer’s motion to exclude expert testimony with respect to the bad faith claim. 

The court denied the insurer’s motion to exclude expert testimony with respect to the expert’s opinion that the insurer had violated the Unfair Insurance Practices Act  (UIPA).  The court found that the probative value of the expert testimony substantially outweighed any danger of  unfair prejudice to the insurer and that any possible prejudice could be cured by an appropriate jury instruction.

Date of Decision: February 21, 2008

Hered, LLC v. Seneca Ins. Co., Civil Action No. 3:CV-06-0255, United States District Court for the Middle District of Pennsylvania, 2008 U.S. Dist. LEXIS 111943 (M.D. Pa February 21, 2008) (Blewitt, U.S.M.J.).

JANUARY 2010 BAD FAITH CASES
NO BAD FAITH WHERE INSURER ACTED PROMPTLY AND PROFESSIONALLY AND ARBITRATION AWARD WAS 50% MORE THAN INSURER’S OFFER (Pennsylvania Superior Court)

In Johnson v. Progressive Insurance Company, the insured’s car was rear-ended by another vehicle, resulting in a knee injury.  The insured’s automobile insurance included $100,000 in underinsured motorist (“UIM”) benefits.  Over one year after the accident, the insured advised the insurer that he intended to pursue his UIM coverage.  Within days, the insurer acknowledged the claim and promptly consented to the insured’s request to settle the underlying tort action against the driver of the other car. 

One month after the insured settled his tort claim, the insurer requested documentation to support the nature and extent of the insured’s injuries, as well as information regarding the insured’s five prior automobile accidents.  Instead of providing the requested documentation, the insured made a demand for arbitration and suggested that the insurer’s request relating to the prior accidents was made in bad faith.  The insured did not provide the insurer with permission to review his medical records for another month, and the insurer did not receive all of the medical records for an additional four months.

The insured demanded the full amount of UIM coverage of $100,000, and the insurer offered $30,000. At arbitration, the insured was awarded $75,000.  The insured subsequently sued the insurer for bad faith.  The trial court granted the insurer’s motion for summary judgment, and the insured appealed. 

The Superior Court affirmed the trial court, stating that there was “no question that the claim was handled promptly and professionally by the insurer.”  The court found that the facts involved nothing more than a normal dispute between an insured and insurer over the value of an UIM claim. The court noted that the insurer’s offer was slightly less than fifty percent of the insured’s award, and emphasized that bad faith is not present merely because an insurer makes a low but reasonable estimate of an insured’s damages.  The court stated that allowing an action to proceed under these facts “would invite a floodgate of litigation any time an arbitration award is more than an insurer’s offer to settle, even though the award is substantially below the insured’s demand.”

Date of Decision: December 28, 2009

Johnson v. Progressive Ins. Co., No. 3173 EDA 2008, Superior Court of Pennsylvania, 2009 Pa. Super. LEXIS 4988, 987 A.2d 781 (Pa Super. Ct. December 28, 2009) (Bowes, J.)

 

JANUARY 2010 BAD FAITH CASES
AFTER REMOVAL TO FEDERAL COURT, INSURED HAS TOUGH BURDEN FOR REMAND BASED ON AMOUNT IN CONTROVERSY REQUIREMENT (Middle District)

In Rice v. Allstate Assurance Company, the insured filed a complaint against the insurer for breach of contract and bad faith pursuant to 42 Pa. C.S.A. § 8371. In the insured’s breach of contract claim, he sought damages in the amount of $16,428.60 plus interest and penalties.  In his bad faith claim, the insured requested damages “in excess of $ 50,000.00” plus compensatory damages and punitive damages, interest, costs and attorney’s fees. The insurer filed a timely notice of removal of the case to federal court based on diversity jurisdiction, and the case was removed to federal court. The insured filed a motion to remand the case to state court, alleging that the amount in controversy did not exceed $75,000.

The court stated that since the insured did not make a demand for an exact monetary amount with respect to the bad faith claim, it had to make an independent appraisal of the claim and after a generous reading of the complaint, determine the reasonable value of the rights being litigated, including the value of potential compensatory and punitive damages.  The court emphasized that in order for a case to be remanded, it must be evident to a legal certainty that the insured cannot recover an amount greater than the $75,000 required for diversity jurisdiction.  The court found that based on the relief requested in the complaint, the insured did not expressly limit the amount in dispute to less than $75,000.  The court concluded that it could not be stated to a legal certainty that the insured could not recover more than the jurisdictional amount of $ 75,000.  Accordingly, the magistrate judge recommended that the insured’s motion to remand be denied.

Date of Decision: December 8, 2008

Rice v. Allstate Assur. Co., Civil Action No. 3:CV-08-1706, United States District Court for the Middle District of Pennsylvania, 2008 U.S. Dist. LEXIS 111820 (M.D. Pa. December 8, 2008) (Blewitt, U.S.M.J.).

JANUARY 2010 BAD FAITH CASES
PLAINTIFF ADEQUATELY PLEADED IT WAS AN INSURED UNDER THE POLICY (Philadelphia Federal)

In Excelsior Insurance Company v. Incredibly Edible Delites, Edible Delites (“IED”) and Incredible Franchise Corp.’s (“IFC”), the entity that issued franchises on behalf of IED, had obtained an insurance policy from the insurer for commercial general liability coverage. In the paperwork provided by the insurer, IFC was described as an “Additional Insured – Grantor of Franchise.” The insureds understood this to mean that IFC was an additional insured under the policy. The insureds made a claim under the policy for costs they had incurred defending against a lawsuit.

The insurer filed a complaint seeking declaratory relief and a determination of the rights and responsibilities of the parties under the insurance policy. The insureds filed counterclaims for breach of contract, breach of covenant of good faith and fair dealing and statutory bad faith. The insurer filed a motion to dismiss the claims. The insurer argued that IFC’s bad faith claim failed because it had admitted in its pleadings that it was not an insured under the policy because the policy described IFC as an “Additional Insured – Grantor of Franchise” and at no time had IFC granted a franchise to IED. The court found that IFC had adequately plead that it was an insured under the policy. The court dismissed the insured’s claim for breach of the duty of good faith and fair dealing but stated that the insureds would be permitted to amend their pleading in order to allege that the conduct underlying their breach of duty of good faith claim supported their breach of conduct or statutory bad faith act claim.

Date of Decision: December 17, 2009

Excelsior Ins. Co. v. Incredibly Edible Delites, Civil Action No. 09-3198, United States District Court for the Eastern District of Pennsylvania, 2009 U.S. Dist. LEXIS 118247 (E.D. Pa December 17, 2009) (O’Neill, J.).

 

JANUARY 2010 BAD FAITH CASES
INSURER’S MOTION DISMISSED IN ORDER TO PROVIDE INSURED WITH MORE TIME FOR DISCOVERY (Philadelphia Federal)

In Collins v. Allstate Insurance Company, after the case was referred to arbitration, the insurer timely moved for partial summary judgment as to the insured’s claims for breach of contract and bad faith. Plaintiff claimed that summary judgment was premature because his attorneys had not had the opportunity to depose the insurer’s representatives. The insured did not submit any evidence that he had issued any notices for depositions before the insurer filed its motion for partial summary judgment. The court found that the insurer’s motion was not premature, but dismissed the motion without prejudice in order to provide the insured with more time for discovery. The court stated “Although plaintiff’s delay in seeking depositions of [the insurer’s] representatives is very troubling, it is well established that a court ‘is obliged to give a party opposing summary  judgment an adequate opportunity to obtain discovery,’ especially when, as here, relevant facts are within the control of the moving party.” The court found that the fact-specific inquiries required in examining plaintiff’s claims and the short period of time for discovery in arbitration matters provided a sufficient basis to permit the additional discovery sought by the plaintiff. The court provided the plaintiff with 45 days to take depositions.

Date of Decision: December 10, 2009

Collins v. Allstate Ins. Co., Civil Action No. 2:09-cv-01824-WY, United States District Court for the Eastern District of Pennsylvania, 2009 U.S. Dist. LEXIS 115778 (E.D. Pa  December 10, 2009) (Yohn, J.).

 

JANUARY 2010 BAD FAITH CASES
COURT GRANTS INSURANCE BROKER’S MOTION FOR RECONSIDERATION AND DISMISSES COUNT FOR CONTRIBUTION (Middle District)

In Pine Grove Manufactured Homes v. Indiana Lumbermens Mutual Insurance Company, the insured sued Indiana Lumbermens Mutual (“ILM”) for bad faith and breach of contract after ILM refused to apply the proceeds from one of the insured’s other insurance policies to the deductible under the ILM policy. ILM joined its broker, Chamberlin & Reinheimer Insurers, Inc. (“CRI”), as a third-party defendant. The third-party complaint sought indemnification and/or contribution “with respect to the breach of contract claim.” CRI then filed a motion to strike or, in the alternative, dismiss ILM’s third-party complaint. The court denied both motions in its October 23, 2009 memorandum and order. 

The court stated that as its insurance broker CRI was the insured’s agent, and therefore, owed CRI a duty of care to act as a reasonably prudent insurance broker. The court held that CRI breached this duty, which caused the indivisible harm that resulted when ILM did not apply the other policy’s proceeds to the ILM policy deductible. Accordingly, the court held that CRI was a joint tortfeasor whose negligence, along with ILM’s bad faith, caused the harm to the insured and as joint tortfeasors, ILM could be entitled to contribution from CRI.

CRI filed a motion for reconsideration. CRI argued that: (1) the court misapprehended the allegations raised in the third-party complaint when it based its analysis on contribution for the bad faith claim, rather than limiting its analysis to contribution on the breach of contract claim, and (2) that the court committed an error in law when it held that CRI can be jointly liable to the insured for bad faith.

The court recognized that it had mistakenly read the third-party complaint as covering the underlying bad faith claim. The court held that ILM could not have a right to contribution on the breach of contract claim because CRI cannot be liable jointly and severally in tort for a claim based on breach of contract theory. The court granted CRI’s motion for reconsideration and dismissed the third-party complaint’s count for contribution on that ground.

The court held that it did not err in holding that CRI and ILM might be joint tortfeasors based on the injury created by the confluence of CRI’s negligence and ILM’s bad faith. Therefore, the court did not grant the motion for reconsideration on that basis.

Date of Decision: December 8, 2009

Pine Grove Manufactured Homes v. Ind. Lumbermens Mut. Ins. Co., Civil Action No. 3:08-CV-1233, United States District Court for the Middle District of Pennsylvania, 2009 U.S. Dist. LEXIS 114772 (M.D. Pa December 8, 2009) (Caputo, J.).

JANUARY 2010 BAD FAITH CASES
COURT DISMISSES BAD FAITH CLAIM FINDING MATERIAL FALSE REPRESENTATIONS IN LIFE INSURANCE APPLICATION (Middle District)

In Neiman v. American International Group, Inc., the insurer refused to pay the proceeds of a term life insurance policy stating that the “facts pertaining to past medical history were misrepresented in the application.” The insured failed to disclose that he had cancer. The beneficiary of the policy sued the insurer for breach of contract and bad faith. The insurer alleges that the insured knowingly or in bad faith concealed information concerning his medical history, which was material to its decision to insure him.

The insurer had previously filed a motion for summary judgment. In the court’s memorandum and order denying the motion, the court found as a matter of law that the application contained false representations that were material to the risk undertaken by the insurer. The court denied the motion for summary judgment solely because there was a genuine issue of material fact concerning whether the insured made the statements knowing them to be false or in bad faith.

The insurer filed a motion in limine to dismiss the insured’s claim for bad faith. The court granted the motion to strike the bad faith claim finding that the insurer had a reasonable basis to deny the claim.

Date of Decision: December 7, 2009

Neiman v. Am. Int’l Group, Inc., Civil No. 1:CV-08-1535, United States District Court for the Middle District of Pennsylvania, 2009 U.S. Dist. LEXIS 113483 (M.D. Pa December 7, 2009) (Rambo, J.)

JANUARY 2010 BAD FAITH CASES
NO BAD FAITH EXCEPTION FOR PRIVILEGED DOCUMENTS INADVERTENTLY DISCLOSED (Middle District)

In R&N Automobile, Inc. v. Travelers Casualty Insurance Company of America, the court determined that documents inadvertently produced by the insurer were protected by the attorney-client privilege. The court refused to accept plaintiff’s argument that the documents were not privileged because the action was for bad faith. The court noted that several courts have held there is no bad faith exception in Pennsylvania.

Date of Decision: December 3, 2009

R&N Auto., Inc. v. Travelers Cas. Ins. Co. of Am., Civil Action No. 1:09-CV-0326, United States District Court for the Middle District of Pennsylvania, 2009 U.S. Dist. LEXIS 112269 (M.D. Pa December 3, 2009) (Conner, J.).