Monthly Archive for February, 2010

FEBRUARY 2010 BAD FAITH CASES
NO BAD FAITH WHERE INSURER CONDUCTED COMPREHENSIVE INVESTIGATION OF VEHICLE THEFT CLAIM (Western District)

In Lockhart v. State Farm Mutual Automobile Insurance Company, the insured sued his insurer after it denied his vehicle theft claim.  The insured claimed that he had parked his truck outside of the grocery store, shopped for 30-45 minutes, discovered that his truck was missing, and immediately reported the theft to the police.  The insured’s policy covered theft but excluded coverage if the vehicle was stolen “by or at the direction of an Insured.”  The insured also purchased “GAP insurance” for the difference between the cash value of the vehicle and the amount owed on the note, which was approximately $10,000.00 at the time of the incident.

The insured told the claims representative that, at the time of the incident, his truck was locked and that there were two sets of keys – one in his possession and one hidden inside the center console of truck.  The insurer’s records indicated that the insured had made a vehicle theft claim four years earlier.  The insurer began an investigation of the claim, which revealed multiple suspicious facts.  In the weeks prior to the reported theft, the insured had visited several dealers in an effort to trade in his truck for a new one. 

When the police officer who was investigating the incident asked the insured about additional keys to the truck, the insured told him that there was not a key inside the truck, which was inconsistent with his statement to the claims representative.  The police officer did not find any broken glass or other evidence of a break-in.  Additionally, two employees working outside of the grocery store had not noticed any suspicious activity around the time of the alleged theft. 

The insurer requested an expert report regarding the truck’s anti-theft system.  The expert opined that there was only a “remote” possibility that the vehicle was stolen without the use of a key.  The expert determined that it would have taken at least thirty minutes to deactivate the alarm and start the vehicle, and that the use of a tow truck would have been noticed by others.  Additionally, the insured never provided his cell phone records as requested by the insurer, and the insured’s wife never contacted the investigator as repeatedly requested.

After completing its investigation, the insurer concluded that the loss “was not direct, sudden and accidental as defined under the policy,” and that the insured had made material misrepresentations during the presentation of the claim.  Accordingly, the insurer denied the claim. 

The insured sued for statutory bad faith and breach of contract, and the insurer filed a motion for summary judgment.  In considering the motion for summary judgment, the court emphasized the insured’s heightened burden as well as the fact that a bad faith claim cannot succeed if the insurer acted reasonably.  The court stated, “Our courts have repeatedly held that an insurance company’s substantial and thorough investigation of an insurance claim, which forms the basis of its refusal to make or continue making benefit payments, establishes a reasonable basis that defeats a bad faith claim.”  The court concluded that the insurer performed a comprehensive investigation of the insured’s claim and that the investigation revealed sufficient information to make the insurer’s decision reasonable.  Accordingly, the court held that the insurer was entitled to summary judgment on the bad faith claim. 

Date of Decision: February 16, 2010

Lockhart v. State Farm Mut. Auto. Ins. Co., 2:08-cv-993, United States District Court for the Western District of Pennsylvania, 2010 U.S. Dist. LEXIS 12992 (W.D. Pa. Feb. 16, 2010) (McVerry, J.).

FEBRUARY 2010 BAD FAITH CASES
NO BAD FAITH WHERE NO BENEFIT DENIED OR BECAUSE INSURER SOUGHT GENERAL RELEASE OF ALL CLAIMS, INCLUDING RELEASE OF BAD FAITH CLAIMS(Western District)

In Johnson v. State Farm Life Insurance Company, the plaintiff filed suit individually and as Administratrix of the estate of Terry Johnson, plaintiff’s husband, for various claims stemming from the purchase of a life insurance policy issued to Mr. Johnson.  On October 11, 1989, the insurer issued a $10,000.00 whole life policy to Mr. Johnson, in which plaintiff was listed as the beneficiary.  On February 10, 2007, Mr. Johnson allegedly went to an agent of the insurer, to cancel the policy because he did not want plaintiff to receive the proceeds.  The agent initially talked Mr. Johnson into keeping the policy and changing the beneficiary, but a few days later, Mr. Johnson returned to reinstate plaintiff as the beneficiary, and then returned again to cancel the policy. 

The agent, who had known Mr. Johnson for many years and was aware that he was using drugs, suggested that he buy the policy because he did not want to see Mr. Johnson lose coverage.  On February 19, 2007, the agent purchased the policy for $100.00.  Mr. Johnson passed away five days later in prison – Mr. Johnson had turned himself in for violating plaintiff’s restraining order.  

Plaintiff sued for common law bad faith and violations of Pennsylvania’s bad faith statute.  Plaintiff argued that her bad faith claim was based on: (1) the way the insurer handled her claim before the agent purchased the policy and (2) the fact that the insurer conditioned the policy proceeds on her release of all claims against it.  The insurer argued that plaintiff’s claims should be dismissed because she failed to state a claim for any of her causes of action.

The court held that plaintiff was unable to establish bad faith and dismissed the claims.  In dismissing plaintiff’s common law bad faith claim, the court held that Pennsylvania does not recognize a common law cause of action for bad faith cases in insurance cases.  The court held that because plaintiff did not file her insurance claim until after the agent purchased the policy, it precluded a finding that her bad faith claim revolved around how her claim was handled.  Further, the court held that there was no statutory bad faith because plaintiff was paid the entire proceeds of the policy plus interest.  The court concluded that “benefits were not denied under the Policy or compromised in any way; rather, it appears that [plaintiff] received everything to which she was entitled.” 

In addressing whether seeking a release of the bad faith claims itself could constitute bad faith, the court stated:

“Moreover, it is unclear to the Court how conditioning the payment of the full proceeds on her release of any claims against State Farm constitutes bad faith where the value of the claim was established by the face of the Policy and was tendered in full.  As argued by State Farm, “[a]n insurance company need not submerge its interests to that of a beneficiary,” and is entitled to insulate itself from potential litigation.” (citations omitted) 

Date of Decision: January 14, 2010

Johnson v. State Farm Life Ins. Co., Civil Action No. 09-207, United States District Court for the Western District of Pennsylvania, 2010 U.S. Dist. LEXIS 10727, 695 F. Supp. 2d 201 (W.D. Pa. Jan. 14, 2010) (Reynolds, U.S.M.J.).

 

This Report and Recommendation of the Magistrate Judge was adopted by the District Court in Johnson v. State Farm Life Ins. Co., Civil Action No. 09-207, United States District Court for the Western District of Pennsylvania, 2010 U.S. Dist. LEXIS 10473, 695 F. Supp. 2d 201 (W.D. Pa. Feb. 8, 2010) (McVerry, J.).

FEBRUARY 2010 BAD FAITH CASES
HMO NOT SUBJECT TO BAD FAITH STATUTE; POLICY NOT AMBIGUOUS BECAUSE INSUREDS HAVE DIFFICULTY UNDERSTANDING POLICY LANGUAGE (Superior Court)

In Nordi v. Keystone Health Plan West Inc., the Superior Court of Pennsylvania addressed two issues: (1) whether the HMO or its service provider acted in bad faith when they refused to cover the insured’s additional physical therapy sessions, and (2) whether an HMO is exempt from the bad faith statute by the Health Maintenance Organization Act.
After the insured was injured in a car accident, her HMO approved twenty outpatient physical therapy visits beginning March 22, 2002, and ending May 21, 2002.  On May 23, 2002, the insured requested additional therapy sessions.  The HMO denied her request on the basis that the insured had exhausted her coverage, which permitted only 60 days of therapy.
The insurance policy provided that rehabilitation therapy services “are limited to treatment for conditions which in the judgment of the PCP and [insurer] are subject to significant improvement within a period of sixty (60) days and are limited to sixty (60) days from initiation of treatment per condition, per type of therapy.”  The insured sued her HMO and its service provider for breach of contract and bad faith denial of insurance benefits.  The insured argued that the policy language was ambiguous because it was not clear whether the language applied to sixty calendar days or to sixty therapy days.  The trial court granted summary judgment in favor of the HMO on the basis that the plain meaning of the contract language was to provide therapy sessions over a sixty-day period beginning with the first therapy sessions.  The trial court did not address the insured’s other claims.
The insured appealed.  In an attempt to prove that the policy language was ambiguous, the insured asked the court to consider the admissions of the HMO’s administrative personnel that many insureds had made inquires or submitted administrative appeals regarding the coverage limitation.  The Superior Court determined that the additional evidence did not prove that the policy language was ambiguous.  It stated: “Just because some people have difficultly understanding insurance policy language does not mean that the language is ambiguous . . .”  The Superior Court held that the plain and common sense meaning of the disputed contract language only obligated the HMO to pay for therapy services rendered within 60 days of the first visit.
Additionally, the Superior Court held that the statutory remedy for bad faith does not apply to HMOs “whose enabling legislation specifically exempts them from laws relating to insurance corporations.”  Further, the Superior Court held that even assuming the service provider might be potentially liable for bad faith conduct as either a de facto insurer or participating tortfeasor, neither the HMO nor the service provider were guilty of bad faith handling of the insured’s claim.
Citing its earlier Greene decision, the court concluded “that the ‘motive of self-interest or ill will’ level of culpability is not a third element required for a finding of bad faith, but is probative of the second element identified in Terletsky, i.e., ‘the insurer knew or recklessly disregarded its lack of reasonable basis in denying the claim.’”
The Superior Court affirmed the trial court’s decision.
Date of Decision: January 22, 2010
Nordi v. Keystone Health Plan West Inc., No. 1476 WDA 2008, Superior Court of Pennsylvania, 2010 Pa. Super. LEXIS 12,

989 A.2d 376 (January 22, 2010) (Cleland, J.)

FEBRUARY 2010 BAD FAITH CASES
INSURER PROVES AMOUNT IN CONTROVERSY EXCEEDED STATUTORY MINIMUM FOR FEDERAL JURISDICTION BASED ON DAMAGES FOR BAD FAITH CLAIM (Western District)

In Stehle-Rosellini v. Allstate Corp., the insured sued the insurer for breach of contract and statutory bad faith under 42 Pa. C.S. § 8371.  In the complaint, the insured did not specify an amount for compensatory damages but included two ad damnum clauses seeking: (1) damages in an amount subject to the policy limits of the contract, plus interest and court costs totaling less than $75,000.00 for the breach of contract claim and (2) an amount equal to the prime rate of interest plus three percent, punitive damages, attorneys’ fees, court costs, and any other relief that the Court may deem proper in excess of $30,000.00 for the statutory bad faith claim. 

The insured filed a notice of removal based on diversity of citizenship, and the case was removed to federal district court.  The insured filed a motion to remand the action to state court, and the insurer filed a brief in opposition. The dispute was over whether the $75,000.00 amount in controversy requirement of 28 U.S.C. § 1332(a)(1) was satisfied. 

The court stated that legal standard for meeting the $75,000.00 requirement depends on whether a plaintiff expressly limits the amount in controversy to an amount lower than the jurisdictional requirement.  Where, in the complaint, the plaintiff expressly limits the amount in controversy to less than the jurisdictional minimum, the defendant has the burden of proving to a legal certainty that the claim is in excess of $75.000.00.  Where the plaintiff has not expressly limited the amount to less than the jurisdictional minimum, the case must be remanded if it appears to a legal certainty that the plaintiff cannot recover the jurisdictional amount.

The court found that the insurer had the burden to prove to a legal certainty that the claim was in excess of $75.000.00 because the complaint expressly limited the amount in controversy to an amount below the jurisdictional minimum.  The court stated that since the insured did not specify an amount for compensatory damages, the insured’s two ad damnum clauses must be considered in conjunction.  The court found that while the first ad damnum clause sought less than the $75,0000.00, the second ad damnum clause contained an open-ended demand, which included attorneys’ fees and punitive damages.  The court denied the insured’s motion to remand, holding that the insurer successfully proved to a legal certainty that the insured could recover the jurisdictional amount.
Date of Decision: January 25, 2010

Stehle-Rosellini v. Allstate Corp., Civil Action No. 09 – 895,Doc. No. 8, United States District Court for the Western District of Pennsylvania, 2010 U.S. Dist. LEXIS 5709 (W.D. Pa. January 25, 2010) (Lenihan, U.S.M.J.).